Examining the methodology used to fund Iowa's 15 community colleges, this report reviews the history of the state's community colleges, highlights the strengths and weaknesses of the funding formula, and describes principles upon which sound funding should be based. Following a preface and executive summary, an introduction is provided to Iowa's community college system, reviewing their beginnings in 1918, their mission, and a task force formed in 1992 by college presidents to review the funding formula and make recommendations. Next, the existing funding formula is described, indicating that it establishes a base funding level for five instructional and five non-instructional categories and applies that level to each college's contact hours, square footage, and other factors. Inadequacies with the use of the formula as a determiner of the level of support and as a method for allocating funds are also addressed. Finally, general principles are discussed related to the viability of funding formulas, average versus marginal cost considerations, and equity issues, and 10 recommendations are presented for improving funding mechanisms. Appendixes include detailed descriptions of the funding formula and the method for distributing state general aid for fiscal years 1994 and 1995; tables of statewide fall term enrollment, 1979-1994, and revenue sources, 1970-95; and the presidential task force report. (HAA)