A number of significant policy issues related to the use of competency tests in basic skills as a requirement for high school graduation are discussed. Issues contributing to the interest in this practice include test score decline, the widespread offering of electives in high school, the complaints of employers about the skill level of high school graduates, and the public mood. Competency testing is seen here as one requirement for high school graduation, and not as the sole basis for awarding a high school diploma. This new practice involves the following four elements: (1) the use of objective, criterion referenced competency tests, (2) the assessment of reading and computation skills using real life or life skill items, (3) the requirement of a specified mastery level for high school graduation, and (4) the early introduction of such testing for diagnostic identification and remediation. (MV)