Chapter 2 Formula funds provide federal aid to states through the Elementary and Secondary Education Act (ESEA) of 1965 as amended in 1988 by PL 100-297. Funds can support programs for students at risk of failure or dropping out, or students for whom providing an education entails higher than average costs. Funds can also support programs for educational innovation, professional development, and a variety of supplemental and compensatory efforts. In 1993-94 the Austin Independent School District (Texas) received $631,904, which included some funds from prior years. Funds were allocated for a number of initiatives. Administration of the Peabody Picture Vocabulary Test-Revised shows gains from pretest to posttest for kindergarten beneficiaries of Chapter 2 Formula funds. The Academic Decathlon and Spanish Academy supported by the funds benefitted students and promoted academic excellence. Library resources purchased through Chapter 2 were well received by librarians and administrators, and the recipients of program-funded professional development training reported themselves to be better prepared teachers. Recommendations are made for improved program evaluation and more parent participation efforts. Seventeen figures and one table summarize Chapter 2 activities and services. (SLD)