This document represents the completion of the first phase of a study of adult and continuing education in California. The current method of funding community colleges in general, and adult/continuing education programs offered by community colleges and school districts specifically, are examined, their shortcomings noted, and alternatives to the present method of funding suggested for consideration and legislative adoption. The report recommends replacing the current Foundation Aid Program with Percentage Equalizing as the way to finance adult/continuing education in the state. The proposed changes would eliminate the present "enrollment cap", would achieve equal expenditure per pupil and equal tax effort per taxpayer throughout California, and would generally simplify community college and adult school financing while constraining public expenditures for community colleges and adult education to a level consistent with increases on tax revenues. Detailed analysis of the current financing system and the proposed system constitutes the bulk of the report. (Author/JDS)