Basic concepts concerning state-level resource allocation to higher education are discussed. Attention is directed to principles of budgeting regardless of context, the pluralistic nature of higher education, characteristics of higher education production functions, and the typical form of the budget. In addition to the distribution of resources, budgets also serve as accountability frameworks. College administrators are faced with the need to respond to several groups, each of which provides financial or other resources to the institution and each of which has some different expectations. Budgets are constructed of two basic components--a multipurpose, general component, and varied numbers of single-purpose (categorical, special) components. The multipurpose component provides support for the basic operations and programs of the institution. Since the state has to treat institutions differently, single-purpose resource allocation approaches help to achieve this objective. It is suggested that states should make explicit that they are allocating funds for specific services, and institutions should understand the expectations as a condition of receiving money. Since accountability mechanisms are not inherent in the resource allocation method, they must be constructed separately. (SW)