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An inquiry was conducted to evaluate which level of government in Nebraska should be responsible for funding the education of wards of the state and the court. The document presents an overview of Nebraska legislative history and the state-aid framework. LB 3, passed in 1992, was an attempt to eliminate the tuition charge to the state for all nonresident wards, whether placed in foster care or in an institution, as a mechanism to reduce state spending. In its final enacted form it eliminated state funding for the educational costs of wards placed in foster homes outside of their resident school districts. The document also discusses eight issues that have been raised during the debate over educational funding for wards. The first four issues deal with the source of educational funding only, whereas the last four concern program quality related to the source of funding. Although many interested parties argue that a shift in funding from the state to local school districts will adversely affect the delivery of educational services, it is concluded that there is no clear link between the funding source and program quality. In general, school districts have accepted responsibility for the educational component of residential and day-treatment programs for wards within their boundaries. Appendices contain pertinent Nebraska legislative history and legislation, three charts, and LB 3 Commission reports and recommendations. (LMI)