This report exposes inadequacies in New York's education finance system, summarizing testimony and research collected for a lawsuit filed by the Campaign for Fiscal Equity, Inc., on behalf of New York City students. The lawsuit charges that the state has underfunded the City's public schools, thus denying City students a sound basic education. The lawsuit is also the first case to thoroughly analyze the history of standards-based school reform and its important relationship to constitutional equity and adequacy litigation on behalf of children everywhere. The flawed structure and operation of the state's finance system are responsible for its inability to deliver adequate resources to City students. This report explains why the system does not work, demonstrating that the present funding system does not deliver resources adequate to meet students' needs because it is not set up to do this (there is no mechanism for assessing need). The report discusses how the state funds education; state finance system shortchanges in the City's public schools; education costs not being a factor in the state finance system; the state being legally required to safeguard City schools' access to adequate resources; and recent aid increases not being able to replace systemic reform. Until New York implements a cost-based education finance system, no amount of increased spending can remedy its fundamental failure to ensure that every year enough money is provided to offer a sound basic education to all students. (SM)