Associations between school district poverty and achievement and Chapter 1 programs are studied. The allocation formula in the legislation states that funding is to be distributed in direct proportion to poverty and regional cost. Dependent variables include Chapter 1 funding, the number of district participants in compensatory education (percentages of total), and effectiveness measured by achievement test score gain (available only for New York State). Predictor variables include: (1) child poverty rate; (2) district achievement level; (3) other factors in the legislation (average per pupil expenditure and save-harmless status); and (4) factors not in the legislation (district public school enrollment, district urbanicity, per pupil expenditures, state funds for compensatory education, local public school funds for compensatory education, and funding per enrolled student). Data from several sources, including the National Chapter 1 District Survey sample of 2,145 school districts, show strong associations among district poverty, achievement, and Chapter 1 funding levels and participation per student. Associations are exponential, rather than proportional, and are not as strong as federal and state allocation formulas and the assumptions behind the legislation would indicate. Some predictor variables that should have been neutral had significant associations with funding and participation, supporting critics' claims that certain types of districts are favored by the Chapter 1 distribution system. Average gain in achievement in New York showed no significant associations with any predictor variables. Possible remedies are discussed. Six tables and three graphs present study data, and there is a five-item list of references. (SLD)