During the 1988-89 school year, two local school districts were placed into "Phase III" of the Kentucky Educational Improvement Act (1978), a category of state receivership in which much local decision-making power was transferred to Kentucky Department of Education officials. When state education department intervention occurs, major issues arise concerning policy and political problems; technical, financial, and legal concerns; and personnel matters. A major policy-political problem pertains to the state agency's stance--a "swat team" model may show some immediate gains, but a "carrot and stick" stance may produce better long-term results. The Kentucky state agency adopted a helping role as advisor, approver, and provider of technical assistance. Another policy-political consideration is the degree of intervention in the district's daily operations. Technical issues include establishing baseline data measuring progress, reporting mechanisms, and team composition. Financial issues involve assignment of fiscal responsibility and resources available to support the intervention process. Legal issues range from determining state intervention authority to personal liability problems. Perhaps the largest dilemma is the extent of state agency willingness and ability to address the issues of educational accountability and local control regarding children's interests. State education agencies must face the issues, resolve the dilemmas, and demand accountability to produce effective schools. Recommended intervention steps are provided. (10 references) (MLH)