The major issues currently faced by policy makers in education at the state level are identified and discussed in this report. The information included is drawn from questionnaire and interview responses provided by state-level coordinators of the State Education Policy Seminars (SEPS) (sponsored by the Education Commission of the States and the Institute for Educational Leadership, as well as by SEPS participants) and from written reports, journal articles, and other materials surveying contemporary state education issues. The first part of the report considers the state's changing role in formulating and administering public policy, the wide variation among the 50 states in issues affecting education, and the impact of the current economic and social situation on attitudes toward education. Part 2 reports on the major issues identified by the SEPS coordinators in the following areas: tax and spending limitations, finance reform, urban education, education for the handicapped, school desegregation, competency testing, private education, collective bargaining, and the finance and governance of higher education. Part 3 explores the governmental and political processes educators must understand before attempting to resolve these issues. The final section suggests issues likely to arise in the near future and factors that will affect their resolution. (Author/PGD)