The federal OEO was to lead the efforts of the War on Poverty and coordinate related programs of all other federal agencies.  So-called community action agencies (CAAs) were created at the local level to fight the War on Poverty "at home."

The EOA also provided for the creation of economic opportunity offices at the state level in order to involve governors in the War on Poverty.  While governors were not authorized to give prior approval on OEO grants, they did retain the right to veto any of these they thought inappropriate.  Many, especially those in the South, exercised this right, only to be checked by another EOA provision for veto override by the Director of OEO.  Indeed, Shriver overrode virtually all vetoes.

CAAs varied from grass-roots, community-controlled groups to those with experienced board members and a highly visible professional staff.  Most were incorporated as private nonprofit organizations.  A few were city agencies.

Funds were provided through the OEO.  The local CAAs determined the use of the funds to meet the problems of the poor as they defined them.  These were called "local initiative funds" and were used for a variety of purposes.

One provision of the EOA called for the poor to have "maximum feasible participation" in identifying problems and in developing solutions.  Across the nation, CAAs opened neighborhood centers in storefronts, housing projects, and other buildings in low-income areas to identify people who needed help and to determine eligibility.

A new group of community leaders developed out of these neighborhood organizations, voicing the concerns of the poor and insisting on change.  The philosophy, the strength, and the personal commitments of community action were formed during this period.   It was also during this phase that OEA hired 3,000 new federal employees to manage and monitor all the new programs.  Most of these people came from the CAAs, civil rights groups, churches, labor unions, and other activist organizations.

The community action program grew rapidly and poured large amounts of federal funds into communities, leaving some local elected officials concerned over the control of the CAA boards.  Unhappy with the new power blocks outside their own political organizations, a few big-city mayors communicated their concerns to Congress and President Johnson.   As a result, Congress began to earmark new funds into Congressionally defined National Emphasis Programs that reduced the ability of the CAAs to use the funds for other purposes.  The President's enthusiasm began to decline.