The dependency of public institutions of higher education on state tax dollars is a major source of financial instability as other state agencies demand more tax dollars for other purposes. This paper presents a new formula for higher education funding and discusses the rationale and implications of implementing the new solution, which will allow institutions to move from a survival mode to being self-sufficient operating units. The situation in Tennessee is complicated by the fact that the state has a legislative mandate to balance the budget. Higher education administrators are in a quandary about how to improve the quality of programs in light of the accreditation requirements and competitive market conditions as they reduce operating expenses. The paper proposes the replacement of the full-time equivalent (FTE) enrollment-based, state allocation of funds. The basis of the new formula is that the state must guarantee each of its institutions the average total allocation of funds from the last "X" number of years during the inaugural year of the plan. In the next 2 years, the dollar amount each institution receives will remain constant, giving the institutions ample time to prepare and embark on strategic development plans. In order for this "new formula" to work, emphasis on funding must be changed from sustenance to self-sufficiency by reducing the state's disposable funds for higher education by a given percentage after the first 3 years the system is in place. This way each institution is allowed to decide its enrollment size, and each institution can then design its path with more realistic expectations. (Contains 1 table and 18 references.) (SLD)