This publication will provide the general public and the educational community with a summary of interpretations, policies, and procedures established by the Pennsylvania Department of Education for the administration of the basic instructional subsidy. Pennsylvania schools are funded by a complicated state and local financial partnership spelled out by the General Assembly. State funds are distributed to supplement funds raised locally and to mitigate the differences between school districts' ability to raise funds and their need for funds. Three factors are multiplied to compute the basic subsidy that applies to all districts. These factors are the number of students to be educated (weighted average daily membership), local wealth (the market value/personal income aid ratio), and a measure of local tax effort (earned base). Three additional factors affect some school districts' total instructional subsidy--sparsity factors, density factors, and poverty factors. All these factors are discussed in detail and sample calculations are given. A glossary of terms is included. (Author/IRT)