Because 66 of New Mexico's 89 public school districts experienced declines in 1981-82 enrollments and most were unable to decrease educational costs at the same rate as their decline in enrollment, the legislature requested a study on effects of declining enrollment and possible adjustments to the school distribution funding formula to cushion adverse outcomes. Current literature, interviews, and data compiled by the public school finance division over a 5-year period (1975-76 to 1980-81) provide comparisons and demonstrate trends. Statewide forecasts indicate that declines will begin abating within 3 to 4 years, but there will continue to be school districts experiencing major unpredicted decreases in population which cannot be easily addressed within the current formula for distribution of state funds. Although the degree of negative impact from declining enrollments varies, reports of educational deterioration in some districts must be of paramount concern to planners and decision-makers. To adequately address declining enrollment problems, increased leadership and assistance from agencies and institutions throughout the state are needed. Among the recommendations are: greater flexibility in determination of standards for teacher certification, especially in the area of multiple certification, and expansion of course offerings in remote areas and incentives for nontraditional delivery systems. (BRR)