Debate over an innocuous-sounding bill in the state legislature is pitting one up-Island school system against another.

At stake are money and enrollment, two things in increasingly scare supply when it comes to the three public schools sited up-Island.

The upshot is that passage of the legislation in Boston would mean more state funds for the Up-Island Regional School District while leaving the Martha's Vineyard Public Charter School poorer by roughly $200,000 a year. If the law passes, it could also force at least 12 charter school students to leave the school.

Not surprisingly, charter school leaders are bracing for battle.

"We might be looking at having to ask students to leave. We might be looking at positions and infrastructure cutbacks. We're going to fight this thing," said Paul Karasik, a parent and board member at the charter school. "Two hundred thousand dollars is not just chump change for us. It's real money."

But school committee members in the up-Island district argue it's a matter of fairness: their budget is taking a bigger hit, proportionally, than almost any other district in Massachusetts .

Charter schools are funded by per-pupil tuitions paid by the school district where the student resides, but a spending cap limits how much tuition a sending district should pay. Four years ago, the state set that cap at nine per cent - meaning that the total tuition paid to charter schools cannot exceed nine per cent of the district's net spending, in a complicated formula figured out by the state Department of Education (DOE).

But three communities were grandfathered in to an earlier, higher cap: the up-Island district and the school districts in Nauset and Hull. For the up-Island region, the tuition level is capped at 11.8 per cent.

The proposed legislation, written by Sen. Robert Hedlund and co-sponsored by Cape and Islands Sen. Robert O'Leary, would reduce that cap for the three districts to nine per cent, bringing them in line with the rest of the state.

"The present formulas unfairly put a higher charge on those three districts," said Kathy Logue, chairman of the up-Island school district committee.

But the problem with evening out the playing field is that it's going to hurt a school right in the up-Island's own backyard, a political hot potato that clearly troubles Ms. Logue.

"It's a very tricky situation," she said. "Doing something fair for us ends up being unfair for them."

Leaders from both the up-Island district and the charter school have sat down for meetings twice in the last two months. Both have sent teams to Boston to lobby their representative, Senator O'Leary. The joint education committee in the state legislature will likely schedule a public hearing on the bill sometime before March. Senator O'Leary told the Gazette this week that the bill is simply fixing an earlier oversight by the legislature, but he is starting to understand the impact on the Island.

Clearly, the up-Island schools are in competition, vying not just for the money but for a dwindling number of children to educate.

In essence, they are the three Island towns with the least population trying to support three public schools: Chilmark, kindergarten through fifth grade; West Tisbury, kindergarten through eighth grade; and the charter school, a kindergarten through 12th grade school situated on State Road in West Tisbury.

The charter school was envisioned to hold 180 students, but enrolls 154, hamstrung by funding. The annual budget this year is $2.3 million.

Enrollment at the West Tisbury School has fallen to 354 students, after three straight years of declining ranks in the classrooms. In 2001, there were 392 students attending the school.

The situation at the Chilmark School is particularly dramatic, with only 45 students this year, down from 59 last year. Spending in the up-Island region this year is about $6.7 million.

"We have three schools in a community with a declining population," said Ms. Wall.

The 2000 census data offers little hope for rejuvenation down the line, particularly in Chilmark and West Tisbury, where the number of children under five stood at 166, down from 203 in 1990.

"Of course, people are leaving up-Island in faster leaps. It's the most expensive housing. We may be just seeing the early part of the trend," said Ms. Logue, who is also town treasurer in West Tisbury.

Shortly before the charter school opened in 1996, enrollment at the two up-Island schools had peaked. Chilmark School had 61 students in 1995, and the town was beginning to rally for a new and bigger school building behind the Chilmark Community Center. West Tisbury had 416 students the next year.

But now falling enrollments have put the up-Island district among the highest in the state in per-pupil costs. Amy Tierney, business affairs assistant in the Vineyard school superintendent's office, said per-pupil spending up-Island, according to the state formula, currently stands at about $15,800.

That means that when 43 students from the three up-Island towns opt to attend the charter school's kindergarten through eighth grade, it takes nearly a $700,000 bite out of the region's budget.

That was a sore point for up-Island school board members, who looked at their Chapter 70 money and quickly figured out that it was all eaten up by reimbursements to the charter school, and then some.

Ms. Tierney anticipates that in June, after all the enrollment numbers are finalized, the Up-Island Regional School District could owe the charter school more than $200,000.

Falling enrollment up-Island combined with cuts in state aid have laid the groundwork for this fight over money. Reductions in Chapter 70 and in transportation aid to the regional school district totaled more than $750,000 this year, said Ms. Logue. The up-Island school committee had to dip into cash reserves to cover some of the budget shortfall this year.

The pressures aren't making school officials up-Island worried just about the charter school. A growing number of people have begun questioning how the Chilmark School can remain viable in this climate.

"If enrollment continues to drop, the option of the Chilmark School may have to fall out of the mix as well," said Ms. Logue. "We've worked very hard at preserving choices … but at some point there's only so much money and only so many students."

From the perspective of charter school director Robert Moore, the whole point of the school is to give parents an option.

"Choice is what the charter school has given to the Island community," he said.

The proposed legislation lowering the cap would hurt the charter school, he said. "It would decrease the choices that families in the up-Island school district have. We've gotten along with the school districts on the Island, but this new movement is a very different sentiment than we've had."

Strong feelings are evident on both sides.

"They've joined forces to get (the rate) set at nine per cent," said Mr. Karasik. "It doesn't appear they are going to back down, and it gives us no choice but to fight the initiative."

From the up-Island school committee side, Ms. Wall expressed concern that some people might view the numbers of students from the up-Island towns attending the charter school as a poor reflection on the other two schools.

"They think the schools must be awful up-Island when they look at how many kids want to go to the charter school," she said.

Despite the disagreement on the funding formula, both sides are trying to find some common ground.

One compromise on the table would try to set up a new funding formula when the number of students choosing the charter school exceeds the limits of a nine per cent cap. Instead of paying nearly $16,000 per pupil after that, the up-Island district could pay $5,000 a head, the same rate paid by Island towns when a student attends another school under the school choice program.

Both sides are also talking about whether they could share some programs and save money, but they quickly fall back to the issue of fairness. Representatives from the up-Island school district ask why they should pay more than others in the state to support a charter school.

But Mr. Karasik pointed to the ripple-effect. The $200,000 in question, he said, is only two per cent of the up-Island budget. "For us, it ends up being almost 10 per cent," he said. "It really has a far greater impact on us than it does on them."