This paper addresses challenges faced by the Montana University System in meeting the educational demands of a new knowledge age. The paper is organized into two sections; the first considers six factors that lay a foundation for four policy issues addressed in the second part. The six issues discussed in Part 1 include: (1) financial considerations, including state support, tuition, per capita income, enrollment trends; (2) support for lifelong learning; (3) integration of educational delivery systems; (4) future job markets; (5) strategic budgeting; and (6) a focus on teaching and scholarship. In Part 2, the public policy implications of these issues--access to lifelong learning, quality standards, costs, and accountability--are addressed. A final section of the paper looks ahead at higher education finances and charts historical and projected tuition rates and state financial support. An appended paper presents key concepts of strategic budgeting and outlines a basic structure for implementing a strategic budgeting process. (CH)