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The city’s budget watchdog predicted less money making its way to classrooms next year, even as it said the city’s overall economic outlook could be rosier than what Mayor Bloomberg has previously suggested.

The Independent Budget Office yesterday said that rising costs for contracts, employee benefits, and charter school payments appear poised to cut into the funds that the Department of Education is free to allocate to schools. The IBO analyzed this year’s budget and Mayor Bloomberg’s November financial plan and determined that spending for classroom instruction and school administration could drop by $300 million in 2013, a 3.3 percent decrease.

That’s because funds would likely have to be redirected to other areas of the DOE where costs are soaring, according to the report: pre-kindergarten special education contracts with private schools are set to increase by 10 percent, to $100 million; fringe benefits for school employees are expected to increase 2.5 percent, to $68 million; and payments to charter schools, which are enrolling more students each year, will go up 5.6 percent to $46 million.

City officials disputed the IBO’s projections of next year’s spending as premature.

“It’s impossible to say what we’re spending next year because we haven’t put out a budget, for schools or any other agency yet,” said City Hall spokesman Marc LaVorgna. A preliminary budget for the 2013 fiscal year is expected in January or February.

The report’s drop in classroom spending did not appear in the DOE’s October cost-cutting plan, in which the DOE proposed to lop off about 6 percent from its projected 2013 budget. Unlike last year’s plan, which focused on eliminating teacher positions, cuts from this year’s plan focused on reducing contract costs and securing more aid from the state and federal governments.

In October, Bloomberg instructed all city agencies, including the DOE, to prepare for a 6 percent cut in the fiscal year that begins in July. Unlike last year’s cost-cutting plan, which focused on eliminating teacher positions, the DOE’s plan this year focused on reducing contract costs and securing more aid from the state and federal governments.

Cuts in next year’s budget would mean a fourth consecutive year that principals have less money to spend on their schools. This summer, principals said a 2.7 percent reduction meant their schools were stripped to the bone. As a result, class sizes increased, school supplies dwindled,  more principals filed for appeals, and some came up with other creative ways to save money.

“If they would give me another $10,000, I tell you, I could make some stuff happen here,” Diahann Malcolm, a principal at High School of Law Enforcement and Public Safety, told GothamSchools this summer. Malcolm was so restricted by her budget that she resorted to teaching summer school physical education classes for students who failed during the school year.

Citywide, the IBO report paints a slightly better economic picture than what Bloomberg projected in November. Job growth, fueled in part by more jobs in the private and higher education sectors, and tax revenue would be better than expected, the report estimated, and as a result, the budget gap would be about $800 million less than Mayor Bloomberg estimated for 2013 and $1.7 billion less for 2014.

Forecasting the economy is an inexact science. Two other budget monitoring agencies – the state and city comptrollers – have already projected that the deficit is actually wider than what Bloomberg estimated.

A number of factors could still swing education funding one way or the other. A proposal to reform the state aid formula would distribute more money to lower income districts, which would could bring in significantly more money to New York City.

And economic conditions are still shaky.  The IBO warned in its report of uncertainties surrounding the European debt crisis and the political stalemate in Washington that would affect how federal education funding. Given these factors, the report said, “it would not be hard to be thrown off course.”

2012 Department of Education Programs to Eliminate the Gap