This report discusses the impact on elementary and secondary education in New York State and New York City of: (1) a New York Court of Appeals decision to grant State Legislature control over Federal funds received by the State; and (2) passage of the Omnibus Budget Reconciliation Act providing block education grants to States. The report provides background information on block grants and on the general implications of the Federal budget changes; presents data on past Federal education assistance to New York State and New York City; analyzes current authorization levels, proposed additional cuts and their projected impact; and examines the administrative portion of the budget of the New York State Education Department and the distribution of its services to school districts. It concludes that the legislative changes, along with the reduction in total Federal funding, will have negative effects on the support, coordination, and delivery of public services, including public education, especially in New York City. Some recommendations are forwarded to ensure that the city continues to receive a fair share of Federal education funding. (Author/MJL)