This document describes a procedural alternative to current practice predicated on a critical analysis of the literature concerning the funding of public institutions of higher education. The document is partitioned into five sections. The first section describes the development of the formula concept. The next section describes how funding formulas have been derived in various states. The areas covered in this section include funding approaches for instructional and departmental research, libraries, general administrative and general expenses, student services, and physical plant operation and maintenance. The third section presents an overview of funding directions at the national level. The topics discussed in this section are the general indicators of demographics, students, expenditures, and cost centers and revenue sources. The fourth section presents the limitations to the existing funding formulas. The final section then presents a new model for formula funding which attempts to compensate for the limitations identified in previous formulas. The new model specifically addresses curriculum delivery and curriculum research, leadership, the library, operations, state administrative offices and revenue sources. Contains 61 references. (GLR)