This report presents and discusses the results of a congressional study undertaken to assess the validity of a statement in the Department of Education's document, "Summary and Background Information for the Fiscal Year 1988 Budget," which asserted that many children who are neither poor nor low achievers receive Chapter 1 services. The findings are based on the following: other objective studies on the issue; a reconsideration of the Sustaining Effects Study (SES) on which the Department of Education document is partly based; a telephone survey of 11 states regarding current targeting practices under Chapter 1, "Poverty, Achievement and the Distribution of Compensatory Education Services." Major findings are: (1) children currently served by Chapter 1 are the lowest-achieving; (2) the SES data is old and of questionable quality; (3) most students who fall below the 25th percentile do participate in Chapter 1, and there are valid reasons why some low-achieving students are not served by Chapter 1; (4) if needy children are not served, it is primarily because Chapter 1 resources are inadequate to serve all eligible children; and (5) while Chapter 1 services are well-targeted to the poorest schools within districts throughout the country, the law requires student selection at the local level to be based on educational need, not poverty. (KH)