This paper examines the federal and state constitutional and statutory issues that affect the capacity of governments to raise revenue for education and other children's services, including mandates and key legislation that limit revenues, expenditures, and borrowing. The paper is divided into three major sections: (1) legal issues affecting revenues raised by state and local governments; (2) legal issues affecting expenditures for education and related services; and (3) a summary and suggestions for policymakers. A conclusion is that there are legal limitations affecting the scope of finance reform. However, the limitations can be avoided, or at least mitigated, by careful drafting of state laws and regulations. Policymakers should consider the following building blocks for a reform package: (1) update and amend education clauses in state constitutions to reflect policymakers' educational goals; (2) design comprehensive reform that is not limited to education finance; (3) interrelate education and related social-support services; and (4) take advantage of the opportunities provided by recent federal court decisions and congressional block grants to design reforms. Information on the Finance Project and available resources is included. (LMI)