Intended to help state education agencies answer public criticism of the costs of education, this paper describes the data currently available on increases in educational costs and attempts to reveal the factors responsible. The paper first analyzes the various expenditure categories in school district budgets, determining that while school district salaries did not keep pace with inflation, increases in staff sizes caused overall salary expenditures to increase faster than the cost of living. Maintenance and operations, fixed charges, and other costs (including programs and services other than the standard K-12 educational program) contributed dramatically to educational costs rising faster than the cost of living. The paper concludes with an examination of the effects of grants from state and federal governments. It is noted that categorical grants usually fund programs or activities supplementing the regular programs, thus requiring increased expenditure. It is also suggested that increases in the proportion of school revenues provided at the state level have resulted only partially in reductions in local taxes, while the remainder of the increases has gone to support increased expenditure. Appendices present the techniques used in determining relative increases in expenditure categories. (Author/PGD)