By MICHAEL SYMONS
GANNETT STATE BUREAU

TRENTON -- State lawmakers Thursday took the first step toward loosening some restrictions on school spending that, when approved last June, had generated vehement opposition from education groups.

The school-caps law, S-1701, was a key plank in the Democrats' "FAIR Plan" for property tax relief crafted by then-Gov. James E. McGreevey last spring. The law cut back allowable spending growth and surpluses in public school districts.

School groups opposed the law last spring and have mounted a campaign against it. Republicans who opposed the law have proposed repealing it, but instead the Assembly Education Committee advanced a compromise bill, A-3680, on Thursday.

The proposal gives school districts -- which have begun preparing proposed budgets for the 2005-06 school year -- more flexibility by exempting more costs from spending limits, increasing surpluses and making waivers possible for administrative costs.

"It is one tiny little baby step," said Middletown Board of Education member Pat Walsh, who attended the hearing with a group of parents. "It certainly goes in the right direction to helping us address some of the problems that we are facing with our budget."

In Middletown, for example, the changes in the bill will allow the Middletown schools to keep about $750,000 that would not have to be included in the budget cap for the next school year, Walsh has said.

Parents in Middletown have expressed concern that the budget cap law would force the district to cut programs, guidance counselors and teachers, which could lead to increases in class size.

Assemblyman Joseph Cryan, D-Union, said the proposal was the result of a deluge of concerns voiced to lawmakers in both parties by education groups and the public.

Nobody voted against the bill in the committee, but Assemblyman Robert L. Morgan, D-Monmouth, abstained from the vote. He said he withheld from voting because he hasn't heard from local school superintendents about the proposed compromise.

"My only reason for not being totally on board with this at this point is that I'm also profoundly disappointed in the lack of feedback from my district's superintendents, who were very active and very eager to disparage this whole process," Morgan said.

"But the fact is we still have real problems with funding education in this state. Caps are a huge burden for schools, but senior citizens and those on fixed incomes have no caps on their utilities. They have no caps on their transportation costs. They have increasing property taxes," Morgan said.

The proposal has no Senate sponsors.

Marianne Kligman, a Middletown parent, was concerned that the vote Thursday would have little impact if the Senate does not take up a similar measure. If a bill is not passed by both houses and signed by Codey, "we are going to see cuts like we never saw coming," Kligman said.

The bill advanced to the full Assembly. Its next voting session is Jan. 24, there has not an indication if the bill will be on the voting list.

Staff writer Andrea Alexander contributed to this story.

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