The Adult Education and Family Literacy Act (AEFLA), Title II of the Workforce Investment Act of 1998 (P.L. 105-220) requires states to document whether or not adult education service providers are improving the quality of their instructional services. To reward effective providers, a number of states have adopted performance-based funding (PBF) systems that allocate federal and/or state adult education resources based on student and program performance. Early evidence suggests that these new funding systems are helping to hold local providers accountable for their program outcomes, while improving provider effectiveness by focusing instructors' attention on the links among curriculum, instruction, and performance. To prepare for the introduction of PBF in Oregon, the Department of Community Colleges and Workforce Development (CCWD) convened a working group in March 2005 to identify the principles, factors, and structures that should drive formula development. Working group members, consisting of state administrators and local program directors, proposed a comprehensive set of indicators and factors that should be considered when distributing Title II funding. Members also recommended that the state hire a policy analyst to synthesize group findings and provide evidence-based research to identify the most effective and efficient factors for inclusion in the formula. This paper summarizes the key issues that working group members should consider as they develop the new state formula. The paper opens with an overview of Oregon's current state and federal formulas for distributing adult education resources, followed by a discussion of important formula components. Recommendations from the 2005 working group are included throughout the paper to illustrate the approaches formula development may take. Appended are Selected States' Adult Education Funding Systems for: (1) California; (2) Kansas; (3) Indiana; (4) Missouri; and (5) Washington. (Contains 1 figure, 3 tables, and 4 footnotes.) [This paper was prepared for the Department of Community Colleges and Workforce Development.]