Key issues for public higher education and reaction of various states to deal with the problems caused by fiscal constraints are addressed. The following four problems are considered: (1) enrollment decline; (2) enrollment fluctuation, regardless of the enrollment trend; (3) changes in the student body composition; and (4) budgetary reductions in state aid. While a state may face more than one of these problems, the strategies for dealing with them are quite different, and they have different implications for institutions. Actions taken by Ohio, Wisconsin, New Jersey, and other states to deal with declining enrollments are briefly outlined. Declining enrollment is defined as a trend occurring over a number of years; enrollment fluctuations are the year-to-year changes in enrollment that occur regardless of whether the trend is up, down, or stable. States have adopted a number of mechanisms to ease the impact on institutions of the financial consequences of assigning state funding directly to the number of students served in the budget year. Alternative solutions include lagged base year, averaged base, and the enrollment corridor concept. It is suggested that basing a funding mechanism on curricular course load or full-time-equivalent student count becomes less acceptable as the difference increases between the number of full-time equivalent students and actual students, and the composition of education and education-related services required by students shifts away from instruction. In addition to considering allocation methods, the difficulty of dealing with budget reduction is addressed. (SW)