This paper describes current school-funding policy issues in Washington State. The first part examines how Initiative 601, an initiative aimed at curbing state taxes and spending, will create fiscal instability for school districts. Difficulties include an expected growth in school enrollment exceeding population growth, an expected growth of other mandatory programs (such as welfare), and tight state revenues. The second part describes how fiscal instability will be created in school districts by declining voter support for school property tax levies, school levy lid changes, and high thresholds for passage of school levies. The third section discusses a pilot program to limit the labeling of special education students, called "less labeling," which allows increased flexibility in special-education funding while maintaining funding support. A brief history of Washington school finance is provided in the final section, which describes court decisions that led to the passage of two pieces of state legislation: The Washington Basic Education Act of 1977, and The Levy Lid and Salary Control Act. (LMI)