Elementary and secondary education will cost California taxpayers over $22 billion in fiscal year 1988-1989. As the state's share of those costs increases, legislative interest in how the funds are spent grows. Faced with many competing demands for limited state resources, legislators want to be assured that the funds they direct to the schools will be spent to improve the educational program offered the state's children. This paper examines the options available to the California legislature for influencing the way local school districts spend the funds appropriated for education. It examines the spending decisions of unified school districts in response to different kinds of grants from the state and shows that certain grant instruments may be more effective than others in directing school district spending decisions toward instructional programs.