The cost of providing an educational program is higher for rural, small schools and districts than for others. Nevertheless, recent studies suggest that small schools and districts may be a more efficient investment than large schools because the "learning value per unit of expenditure" seems to be greater there. This new idea expands the traditional concept of outcome to include morale, achievement, curriculum, and positive attitudes towards learning. This digest examines state strategies for meeting the unique financing needs of rural, small schools and districts. Thirty states currently include a factor in their school finance formula to compensate for the additional costs of rural, small schools or districts. Ten states distribute additional assistance based on small school district or school enrollment. Six states provide assistance to isolated schools or school districts based on sparsity of population per square mile, miles between schools, or time required to reach the next school by bus. Nine states provide additional revenue based on a combination of small size thresholds and isolation factors. Two states provide additional aid to small schools or districts based on a combination of size, isolation, and tax effort. Other provisions for rural, small schools include additional state aid for interdistrict cooperative arrangements, a larger "mil deduction" for some rural districts, and transportation allotments. (SV)