The RAND Institute on Education and Training has undertaken an analysis of Federal policy options to improve education in low-income areas. Volumes I and II, separately published, have assessed the current Chapter I program and presented a strategy for reformulating the program with commentaries by invited contributors. This volume assesses Federal options for providing supplemental funding for the disadvantaged in the face of inequity in school finance. Instead of receiving the compensatory resources that Congress intended, Chapter 1 participants are likely to have less spent on their educations, notwithstanding Federal aid, than is spent in better-funded jurisdictions. The broad strategies that are examined are redistributing and perhaps augmenting Chapter 1 and other funds for the disadvantaged and leveling the state-local expenditure base. New large-scale Federal funding is recommended to reduce, but not to eliminate, interstate and intrastate disparities in per pupil spending. It could become possible to link state allotments of general aid to the equity of the state's school finance system. (Contains 13 references.) (SLD)