AUSTIN – Community college leaders say they'll be forced to cut services such as remedial instruction or raise tuition or taxes after Gov. Rick Perry vetoed a portion of their state funds.

While it may take up to a year for college district boards to decide how to spread the pain, board members, administrators and instructors on Tuesday condemned the governor's veto of 8 percent of the schools' state funds for the next two years.

"This came totally unexpected," said Dr. Wright Lassiter, chancellor of the 90,000-student Dallas County Community College District.

The governor used his veto pen late Friday to erase from the state's two-year budget an item giving $154 million to community colleges for group health insurance.

Mr. Perry said the 50 community college districts had overestimated how many faculty and staff they pay entirely with state funds.

Mr. Perry argued that for several years, the Legislature has approved a budget provision that says agencies can't use state funds to pay fringe benefits for employees who are paid from sources other than state revenue.

However, the governor said that in their budget requests submitted last fall, community and junior colleges tried to pass off as state-paid employees a large number who are paid with locally generated funds. Mr. Perry didn't specify how many, though he said because of mislabeling, districts sought $126 million too much.

He lopped off the second year of their appropriation for group health insurance, which was an amount $28 million higher. He said the campuses have enough money to make ends meet.

Mr. Perry also said in his veto proclamation that two-year colleges "falsified their appropriations requests."

Rey Garcia, president of the Texas Association of Community Colleges, responded: "We take strong exception to that statement. Our institutions filed their appropriations requests in good faith and followed the same practices we've followed for the last several" legislative sessions.

Community college leaders have argued the issue with Mr. Perry for several years, saying they are both local and state institutions – not a state agency that lawmakers wanted the rule about fringe benefits to cover.

Dr. Lassiter of the seven-campus Dallas County district said it will lose $16 million because of the veto – or 5 percent of its budget.

Dr. Lassiter and other district officials said that among their "unpleasant choices" for the academic year that begins in fall 2008 are tax and tuition increases, hiring freezes, travel constraints and cutting programs such as remedial instruction for an ever-increasing number of freshmen who aren't ready for college-level work.

"We would want to ask our trustees to approve a tax increase as an absolute last resort," he said, adding that higher tuition also prices out of the market the lower-income students whom the two-year colleges are trying to reach.

Dr. Bob Collins, board chairman of the Collin County Community College District, which has 41,000 students, estimated the veto would cost that district $4 million. But he said raising tuition is out of the question.

"We've been trying to hold the line for a number of years on tuition," he said.

Rep. Dan Branch, R-Dallas, who co-chairs a new House-Senate panel studying education funding, said "administrators don't want to raise fees because they think that runs off students."

But neither lawmakers in Austin nor the districts' elected boards want to raise taxes, he said.

Mr. Branch promised to hold hearings on the subject.