This study attempts to design a grant-in-aid scheme incorporating transfer of resources in a manner which compensates for differences in the ability of the subordinate government units to finance desirable service levels (equalization). Results indicate that where the bulk of State aid-to-education funds are distributed through flat grants based on the number of students in a district, a mild redistributive impact is evident. The redistributive effect can be increased markedly by elimination of the flat grant and by distributing all funds on the basis of the ability of each district to support education. It is suggested that consideration of both the school district's ability to pay for its educational needs and the contribution it makes to the State's fund for aid to education would result in an equalizing formula that could more widely distribute the burden of financing a State aid-to-education program. The approach need not be limited to State aid to education as it is capable of general application to intergovernmental grants where redistribution is an important feature. (TT)