As a response to the concerns associated with the allocation of state resources to institutions of higher education, several states have developed budget formulas to derive estimates of the institutional financial requirements. Formulas, however, were developed during a period of rapid growth, and might be unresponsive to institutional needs during the forthcoming decade of stabilized or declining enrollment. Two major questions are addressed in this paper: (1) To what extent are budget formulas responsive to changing enrollments? and (2) To what extent are the internal budget factors concerning formula adequacy affected by enrollment shifts? Characteristics of an hypothetical institution were developed for the base FY 1977 and then projected to FY 1978 under five conditions of enrollment. These characteristics were applied, as required, to five selected FY 1978 state budget formulas: Louisiana, New Mexico, Ohio, Tennessee, and Texas. Examination of the results indicated that under conditions of declining enrollment, the fixed costs of institutional support and maintenance are not adequately reflected in the budget. This appears to be the case even when the formula is designed specifically to address such costs accurately. (Author/LBH)