This study was designed to contribute to the development of internal allocation models by selecting basic concepts from external allocation models and examining for the presence of these concepts in the actual internal allocation activity of public two-year colleges. First, this study examined whether there was a significant difference in the way that public two-year colleges with declining, steady, or increasing budgets apportioned their funds in each of six major expenditure categories during the period of 1977-78 through 1985-86. The six major expenditure categories are instruction, academic support, libraries, student services, institutional support, and operation and maintenance of plant. The source of institutional data was the Higher Education General Information Survey conducted by the National Center for Education Statistics. The 460 colleges in the sample were assigned to groups according to budget change: growth, stasis, or decline. The following dependent variables were identified for each of the six major expenditure categories: (a) category expenditures (b) percentage of educational and general (E&G) expenditures apportioned to the category, and (c) category expenditures per full-time-equivalent student (FTES). A two-factor analysis of variance (ANOVA) with repeated measures on one factor was used to test for differences in the mean expenditure measures among budget groups, across years, and for the interaction of group and year. Concepts derived from external allocation models then were used to explore the results of the data analysis. Application of these concepts suggested that, regardless of budget group, funds were allocated to both instruction and academic support through use of a model incorporating a percentage of E&G expenditures for variable cost. Student services and operation and maintenance of plant appeared to be operating under a model with a per-FTES component for variable cost. Libraries and institutional support, however, appeared to be operating under models that were not examined in this study or for which techniques used herein were not adequate. / Ed. D.