Chapter 2 of the Education Consolidation and Improvement Act (ECIA) of 1981 consolidated 28 separate federal education programs into a single block grant. This report evaluates the effectiveness of Chapter 2 as public policy, assessing whether it has led to improvement in education, whether the consolidated programs are more responsive to community needs, and whether the block grant approach is an effective way to deliver educational services. First, the report provides a brief history of federal education programs, explaining how Chapter 2 relates to and has changed federal policy. Then the findings to date are reviewed--who won and who lost, where the money goes, and what it is spent for. The results of the Education Department's monitoring of state Chapter 2 administration are described. The subsequent two chapters are organized around major issues that have surfaced: parent and public involvement, distribution formulas, support for desegregation, the role and authority of state education agencies, and private school participation. The conclusion suggests that the success of Chapter 2 depends on the extent to which communities make their needs known; therefore a list of recommendations is presented for changes in program structure and requirements that would promote greater local participation, and a guidebook is attached for parents and citizens on how to participate intelligently in Chapter 2 decisions. Appended is the text of ECIA Chapter 2, along with pertinent statistical data, reports, correspondence, and references. (TE)