In this report, California's Little Hoover Commission examines the historical context of and current problems with the state's education finance system. In developing the five findings and eight recommendations, the Commission looked for ways to streamline funding without losing sight of three goals: (1) providing childen who have diverse needs the equity of opportunity to learn rather than mere equity of dollars spent; (2) retaining local control of methods and options while requiring uniform statewide standards; and (3) investing adequate resources to ensure a well-educated, productive citizenry. With those goals in mind, the Commission urges the Governor and the state legislature to take several steps, including: (1) redesigning the education funding system to simplify formulas, redirect the focus to education needs rather than process and ensure meaningful equity of educational opportunity; (2) simplifying the special education system to ensure equity and flexibility without diminishing protections for children with special needs; (3) realigning fiscal accountability measures so they conform with and drive decision-making toward the statewide educational goals now being developed; (4) re-enforcing local control of schools by creating a local funding option; and (5) convening a process to build consensus on what elements constitute an adequate education environment in California. (AA)