This digest examines the problem of upgrading rural school facilities, focusing on specific rural issues, conditions that interfere with teaching and learning, and new funding approaches. Almost half of U.S. public schools are in rural areas and small towns. Close rural school-community relationships may make it easier to make decisions, communicate with the community, and raise funds for facilities improvement. On the other hand, many rural districts have financial disadvantages: low enrollments, which diminish available construction money; lower property values, which lower the potential to borrow money; and high poverty rates. About half of rural and small-town schools report at least one facility problem. In addition to deterioration because of age, many rural schools must cope with new requirements for teaching and learning. These include laboratory classrooms, flexible instruction areas, multimedia centers, adequate space to accommodate parent involvement and an array of social and health services, electrical wiring and conduits for computers and other technology, accommodations for special needs students, and mandated removal of hazardous building materials. Fixing these problems will be costly, and despite increased school construction nationwide, rural districts have not kept up with urban areas. In 1997, Congress authorized Qualified Zone Academy Bonds to make school renovation funding more accessible to poor school districts. (Contains 18 references.) (SV)