This report is based on data collected in a 2-year study of the implementation of Chapter 2 of the Educational Consolidation and Improvement Act of 1981, which combined the funds from 28 federal programs into a single block grant. This study investigated the effects of the act on 12 school districts, in an effort to obtain a better general understanding of how school districts operate, to assess the significance of a specific federal policy for them, and to share this information with the state education agency (SEA) officials charged with administering Chapter 2. This final report argues that three fundamental processes link external policies, the community, and internal initiatives to school district operations: (1) rational-bureaucratic (direct supervision, monitoring, and standardization); (2) political (informal communication, delegation of authority, negotiation, and persuasion); and (3) economic (resource allocations, trade-offs, and consumer decisions). After describing the study's research methods, the paper examines local perceptions about several influences on their systems: federal policies, state legislation, demographic trends, the local community, and central office directives. Next, influence sources are compared according to the processes that link them with local operations. Finally, the paper describes contextual conditions that affect district responses to the influence attempts. (TE)