Tight budgets are a reality for many school districts across California, leading some to believe that a growing charter sector is squeezing the finances of traditional school districts. One common criticism of charter schools centers on special education: charter schools directly serve fewer students with disabilities, and thereby drive disproportionate costs to traditional school districts. While it is true that charter schools in California enroll fewer students with disabilities, though only at a marginally lower rate than traditional public schools, this argument is too simplistic. In reality, the way special education finance works in California affects schools of all types, and underinvestment in special education services from federal and state levels shifts costs to the local level. This argument also overlooks the ways charters, and other schools, contribute to the education of students with disabilities, including students they do not enroll. "California's Special Education Funding System Creates Challenges and Opportunities for District and Charter Schools" looks at several features of California's special education funding system which make it difficult for districts to serve students with disabilities and limit the ability of some charter schools to make decisions about the programs and services they offer for students with disabilities. For example, state special education funding is distributed to the local level according to total student enrollment rather than according to the services provided to students with disabilities or by specific disabilities. This approach is designed to remove financial incentives to over-identify students for special education services, but unlike several other states that use this approach, California lacks sufficient supplemental funding to support students who require very high-cost services. Additionally, the structures through which California allocates funding to the local level complicate the way schools receive funds, how they contribute to the broader provision of services across districts and regions, and how charter schools fit into the picture. Instead of pitting school types against each other, this brief explains California's special education finance system and analyzes how it affects both traditional and charter schools. The document also identifies financial and structural challenges facing traditional and charter schools and outlines potential solutions that focus on improving opportunities for all students with disabilities in the state. Understanding how special education funding works is important to solving the very real fiscal problems facing traditional and charter schools. [This report was supported by the California Charter Schools Association.]