How schools weather budget reductions shows the difference between effective and less effective school systems. Policymakers' response to reductions depends on an array of factors: general economic conditions, access to data about future trends, community expectations and "myths," past records of school effectiveness, local education leadership, and previous levels of local funding. Since so many options are available, retrenchment decision-making is likely to be highly politicized. How decisions are made can be as crucial as the decisions themselves. A scheme for decision-making is described that includes six areas: (1) how decisions will be made; (2) general reactions to retrenchment; (3) retrenchment goals, policies, and decision rules; (4) general strategies for reducing expenditures; (5) specific strategies for effecting program and personnel cuts; and (6) ways to stage retrenchment. When schools face declining resources, their effectiveness depends on the ability of local policymakers to choose between options and anticipate the consequences of those chosen. (MD)