The desire to create an effective cost of education index (CEI) arises from a desire to achieve greater equity in state and federal school funding mechanisms. Before such a measure is useful, however, much more thought must be given to the specification of factors differentially affecting demand and supply. Consensus regarding classification of variables must be reached by researchers before sufficient reliability can be attributed to a model to permit its adoption in state aid formulas. More than the areas of transportation and teachers' and administrators' salaries must be included in determining costs before such indices can be utilized. Although ambitious attempts at creating a CEI have been made, they still suffer from some omissions, such as the inability to explain capital expenditures. Perhaps the first application of a successful CEI should not be to adjust state or federal school funding mechanisms but to judge the equity of present expenditures. Development of an acceptable CEI is of utmost importance because without it (1) the thrust of the school finance reform movement will be blunted, (2) federal aid programs cannot recognize differences in costs of compensatory programs, (3) state legislators are reluctant to enact equity provisions, and (4) notions of fiscal equity are impossible to define, investigate, or achieve. (Author/JM)