The state's education chief faced a dilemma Monday that dramatically illustrates the fiscal dangers that lie ahead for local public schools.

State Education Commissioner David M. Steiner called for a series of controversial reforms — including lifting a cap on charter schools — that are designed in large measure to enhance the state's chances of being awarded from $500 million to $700 million in highly competi tive federal grant money.

At the same time, both Steiner and school officials across the state were trying to figure out how to cope with a delay — and possible loss — of $582 million in state financial aid announced Sunday by Gov. David A. Paterson.

Paterson framed the cuts as a delay in state aid payments necessitated by a cash-flow crisis in Albany. But he left open the possibility that the money will not be reimbursed and that future payments also could be withheld.

The governor's move also stoked fears that schools, which were already anticipating severe fiscal woes over the next few years, could be facing even more difficulty than initially expected. That could prompt widespread layoffs and program cuts.

"I fear all of the above," Steiner said. "Different school districts will have different circumstances. No one is happy about it. The real question is: What comes next?"

In contrast, officials in Erie County, the City of Buffalo and the cities of Lockport and Tonawanda said they do not expect problems if Paterson is successful in temporarily delaying the delivery of $76 million in aid to counties and $45 million in aid to cities. They did express concerns, however, if the cut becomes permanent.

In the case of schools, the state's ability to reimburse the $582 million and to make full aid payments in the future depends on whether sufficient revenue is available, said Matt Anderson, a spokesman for the state Division of Budget.

"You can't spend money you don't have," he said. "This is a severe cash-flow crunch."

That left local school officials wondering whether Paterson's move is a onetime jolt that can be covered by reserve funds or borrowing, or the start of a fiscal slide that could harm classroom instruction.

"We don't have an answer to that yet," said Mark P. Mondanaro, superintendent of the Kenmore-Tonawanda School District. "That's the larger issue."

Several groups were considering collaborating on court action, claiming Paterson lacks the authority to unilaterally withhold school aid.

"We are looking at the possibility of a lawsuit," said David Albert, director of communications for the New York State School Boards Association. "If this were clearly a delayed payment, there might be a different approach."

In Buffalo, the state plan would result in the delay or loss of about $5 million, which the school system could cover from its reserve fund, said Barbara J. Smith, chief financial officer.

"If it's just the 10 percent in December, we would be OK," she said. "If it's a onetime deal, we should be able to absorb it."

In Ken-Ton, Mondanaro said he did not have enough details to determine the possible impact.

Meanwhile, Steiner spelled out a series of reforms that were sparked in considerable measure by an effort to maximize New York's chances of capturing a share of a $4.35 billion federal program called Race to the Top.

He said the Board of Regents will consider:

• Raising the cap on charter schools in the state to 400. The current limit is 200.

• Linking student performance to initial teacher certification and teacher advancement.

• Streamlining state laws governing teacher discipline.

• Adding Regents exams in economics, technology and the arts.

Steiner said those efforts and others would improve educational opportunities and also better position New York to receive a Race to the Top grant, which he described as "a critical source of potential funding."

Erie County government, which receives hundreds of millions of dollars a year in state reimbursements, does not expect a problem if the state temporarily delays payments, Budget Director Gregory G. Gach said.

Gach said the county can use financial reserves to pay bills until property tax payments start arriving in February.

County Comptroller Mark C. Poloncarz has a similar opinion. Even if the state did not reimburse any of the approximately $20 million in aid expected in December, the county would have enough cash to meet its obligations through the end of the year, he said recently.

However, if Paterson were to freeze payments to local governments, the county could face a cash-flow shortage until it receives the majority of its property tax revenue, Poloncarz said.

Similarly, Buffalo financial officials see little problem in a delay in state aid for cities. Those dollars are usually held for a time anyway by the state control board, Finance Commissioner Janet Penksa said.

"Under my leadership," Mayor Byron W. Brown said in a statement, "the City of Buffalo has prepared for situations like this with prudent and conservative budgeting that enabled us to build a $30 million rainy day fund. But any further delays in state aid could force us to make difficult decisions that are contrary to the positive strides we have made to restore the city's financial stability."

The City of Tonawanda, too, will lean on its reserves to weather delays in state aid. Tonawanda will not receive about $253,000 it had expected from Albany in December. Unless the money arrives early next year, Treasurer Joseph M. Hogenkamp said he will worry about paying bills in March, when he's short of cash every year.

"In this business, you've always got to plan for the worst-case scenario," he said, so he predicted the city might secure a bridge loan early next year to tide itself over until its property tax revenues start arriving around April.

Paterson's move will leave the City of Lockport's budget short by about $260,000. City Treasurer Michael E. White said he sent the governor an e-mail attacking the "raid" on the Aid and Incentives to Municipalities program. White said in the e-mail that the city had planned to send the money back to Albany to pay this year's assessment for the public employee pension plan, which also is due this month.

News Staff Reporters Matthew Spina, Thomas J. Prohaska and Brian Meyer contributed to this report.

Copyright 2009, The Buffalo News