The Finance Ministry has called on the Mifal Hapayis state lottery to fund the construction of 3,635 classrooms over the next five years, leaving only 23 percent of lottery funds for the local authorities instead of the traditional 70 percent.

The Mifal Hapayis board of directors is due to meet Thursday morning to discuss the issue.

"Not only is the treasury not transferring funds to the local authorities for development and equipment, now it wants to nationalize Mifal Hapayis," said Carmiel Mayor Adi Eldar, who heads the Union of Local Authorities (ULA).

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The classroom construction is expected to cost an estimated NIS 2.4 billion, leaving the ULA with NIS 145 million a year for five years, based on the expected lottery income. The Finance Ministry wants nearly half the classrooms to be built in 2007, and the ULA fears the income it is due to receive from Mifal Hapayis in the next two years will go toward the classrooms instead of public buildings such as community centers, sports arenas, clubs for youth and the elderly and geriatric hospitals, which are constructed with the lottery money that goes to the local authorities.

ULA officials plan to voice their opposition to the move during Thursday's Mifal Hapayis meeting, and will probably succeed in quashing the treasury request, as they have a majority on the board. However, Mifal Hapayis needs the treasury's authorization to hold lotteries, and the current permit is due to expire at the end of the month.

The ministry has agreed to renew the permit for two months to allow lotteries to take place and provide time for negotiations with Mifal Hapayis and the local authorities over how to distribute the lottery income. Once an agreement is reached, the finance minister will sign a permit allowing lotteries to take place for the next five years.

The ULA has traditionally received 70 percent of the lottery funds, with the rest going to the treasury, but in the last three years, Eldar has agreed to allow some of its share to go toward building classrooms. The local authorities received 48 percent of the lotto funds last year, said Chen Ron, director of the ULA's finance division.

"We agreed to a one-time operation for building classrooms, but as a result, a serious shortage in public buildings has been created," said Eldar.

Maalot-Tarshiha Mayor Shlomo Buhbut on Wednesday called for an emergency ULA meeting and said the local authorities should refuse to cooperate with the national government.

"No government in Israel has acted like this to destroy the local authorities," he said.

Rehovot Mayor Shuki Forer, a member of the Mifal Hapayis board of directors, said the government was being inconsistent.

"It's convenient for the government to put its hand into Mifal Hapayis and finance its needs from there," he said. "I protest the government's action, which talks about the greatness of privatization but bears the sword of nationalization."