This report is divided into four sections. Section 1 is a short discussion of the economic theory underlying the construction of the cost of education index and an example of how the index is calculated. Also presented are descriptions of the factors included in the statistical analysis to control for quality, quantity, and cost differences and descriptions of the data used to evaluate these relations. Results of the calculation of the cost of education index for a sample of New York state school districts are presented in Section 2. The agreement among alternative methods of calculating the index and its stability across years are also evaluated. Section 3 addresses a number of questions about the cost index methodology, such as multiple measures for the same phenomenon and the number of variables in the specification. Section 4 analyzes some of the policy considerations and implications for New York State. Appendixes contain tables of determinants of costs, an index for the state, and the computation of a salary index. (Author/IRT)