CHICAGO - North Dakota would take its first step towards equalizing school funding in a $3.6 billion all-funds budget for the 1996-97 biennium proposed yesterday by Gov. Ed Schafer.

The budget calls for the creation of a $25.5 million supplemental funding program for school districts with low property valuation.

"This issue of education aid is an issue of fairness, and this innovative change allocates our resources more fairly and-equitably," Schafer said in his budget address to the legislature.

The program would increase funding for 65% of the districts but would not erase all disparities in funding, according to Rod Backman, director of the state's Office of Budget and Management.

"I think there is a recognition that this will not fully address inequity," he added. "This is a first step. In the future we may see further steps."

Schafer said North Dakota has little choice but to address the issue of school funding, given a decision that the state Supreme Court handed down at the start of the year in a case challenging the constitutionality of the present system. The decision was split, but "four justices left little doubt that the present system is flawed and needs [to be! fixed," Schafer said.

The lawsuit was filed in 1989 by nine school districts that charged that the state's funding system was inequitable and relied too heavily on local property taxes. The South Central District Court in February 1993 ruled that the system unconstitutionally discriminated against students living in poorer areas.

The governor's budget plan also includes a $10 million "cost-of-living increase" in the state's current foundation aid program for schools that would allow every district to get an increase in per-pupil payments during the biennium. Overall, the foundation aid program would receive an increase of $36 million, bringing the program's total to $432.5 million.

Calling his spending plan "a blueprint to help North Dakota continue down the path to prosperity in the 21st Century," Schafer said that the plan avoids tax increases, shrinks government, and emphasizes economic development initiatives. The state's fiscal year begins July 1.

Specifically, the budget calls for combining, reorganizing, or eliminating some state departments and programs, as well as allocating more funding for economic development programs such as workforce training.

Schafer said that state revenues are estimated to be $83 million higher in the next biennium and that his budget is balanced with no tax increases and only "a handful of fee increases."

The governor's plan for higher education appropriates $265 million for colleges and universities, and does not include any tuition increases.

Capital projects for higher education and other state departments total $45 million, according to Backman. Of that amount, the state would issue about $21.8 million of lease revenue bonds to fund projects, he said.

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