NEWPORT — City Council and School Committee members cordially disagreed last night over how the schools’ $1.9-million surplus should be used and whether a new elementary school should be built at the site of Underwood School.

Voices were never raised during the joint meeting at City Hall, but by the time the meeting ended it was clear the two sides had conflicting perspectives on the major topics of the night.

“I feel a little bit of friction going on here,” School Committee member Hugh DeAscentis Jr. said at one point.

The workshop was held to comply with a state law requiring that the two bodies meet annually for preliminary budget talks.

Last week, Supt. John Ambrogi proposed hiking school spending 2.12 percent next year to $38.5 million. But the budget would require the city to increase its education appropriation by 5 percent, or $1.17 million, because of declining and stagnating federal and state aid and a projected increase of 15 percent in employee and retiree health coverage.

The School Department has accumulated a surplus in recent years and Ambrogi said he planned, for the second year in a row, to use $800,000 of it to help balance the budget. But he and committee members warned then, and again last night, that using all of it to pay for operating expenses would potentially set the schools up for budget crises in the years to come. The state tax levy cap would prohibit the schools from being able to make up the large shortfall they would eventually face, they said.

“Let’s use it for one-time expenses,” Ambrogi suggested, saying that the state has wound up in dire financial straits after relying on an out-of-court tobacco settlement to pay for operating expenses.

School officials praised the superintendent’s money management, after years before his arrival of recurring deficits. But Councilman Justin McLaughlin said the state comparison was “apples to oranges.” The school surplus, he said, was built on savings that Ambrogi described as coming from reductions in staff due to declining enrollment and less costly negotiated labor contracts.

“This is not a windfall,” he said. “That money belongs to the taxpayers. … It’s money that was appropriated for operating expenses.”

McLaughlin said the funds should be used to balance the school budget. His suggestion, echoed by other council members, followed a grim budget forecast for next year given by city Finance Director Laura Sitrin. She is projecting that revenues will be down $1.9 million. City Manager Edward F. Lavallee said he planned to leave six firefighter and at least two police officer positions unfilled and to freeze spending on vehicle replacement.

While discussing plans for a new elementary school, McLaughlin said he was speaking on behalf of the rest of the council in objecting to the committee’s vote last year to build it at Underwood.

“The best site would be in the north end of the city,” he said.

Councilwoman Kathryn E. Leonard said Sullivan School is closer to where most children live, has a better playground, fewer wetland issues and more room for expansion.

The council will have to vote for a bond referendum for the project, which is planned for the fall.

rsalit@projo.com