This document contains the definitions and elements of institutional cost and funding formulas recommended for Texas public universities, health science centers (nursing faculty salaries only), and public two-year institutions in fiscal years 1998 and 1999. Texas public institutions of higher education will use these formulas to make their legislative appropriations requests in the fall of 1996 for fiscal years 1998 and 1999. Texas has been a pioneer in the development of formula funding for colleges and universities, beginning in 1959 when formulas were used for the first time. Two broad objectives are followed: (1) the formulas should provide an equitable distribution of available funds among institutions and (2) the formulas should indicate the funding needed to provide a first-class system of higher education for Texas. Specific dollar amounts are assigned to various budget categories and these are specific to the type of institutions. These are broadly divided into universities, health science centers, community and technical colleges, and faculty salary formula ratios. Extensive definitions of each element of institutional cost are also provided. (JLS)