This document presents the findings from one aspect of the National Study of Local Operations under Chapter 2 of the Education Consolidation and Improvement Act of 1981. The report examines the distribution of funds to school districts under Chapter 2, the federal education block grant. The introductory chapter reviews findings from early studies regarding the fiscal effects of Chapter 2, presents the research questions that motivated the aspect of the study reported here, and discusses the sources of the data used. The remaining chapters describe the distribution of Chapter 2 funds, analyze how districts spent the funds, and explain local spending patterns. The concerns addressed include the relationship of district size to fund allocation, the allocation of discretionary funds, the provision of services to private school students, shifts in fund allocation resulting from the consolidation of funding into the block grant, effects of district size on spending patterns, differences between expenditures for private and public school students, changes in spending patterns resulting from consolidation of funding into the block grant, and the nature of the factors influencing local spending decisions. Appendixes provide error values for the report's tables and a list of antecedent programs consolidated into the Chapter 2 block grant. (PGD)