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The Pataki administration's property tax-reduction program, dubbed STAR, will create cash-flow problems for local school districts across the state, forcing some to even borrow money to cover shortfalls, officials said Monday.

A state commission Monday recommended a number of accounting changes to the School Tax Relief program, which is kicking in this year for thousands of senior citizens. But an association of school boards and State Comptroller H. Carl McCall said the changes do not go far enough, leaving schools with a potential $10 million hit once the STAR program begins.

While Gov. Pataki assured officials last year that "at no time will a district lose money because of STAR," a commission overseen by the state Education Department on Monday acknowledged otherwise.

At issue is when school districts would get aid payments from Albany. Under the STAR program, money to fund schools would come in later than the present payment system. The later payments would cost the schools by forcing them to borrow or lose out on interest income they get under the current cash-flow system.

"The governor promised that school districts would be held whole with the STAR program, and now they won't. We'd like to see that corrected and see the governor keep his promise," said Louis Grumet, executive director of the New York State School Boards Association.

Currently, most upstate schools get their state aid payments from Albany in September or October. The money, however, is not used by the districts all at once, leaving them free to invest the money -- revenue districts across the state use to balance their fiscal plans.

Under STAR, the state will be picking up the tax cuts being given to property owners. But that money will not be paid to districts until March, costing districts as many as seven months of lost interest. Statewide, that adds up to $10 million in lost interest or borrowing costs to cover the gap, McCall said Monday. "School districts should not be asked to pay the price for the state's inability to make the STAR payments in a timely fashion," he said.

The state commission recommended that Pataki and the Legislature speed up -- to January -- the period when the state pays the districts. But it also rejected a proposal by McCall and several school groups to have the state cover the lost interest and borrowing costs.

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