The literature on funding formulas for higher education is reviewed, and the historical roots of state higher education funding relationships is traced, including three 20th century budget reform movements that were the antecedents of formulas. Attention is directed to conditions that will affect funding of higher education and formula responses to these conditions, which include economic and demographic factors, technological change, organizational structure and climate, and changing goals. The approaches to formulas under changing conditions include definitions of formulas and distinctions among formulas, cost analysis procedures, tools for requesting funds, models, and budget components. The extent of formula use and the types of governance structures in which formula use is most prevalent are addressed, as well as models of governance and related formula types. A framework to choosing and analyzing a funding approach is suggested, with attention to organizational requisites, process requisites, technological and knowledge requisites, and attributes of alternative formula structures. The case of Michigan is discussed to illustrate a suggested method of changing the funding approach based upon the review of the literature and conditions affecting the state. (SW)