While the report of the National Commission on Excellence in Education identified reasons for decline in students' academic achievement, it did not offer any explanation of how the "tide of mediocrity" developed. An investigation of causes of the situation the Commission described produced four principal findings: (1) Since World War II, an increasing share of public school revenue has been awarded to school districts on the basis of attendance. (2) A fundamental conflict exists between goals of higher attendance and higher academic achievement. (3) School districts have resolved this conflict by sacrificing learning goals in order to reach attendance goals. (4) Because there is no financial penalty attached to low academic achievement, school districts also have sacrificed learning goals to other, peripheral goals selected by principals, teachers, and students. Consequently, if the quality of education in the public schools is to be fundamentally improved, the financial incentives facing school districts must be changed. To this end, the Reading, Writing, and Arithmetic Development (REWARD) System for educational funding has been proposed. The REWARD funding formula radically redesigns state funding of education: while a major portion of state education funds would be dispensed on the basis of attendance and other factors, a significant percentage of funds (perhaps 20 percent) would be allocated on the basis of academic achievement, thereby providing school districts with financial incentives for educational excellence. (RH)