School funds fight ramps up, Obama threatens veto

President Obama greets third and fourth grade students at Viers Mill Elementary School in Silver Spring, Maryland, October 19, 2009.

WASHINGTON (Reuters) - The fight to win extra federal funding for states for education jobs is growing fiercer in the U.S. Congress, just as President Barack Obama threatens to veto a $10 billion schools measure if the money is taken from a stimulus education program.

In early July, the U.S. House of Representatives passed a defense spending bill that included $10 billion for school jobs. Some funding would come out of the Race to the Top program created in the stimulus plan that Obama has touted as an important step toward reforming education.

"The President supports teacher jobs but we will recommend a veto if the final bill includes cuts to reform programs," said White House Director of the Domestic Policy Melody Barnes in a conference call with reporters on Thursday. "It doesn't have to come to that."

Secretary of Education Arne Duncan said Congress would likely take $500 million away from the Race program under the proposed legislation.

Because the House added billions of dollars in non-military spending before passing the war funds, the measure must return to the Senate, which already passed its own bill for supporting troops in Afghanistan and Iraq.

Barnes said Congress could fund the boost in other ways, and Obama is working with the Senate to find sources.

Fiscal conservatives are worried that efforts to assist U.S. states, which are still in an economic quagmire from the recession that began in 2007, will add to the country's ballooning debt and deficit.

Democrats say state economies risk collapse, which could derail the nation's wobbly economic recovery.

"We have been told by economists that if these state economies go down, we could go into a recession that will be very hard to dig out of," Speaker of the House Nancy Pelosi told reporters on Thursday.

"It is not in anybody's interest, for deficit reduction or job creation, for us to have stability of the state economies be jeopardized," she added.

As well as sending $10 billion to states for education jobs, the administration would like to give states additional funds for Medicaid, the healthcare program for the poor that typically accounts for a third of state budgets.

A measure for those funds stalled in Congress after being attached to spending bills conservatives said were not covered by revenue.

When it comes to education, withholding the $10 billion will cost the economy 100,000 to 300,000 jobs, White House Chair of the Council of Economic Advisers Christina Romer said on the conference call. Keeping teachers employed will save money because they will not have to file for unemployment insurance and will continue to pay taxes at their current rate, she said.

The National Education Association has said the additional funds will save approximately 138,000 education jobs.

The $862 billion stimulus plan passed last year included a transfer of $135 billion to states, with much of the money going toward education. States have already used most of the money.

The plan included $4 billion of Race to the Top grants to spur academic innovation and boost support for semi-autonomous public charter schools. Since the plan was passed in February 2009, only two states have received the grants, with Delaware winning about $100 million and Tennessee about $500 million.

(Reporting by Lisa Lambert and Donna Smith; Editing by Dan Grebler)