This digest of a full-length report provides a review of state level budgeting for higher education in terms of the underlying interplay of human and external forces coupled with factors that are present in the budgeting process itself. The environmental context includes historical, political, economic, and demographic factors. These factors explain, at least in part, the wide variance in funding for higher education among the states. Historical traditions, the state's economic climate, and the centralization of the power of higher education within the state's political structure, as well as the aging of the population and the growth of the minority sector all influence the budgeting process. Among the primary elements of the budgeting process (governor, legislature, staffs, educational community), staffs have become increasingly important. Timing is also critical when budgets are placed in competition with numerous other issues of importance to the state. Major policy concerns in higher education in recent years include: (1) accountability, (2) costs, (3) productivity, (4) quality, (5) affordability, (6) economic development, (7) access for minority and nontraditional students, and (8) equity for independent higher education. The implications of these concerns in the state budgeting process are discussed. Includes two references. (GLR)