New York State's system of financing education needs reform. Children in school districts where poverty pervades do not receive an adequate education; disparities in available funding resources have produced uneven levels of school spending among school districts; and state-aid formulas fail to correct for differences among districts. Children in large cities where poverty is concentrated are hurt most by the lack of educational equity. This paper reviews the reasons why New York State's method of funding public schools needs to be changed. It reviews the three major lawsuits currently in New York State courts and past litigation in the state. Options for reform are analyzed. Suggestions can be grouped into four major policy categories: (1) Redistribution of the responsibility for school funding between state and local school districts; (2) realignment of tax sources or use of new combinations of taxes for the support of public schools; (3) improvements in the educational process; and (4) governance reform within school systems. A model is offered that weaves together some of these options into one plan that might achieve the major goals of reform. Appendices contain a discussion of the experience with school-finance reform in five other states and a chart of school-finance litigation. (RT)