Schools Chancellor Ramon Cortines said yesterday he was “taken aback” by the Giuliani administration’s proposal to provide financing to help build religious schools.

“Our priority needs to be the public schools, which we have shown are in dire straits,” Cortines said.

With the city’s public school system coping with massive budget cuts and record enrollment increases, Cortines said that he wished that the Giuliani administration would find creative ways to help make up budget cuts that have curtailed the building and repair of public schools.

Giuliani yesterday defended the proposal that would let religious groups finance the building of schools with tax-exempt city bonds, financed through the Industrial Development Agency.

“These schools are very valuable,” he said. “The Catholic parochial schools alone educate 100,000 children, the Jewish parochial schools about 60 or 70,000.”

Giuliani argued that if those students were placed into the public school system, it would cost the city more money.

Neither the Dinkins nor the Koch administrations allowed the Industrial Development Agency to aid the financing of parochial school construction, saying that such action would violate the constitutional separation of church and state.

But Giuliani said the city corporation counsel had found that it would be constitutional to give parochial schools the same benefits granted to private schools.

“If we were to deny inclusion when it’s been granted to private schools, you might have a constitutional question the other way, a denial of the free exercise of religion,” he said.

In other matters, preliminary findings of a Board of Education study of the progress of children with limited English ability indicate that children served by bilingual or English as a Second Language programs scored well on citywide math and reading tests last spring. The study also implied that ESL-only students learned English at a faster pace than students taking ESL and subjects in their native language.

The ongoing study is part of a review by Cortines, who said he wants decisions on how to improve bilingual education to be made on the district level. Cortines also said he was concerned about how long students remain in bilingual education.

“We haven’t paid attention,” he said. “We really should be red-flagging them.”

Also yesterday, a commission made up of developers, financiers and private industry managers told the Board of Education that private contractors or the School Construction Authority should be considered for all cleaning and repair jobs.

Bob Liff and Edna Negron contributed to this story.

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