The extent and effects of inequities in Chapter 1 compensatory funding and the relationships between demographic, financial, and educational variables and state and local Chapter 1 policies are investigated. Multiple regression analysis is used to determine the relationships among dependent variables, which include expenditures and number of participants, and independent variables, which include poverty rate, district size, urbanicity, district revenues per enrolled student, educational need, and educational cost factors. Data sources include the federal Chapter 1 database, national Census Bureau information, and New York and Vermont Department of Education records. Findings indicate that characteristics of Chapter 1 programs can be predicted by certain district financial and demographic information, such as poverty, size, and federal Chapter 1 allocations. However, the finding that high poverty districts tend to implement smaller, more expensive programs argues for the consideration of economies of scale and cost factors. Lack of federal funds prevents poor districts from exercising choice and size of programs. A recommendation is made for the acquisition of alternative funding or the alteration of federal and state distribution requirements. Nine statistical tables are included. (17 references) (LMI)