Plan by New York City to issue bonds for parochial schools draws criticism.

Legal watchdogs, education advocates, and some city officials say a proposal by the administration of New York City Mayor Rudolph Giuliani to finance parochial schools with city bonds raises questions about the mayor's commitment to public education, as well as the proposal's constitutionality.

Under Giuliani's plan, announced Wednesday, the city's Industrial Development Agency would issue bonds on behalf of parochial schools and yeshivas.

While city money would not be used to pay interest and principal, the city would lend its tax exemption to finance the construction of the religious schools or improve existing facilities.

The announcement, made by city corporation counsel Paul Crony, shocked some members of the city's public school system, which received a dramatic reduction in its capital funding this year.

The city school board requested $7.5 billion from the city for fiscal 1995, but will receive only $3.5 billion.

"I was taken aback by this," city Board of Education chancellor Ramon C. Cortines said Wednesday about Giuliani's bond proposal. "I am not against the city helping out private schools, but the city's priority needs to be on public schools, which we have proven are in dire straits."

Noreen Connell, executive director of the Educational Priorities Panel, a private advocacy group, described the city schools situation as one of "chronic underfunding" by the mayor. Connell contends that the plan to issue tax-exempt bonds for parochial schools is simply a device for Giuliani to win favor with his constituents.

While Cortines criticized the city's priorities, legal scholars and some city officials say that the bonding effort may prove unconstitutional.

In the past, the city's Industrial Development Agency issued bonds to provide financing for schools with religious affiliations. But what concerns some city officials, who spoke on a not-for-attribution basis, is that the Giuliani plan would mark the first time the city has lent its tax-exempt status to benefit sectarian schools, city officials say. Religious-affiliated schools previously financed by city IDA bonds had an open, secular admissions policy.

Crotty cited a recent Supreme Court decision, Board of Education of Kiryas Joel Village School District v. Grumet, as providing some precedent for the bonding plan.

The New York State legislature in the mid-1980s created a special school district for the village of Kiryas Joel, which is entirely populated by members of the Satmar sect of Hasidic Jews. The Supreme Court ruled that the state cannot create a special district for any religious organization, but Crotty said the ruling provides some justification for the proposed bonding.

Still, Crotty's explanation baffled several legal experts, including Lou Grumet, executive director of the New York State School Boards Association and the defendant in the Supreme Court Case.

"There is nothing in Kiryas Joel that would help the city," Grumet said. "This seems to be another assault on First Amendment establishment clauses."

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