More than 725,000, nearly 12 percent, of California's public school students receive special education and related services. Although more than half of those students spend 80 percent or more of the school day in a general education classroom, California's special education funding system may not be as inclusive as California's classrooms. This report provides a history and detailed description of California's special education funding system, setting the foundation for refinement of the current system through exploration of other funding systems and examination of California's special education population and funding structure. This study focuses on how current levels of funding can be used most effectively, including through better coordination and by differentiating special education funding to match the wide variety in student need and cost of implementing IEPs for students with disabilities. This study will be followed with a report on potential options to refine the system, supported by research, and the potential benefits and drawbacks of each option. [For Part 2, see ED616106.]