THE STATE AID TO EDUCATION PROGRAMS IN KENTUCKY, MISSOURI, AND TENNESSEE ARE INVESTIGATED WITH RESPECT TO THEIR COMPENSATION FOR DIFFERENCES IN THE ABILITY OF LOCAL SCHOOL DISTRICTS TO SUPPORT EDUCATION. A HYPOTHETICAL AID FORMULA WAS USED AS A STANDARD AGAINST WHICH TO MEASURE THE PRESENT EQUALIZATION SCHEMA IN EACH OF THE THREE STATES. KENTUCKY WAS FOUND TO DO A BETTER JOB OF DISTRIBUTING FUNDS TO EQUALIZE FOR DIFFERENCES IN ABILITY TO PAY THAN WERE MISSOURI OR TENNESSEE. THE BASIC REASONS FOR THE DIFFERENCES IN THE THREE PROGRAMS LIE IN THE PROPORTION OF THE EDUCATIONAL PROGRAM WHICH MUST BE FINANCED LOCALLY AND THE SHARE OF STATE AID WHICH MUST BE DISTRIBUTED WITHOUT REGARD TO ECONOMIC ABILITY. STATE AID WAS FOUND TO DISCRIMINATE AGAINST URBAN AREAS IN ALL THREE STATES. THIS WAS EXPECTED BECAUSE OF THE GREATER RELUCTANCE OF RURAL AREAS EXPERIENCING OUTMIGRATION TO FINANCE THE EDUCATION OF STUDENTS WHO WILL NOT CONTRIBUTE TO THE COMMUNITY. (HW)