New York State's higher education system is threatened by external conditions: reduction in college-age population, a private sector threatened by an emerging state system, an end to growth in state financial support, and a rapidly growing New York City system. Whether the state can adjust rationally to these conditions is examined, and the possibilities for coordination of state and federal intervention are discussed. New York's higher education system is outlined, with some attention given to decision-making in the state bureaucracy. The student financial aid situation is examined, and it is noted that the two large state and federal aid programs, which operate side by side, differ in important ways and may in some ways be incompatible. The annual budget decision process for the State University of New York and the City University of New York is detailed and discussed as it copes with the steady state conditions ahead. A look into the near future suggests that a downturn of demand for higher education may be as much as 15 to 20 percent, research funds are likely to decline, and the state authorities will have to decide whether to selectively close institutions or selectively reduce programs at all institutions. (MSE)