This digest presents a summary of historical and contemporary community college funding sources and challenges. It identifies four main categories of funding: (1) state and local appropriations; (2) tuition; (3) federal funds, grants, and contracts; and (4) endowments. The discussion of state funding covers lump sum appropriations, funding formulas (the use of selected variables to calculate institutional need), and performance indicators (allocations based on the attainment of pre-determined standards). The digest states that institutional enrollment, space utilization, and benchmark indicators are the three most common elements of funding formulas. Research summarized in the article indicates that community colleges are becoming increasingly dependent upon tuition revenue. It also notes that the increased reliance on tuition has been accompanied by a rise in federal student loans and grants which has offset the financial burden facing students. Additional federal funding of community colleges include the Pell Grant program, the Strengthening Institutions Program Title III-Part A, funding for the Advanced Technology Education program, and Workforce Education funds (e.g., Carl Perkins Act). With respect to endowments, community colleges have experienced rapid growth due to contributions from local businesses and industries, but the reader is reminded that four-year institutions present stiff competition for endowment dollars. (Contains 15 references.) (RC)