The California Legislature and Governor created the Class Size Reduction (CSR) program as part of the 1996-97 Budget Act. The goal of the program is to increase student achievement by reducing average class sizes from 28.6 students to no more than 20 students in up to 3 grades. The 1997-98 governor's budget proposes expansion of the CSR program to four grades. This policy brief summarizes the state Legislative Analyst's Office's findings on CSR program implementation. District practices of maintaining a 19:1 student/teacher ratio (instead of a 20:1 ratio) increases CSR costs from $630 to $770 per student. Also, CSR per-pupil costs vary widely, from zero to about $1,000 from district to district. The newly hired 18,400 CSR teachers are less qualified than regular teachers, and districts are running out of low-cost options for new facilities. Evaluators recommend that the legislature allow districts to use CSR teachers much more flexibly and increase flexibility on the 20:1 cap. The legislature should delay implementation of a fourth grade, due to shortages of qualified teachers and high facilities costs, but should earmark $100 million funding in subsequent years. New Proposition 98 funds should be directed into local revenue limits, not to the CSR per-pupil amount. Finally, $52 million in Goals 2000 funds should be used for CSR-related staff development. (MLH)