The Omnibus Budget Reconciliation Act of 1981 consolidated numerous federal programs into the education block grant and shifted primary administrative responsibility to states. States have to develop a formula to distribute 80 percent of their block grant funds to local education agencies, which have virtually complete discretion in deciding the use of funds. States have wide latitude in using the remaining 20 percent. Enrollment was a key factor for distributing funds to local agencies, but the formulas developed by the 13 states visited by the Government Accounting Office (GAO) varied greatly. Local education agencies spent over half of their school year 1982-83 funds on instructional materials and equipment. Of funds retained by the states, over 55 percent were reportedly used for education improvement and support services--essentially the same areas that were supported by the prior categorical programs. States made limited changes to organizational structures and procedures for managing the block grant. Overall, local education officials viewed the block grant as a more desirable way of funding education programs, while most interest groups that provided GAO information viewed it as less desirable. State officials were divided concerning the desirability of the block grant concept. (MLF)