While it is understood that state compensatory education funds will probably do little to close the gap in public school expenditure levels between wealthy and poor New Jersey districts, it is still important that the educational consumer and the interested observer understand how the system works. Compensatory education funds are the source of financing for preventive and remedial programs mandated in the Thorough and Efficient Law of 1975. The current financing formula, an interim device for allocating funds for the 1977-78 and 1978-79 school years, is a combination approach that takes both academic and economic need into account. Some observers claim the interim formula appears to focus the limited State funds on the poor and urban districts. Critics of the formula believe that allocations should be distributed in a different fashion, enabling suburban schools to receive a larger share of funds. Thoroughly planned, adequately funded, and well managed, the compensatory education program could help to reverse the downward trend in New Jersey education. Before this can become a reality, however, the State Board of Education must resolve a number of philosophical and programmatic issues. (Author/GC)