The latest talk around the state Capitol is that schools — rather than being protected from funding cuts — could see decreases of 2 to 3 percent in state funding, according to Mankato Area Public School Supt. Ed Waltman.

If those cuts occur, as lawmakers and Gov. Tim Pawlenty try to erase a $4.6 billion state deficit, it’s even more important that local school districts be given more flexibility in how they use remaining funds, Waltman said.

Which is why Mankato school leaders suggested legislation granting that flexibility and why a trio of area lawmakers are sponsoring it.

“It all relates to how serious this problem may grow to be,” Waltman said.

Republican Sen. Julie Rosen, R-Fairmont, is the chief sponsor in the Senate of a bill that would temporarily allow schools to balance their operating budgets by dipping into revenue reserved by law for specific uses. The restricted revenue that could be diverted for the next two years is now dedicated to staff development, gifted and talented programs and class-size reductions in kindergarten and the first three grades.

The bill would also suspend any state penalties for districts that fail to reach collective bargaining agreements with teachers by the Jan. 15 deadline.

Rosen, saying it’s going to be impossible for the state to give programs what they need for the next two years, supports a broad reduction in mandates and restrictions imposed by state law.

“Especially with our schools, give the administrators a chance to make ends meet,” said Rosen, whose district stretches to the southern edge of Mankato.

The funds mentioned in Rosen’s bill — which is co-sponsored in the Senate by Mankato Democrat Kathy Sheran and is sponsored in the House by Republican Rep. Bob Gunther of Fairmont — probably aren’t enough to solve most district’s financial problems. But they will help, according to Waltman.

The class-size reduction funds total just over $1 million — all of which is committed to class-size reductions in kindergarten to third-grade classrooms. The legislation would allow the district to focus some of that money on grades four through six, Waltman said.

The gifted and talented money is a small pool of funds, and the district already spends more than is made available from the state.

The staff development money, however, totals about $800,000 and could be helpful in preventing some of the difficult cuts that would otherwise be needed.

“We wouldn’t take it all away. We need to continue doing some of those things,” Waltman said.

When the Legislature allowed those funds to be tapped during previous budget shortfalls, Mankato transferred half of the staff development revenue — a move that would generate about $400,000 next year if repeated.

That’s only a fraction of the $3 million in cuts the district is planning to make for the upcoming school year. But every dollar could become critical if further cuts are required. A scenerio that Waltman said looks increasingly likely.

Republican Gov. Tim Pawlenty’s original budget plan proposed holding K-12 education harmless as he sought other ways to eliminate the massive amount of red ink facing the state. That tactic required accounting gimmicks, borrowing and even steeper cuts in most other areas of the budget, something that has prompted a backlash from supporters of everything from health care to higher education.

In addition, funding to the state from a federal economic stimulus plan is protecting the state from even more red ink, but the federal funds may preclude some of the proposed cuts to health care and possibly college funding.

Senate Democrats are now leaning toward relatively even-handed cuts across the budget, rather than favoring broad sectors while decimating others, according to Sen. Kevin Dahle, DFL-Northfield.

“From what we’re hearing, an across-the-board cut might be fairest,” Dahle said.

If Mankato schools face a funding cut of 2 to 3 percent when the state finalizes its two-year budget, another $1 million in local budget reductions would be required on top of the $3 million planned, Waltman said.

The flexibility allowed by the Rosen-Gunther bill might provide a reprieve from additional cuts in the first year. But the second year of the budget would still require painful reductions, including significant class-size increases, he said.

The only hope would be a dramatic improvement in the economy, something that now doesn’t seem likely.

“It looks to be a multi-year problem,” Waltman said.