In response to a congressional request, GAO reviewed the Department of Education's reductions in impact aid payments to the three military school districts located on Lackland Air Force Base (AFB), Randolph AFB, and Fort Sam Houston, in Bexar County, Texas, to: (1) evaluate the reasonableness of the reductions; (2) determine the magnitude of the school districts' funding problems; and (3) identify alternatives for educating the school children of military installation families.

GAO found that: (1) the reductions in impact aid payments beginning in school year 1985 through 1986 were reasonable and appropriate, since the Department of Education based the payments on the expenditure levels of 10 of the educational-cost districts in Texas; (2) even after the reductions, the payments were about 2.5 times larger than the average local per-pupil revenues of the other 12 Bexar County districts; (3) as a result of the reductions, two of the three districts could face budget deficits starting in the 1989 through 1990 school year; (4) Congress has sought to discontinue funding to public schools which the Department of Defense (DOD) operates; and (5) it was unlikely that Education, DOD, or Texas would provide additional funds, since the three districts have not qualified for supplemental impact funding because of their high revenue and expenditure levels. GAO also found that alternatives for educating the military districts' students included: (1) consolidation with the local school districts adjacent to or near the bases; and (2) continuing the operations of the elementary schools and transferring secondary school students to other districts, which the districts could fund through impact aid payments and state revenues.