During 1976-77, 42% of U.S. schools operated with fewer than 600 pupils and 27% operated with fewer than 300 pupils; Iowa had 181 K-12 public school systems with fewer than 300 pupils in 1977-78. All of Iowa's smaller school systems were located in the more sparsely populated rural areas of the state, had higher than average per pupil assessed valuations and per pupil expenditures, and received lesser amounts of state aid per pupil. The gap in salaries for experienced and more highly degreed teachers in the smaller versus the larger districts had become appreciable and neared what could be called discriminatory. Smaller rural schools located in the more sparsely populated areas of the state experienced enrollment declines during the 1970's; projections indicate that the declines will continue into the 1970's, but with less severity than in the 1970's. Prepared as a guide for the 1979 session of the Iowa General Assembly, the paper provides national and Iowa perspectives of rural and small schools and presents guidelines and legislative alternatives for Iowa legislative action on "thinking rural", rural school and district organization, financing Iowa's rural schools, a recommended classification system for rural schools with declining enrollment, Iowa's rural teachers, and delivering appropriate services and programs to Iowa's rural schools. Appended is a list of Iowa's rural school districts under 650 enrollment and some examples of various states' policies on sparsity. (BR)