In the Hawkins-Stafford Elementary and Secondary School Improvement Amendments of 1988, Congress directed the U.S. Department of Education (ED) to conduct a study of methods used to allocate federal elementary and secondary education grants among the states. This document, the final report on that study, assesses grant distribution funding formulas and the actual interstate distributions of federal aid and examines the rationales for, and effects of, numerous alternatives to the current fund allocation process. The study focuses on the larger ED formula-grant programs, such as Chapter 1 Grants to Local Education Agencies, Chapter 1 Migrant Education, Chapter 2 Block Grants, Mathematics and Science Education, Drug-Free Schools and Communities, Impact AID: Maintenance and Operations, Education of the Handicapped Act Basic and Preschool Grants, Chapter 1 Grants for the Handicapped, Vocational Education Basic State Grants, and Adult Education Grants to States. These programs distributed $8.7 billion in FY 1989--approximately 89 percent of that year's ED elementary-secondary education budget. Fund allocation formulas are generally based on indicators of need, fiscal capacity and effort factors, education costs indicators, and constraints on allocations. Funding formula alternatives involve consideration of poverty factors and other need indicators, adjustments for fiscal capacity, rewards for physical effort, adjustments for cost differentials, and changes in formula constraints. The discussion is accompanied by numerous charts of state-by-state comparisons. (Contains 29 references.) (MLH)