The recent dramatic growth of postsecondary education is reviewed, and the context in which the state legislature and the higher education community will probably interact in the future is described. The era of rapid economic growth following World War II was accompanied by even more rapid increases in demand for college educated workers. Financial aid programs eased the financial burden of attending college. During the 1970's enrollment growth has been slowing down, and the labor market is no longer absorbing the supply of new college graduates. It is suggested that state governments and, in particular, state legislatures are becoming the new power centers for higher education decision-making, which was formerly conducted by educational institutions themselves. This development is linked to an effort to seek the best organizational responses to reduced growth. Among the concerns for the future is the way and extent that the state will support private higher education, which is being seriously threatened by declining enrollments and increasing costs. The continued ability of the academic sector to provide society with creative and innovative solutions to its problems has been questioned in light of the difficult times. It is suggested that policymakers could foster opportunities for new developments through provision of funds to support innovations. A parochial approach to education seems to have emerged as competition has intensified for students and funds. A survey of 35 governors has revealed the general gubernatorial belief that public higher education is already adequately funded, and most of them seem more interested in emphasizing greater governmental accountability, increased efficiency, and tighter budgetary controls. It is suggested that with limited resources and increasing demands, legislative funding decisions will become increasingly politicized. (SW)