Using 1975-76 school-year data, the study describes New Mexico size adjustment factors for public school funding, compares them with the manner in which other states recognize smallness or sparsity, and delineates the impact of size adjustment factors on New Mexico school districts in terms of resources, net operational and proportionate operational expenditures, pupil-professional and pupil-adult ratios, and breadth of program. The study also investigates size adjustment factors as incentives for school reorganization and for school and district consolidation and the desirability of recognizing alternative schools within the distribution formula. Results support the concept of three-tier size adjustment recognition (school, district, and rural/isolation) and the current recognition formulas for small elementary-junior high schools, small districts, and rural/isolation, but reveal a large disparity in the breadth of programs offered in small and large secondary schools and difficulties for very small schools to offer a breadth of program comparable to larger secondary schools, regardless of resources provided. Recommendations include: retaining without change the elementary-junior high, district, and rural/isolation factors; changing the high school adjustment factor to recognize schools with enrollments of 500 or fewer and reducing the multiplier to 1.5; and adopting incentives for small secondary school and small school district consolidation. (Author/NEC)