This policy brief reviews relationships between state special education funding formulas and placements in which children with disabilities are served, specifically compliance with mandates for a free and appropriate public education (FAPE) and placement in the least restrictive environment (LRE). Data analyzed were for the school year 1992-93. Interviews were conducted with state level personnel in three states with relatively high and increasing rates of regular class placement. Findings indicated: (1) high rates of disagreement about the best relationship between funding formulas and the provision of services; (2) no support for the assertion that funding formulas based on where students receive services encourage placement of students into high reimbursement options; and (3) an association between density of population and high use of separate placements and between high use of various types of separate placements. The report concludes that there is limited evidence that any particular funding formula is used more often by states with relatively higher rates of placements in regular classes and that, in all likelihood, there are no incentive-free financing systems. Graphs and tables provide detailed findings on rates of regular class placement by state, types of funding formulas, and state characteristics. (Contains 12 references.) (DB)