Determining the level and distribution of special education funding is an ongoing issue. Attempting to meet the extensive range of students' needs, while balancing funding coming from federal, state, and local sources leads to uneven funding burdens and questions about whether all student needs are being met. Traditionally, funding for special education has focused on providing some form of equity. However, with limited resources for education, especially at the local level, special education is sometimes perceived as being in competition with regular education for funding. Therefore, given the special education mandates, when an increasing portion of local funding is required for special education it may be perceived as encroachment taking funding away from regular education. Conducting a descriptive non-experimental analysis of the distribution of special education funding in North Carolina, I initially analyze levels of inequity, seeking to identify possible causes. I then analyze factors related to increased local funding for special education and therefore potential encroachment of local regular education funding. The findings reinforce prior studies suggesting that North Carolina's flat grant funding mechanism for students with disabilities appears to drive inequity. Moreover, North Carolina's funding cap exacerbates these imbalances. Further, encroachment of funding is occurring in districts with greater percentages of students with disabilities, and specifically those with higher needs. The lack of differentiation based on student needs in the state's flatgrant funding mechanism along with the funding cap suggest possible reasons for this.