Within a day of Gov. Bob Taft’s call for spending at least $400 million on Ohio’s schools, a group of conservative lawmakers demanded that the money be spent to reduce state income taxes.

If the lawmakers prevail, taxes could be reduced about 5 percent a year.

If Taft prevails, the $85.45 that the average Ohio family would receive through a tax cut next year would vanish.

The issue of tax cuts became a flash point after Taft’s first State of the State speech Tuesday, when he called for spending all of the state’s surplus on improving the condition of Ohio’s school buildings. He estimated the surplus would be about $400 million, although some say it could reach $1 billion.

But the Republican lawmakers countered by proposing House Bill 240 yesterday, calling for a 5 percent across-the-board reduction in the income tax starting in 2000. The cost was pegged at $380 million a year.

Meanwhile, Rep. J. Donald Mottley, R-West Carroll- ton, chairman of the tax-writing Ways and Means Committee, introduced House Bill 237. Hi bill would cut income-tax rates by 5 percent as well but would also sweeten real-estate tax relief for poor elderly or disabled people to the tune of $200 million a year.

Taft told reporters that he opposes both bills, contending that school-building repairs are more urgently needed than an income-tax cut

"We all would want to provide a permanent across- the-board tax reduction in the state of Ohio, but I concluded in preparing our budget that the needs of our schools would have to come first."

House Bill 240 is sponsored by about 20 conservatives headed by Rep. Jim Jordan, R-West Liberty. "We think it’s time for a tax cut," he told reporters.

Jordan said the proposal would save a family earning $40,000 a year $66.90 at tax time. For an $80,000 income, the savings would be $170.90, he said.

The money the governor wants to spend on schools would come from the $400 million Income Tax Reduction Fund, which has returned $1.4 billion in tax relief since it was established four years ago.

For the last three years, surplus money has gone into the special tax-reduction fund and the income-tax tables have been adjusted accordingly at tax-filing time. But the tax cut is good for only one year at a time.

The cut in tax rates for the 1998 tax year is $701.4 million, which is emphasized in side-by-side columns in the tax-rate schedules Ohioans must use to file returns by April 15.

Figures in the first column, with slash marks through them, show what taxpayers would have paid without the reduction; the second column shows the lower rate to be used in actual tax computations.

Fred Church, an analyst with the Legislative Budget Office, a bipartisan-san agency of the General Assembly, crunched the Taft tax numbers at the request of The Dispatch and determined that a family of four earning $55,000, the median income in Ohio in 1997, would see a tax reduction of $85.46 if the $400 million in the tax surplus fund were left intact.

If the state surplus grows larger--$600 million, $800 million or $1 billion--the lost tax reduction for the family of four would be greater as well - $128.18, $170.90 and $213.63, respectively.

Taft’s schools-for-tax-cut swap drew decidedly negative reviews from conservative Republicans who ,fought Taft’s predecessor, Gov. George V. Voinovich, to establish the income tax reduction fund.

House Speaker Jo Ann Davidson, R-Reynoldsburg, and Senate President Richard H. Finan, R-Cincinnati, gave Taft’s proposal a qualified endorsement. They said their members might go along with $400 million for schools but would almost certainly balk at more than that.

Taft said he remains committed to spending 100 percent of the surplus on schools.

State law already requires an annual commitment of $300 million for school buildings. The tax-refund money would be in addition to that.

Dipping into the income-tax re-fund well for schools is nothing new in Ohio.

The legislature did so four times in the past five years, drawing out a total of $601 million for school construction, repairs and technology.

The Republican-controlled legislature tapped $41 million from the fund on a one-time basis for fiscal 1995 before the reduction fund became an annual part of the budget.

Two years later, in the first year the tax fund was permanent, law-makers took $250 million for schools out of the fund, earmarking it for schools as part of the budget bill.

An additional $170 million from the tax fund was funneled into House Bill 650, the school-finance reform bill passed in response to the court decision that Ohio’s school-funding system was unconstitutional.

Lawmakers last year went to the well once again for $140 million for schools as part of House Bill 850, the state’s $1.72 .billion capital-improvements program.

Davidson said the tax-cut proposals will be part of the discussion of the two-year state budget, which starts next week in the House Finance Committee.

“I think it’s time to have the discussion- of whether we believe a permanent reduction In the Income-tax rates is in order or whether we want to stick with what we’re doing,” Davidson told reporters.

Finan appeared to close the door on the permanent tax reduction. “I don’t favor it,” he said. “I believe the way we’re doing it now is the way to do it.”

Dispatch Political Editor Joe Hallett contributed to this report.