Chapter 2 of the Elementary and Secondary School Improvement Amendments directs that at least 80% of funds targeted under the law be delivered to school districts, while up to 20% may be reserved for statewide use. In 1989, the Office of the Superintendent of Public Instruction in Olympia (Washington) redirected this 20% to support a competitive grants program to reward local innovation in programs with statewide significance. Policy shifts and program direction during the selection process for these projects are described. Applications were reviewed by three readers looking for innovation and for significance beyond the local impact. Many factors of program delivery and finance were considered. A final factor was the requirement that a certain minimum be in special areas such as effective schools. The first 25 projects of statewide significance were selected for implementation in spring 1990. Some of the projects highlighted include: (1) alternative methods of credit accumulation; (2) an interdisciplinary curriculum development project for at-risk youth; (3) music education curricula; (4) transition from middle school to high school; (5) use of multimedia technology in cooperative learning and critical thinking; (6) total child student management programs; and (7) educational materials related to a museum collection. Twenty-five projects and their award amounts are listed. (SLD)