This report focuses on the workings of the Impact Aid program with a special emphasis on the implications of the statute for military children. The main purpose of the statute is to defray the local share of expenses for educating federally connected students. The assertion is that military and other federal activities bring additional students into an area without proportionately expanding the local tax base. The analysis examines the sensitivity of program funding to various features of military installations. The funding formula for Impact Aid is complex, and this report provides a detailed examination of how well the formula conforms to the purposes of the statute. Educational resources at military-related LEAs (local education agencies) are compared with those for similar districts to assess whether military children have educational opportunities equivalent to children in districts with few or no military children. The study also examines several factors (student mobility and special-education requirements) that may increase or decrease the educational costs of military children compared with those of similar children with parents employed in the civilian sector. The research should interest those concerned with military families, the well-being of service members and the attendant implications for recruitment and retention, and the relationship between military and civilian communities. (Contains 41 references, 26 figures, and 13 tables.) (DFR)