The Maryland State Board of Education has refused to approve and fund educational programs in private institutions for 65 out of 400 handicapped children whom the Montgomery County school board says it cannot educate in public schools.

The state suggested that the county place 25 of the children in public school programs and seek alterntive private facilities for the other 40. The decision, which came only a few days before the opening of the new school year, drew heated protests from parents who had expeced their youngsters to attend the private, mostly residential facilities.

Dr. Edmund Phillips, supervisor for placement in the county schools, said that if parents of the 40 youngsters appeal the state's ruling, the county will pay the tuition in the private institutions during the time of appeal.

The reason for the state's decision was not cost but the inappropriateness of the requested placements, according to Dr. Linda Jacobs, assistant state superintendent for special education.

This is the second year that local school system in Maryland have received, under a 1975 law, state aid for education of mentally handicapped or emotionally disturbed children, but it is the first time that any requests for aid have been denied.

The state did approve more than 100 Montgomery County requests for day programs in private institutions. Another 108 residential private placements were approved on the condition that the children return in a year to Montgomery County public school programs. The county learned of the approvals and rejections last week.

Montgomery County pays up to $5,389 for each child who needs a private educational facility. The county depends upon the state to finance the remainder of the private school bill which can run from $9,000 to $20,000 and sometimes as high as $30,000 a year per student.

"I'm a little bit dismayed," said Paul Masem, director of continuum education for Montgomery County schools. "We think we're right on the cases where the state says we've placed the children in too restrictive an environment." He said that although the state did not mention money as a factor in its decision, the 65 children turned down were to be placed in some of the more costly institutions.

Jacobs said that the state did approve some placements in the more expensive institutions. She said the only consideration was whether the environment was appropriate for a handicapped child's needs and abilities. Jacobs added, "There will come a point, however, when we have to say here's an $11,000 institution and here's a $22,000 institution. What's the difference?"

Last year, the state spent $3.1 million, $600,000 over their budget, on funds for handicapped placement in private schools. This year they have a $2.5 million budget which they say they plan to meet. Montgomery County, which submits half of the applications the state receives for state funds, asked for $1.2 million. "They obviously got the bulk of it," Jacobs said.

"In some instances," Jacobs noted, referring to other unapproved cases, "the youngsters were being put in very intensive segregated programs at the private institutions. We feel if a chilf is doing that well he outght to be in a public school."

"Most of our public special education programs are filled to the brim," commented Phillips. He said private placement is requested for students the county believes will not fit into established programs of the public schools. Children who need extensive psychiatric care, constant attention, or help in physically moving about are among those sent to private institutions.

"We thought we didn't have any programs for those children," Phillips pointed out, 'but the state says we do."

Parents of an 18-year-old boy who was rejected for state aid at Devereux, a private institution for emotionally disturbed children, agreed with Phillips. "At Devereux, our son, Michael, gets tutoring and psychotherapy. There is no facility in the state of Maryland like this."

The parents, who asked to remain unnamed, said their child has improved greatly during his one-year stay at the $21,000 a year institution. They added that the county told them the state did not fund their child because he was not severly retarded enough to be placed in Devereux.

"But if we stop now and can't afford to continue, the money already spent will be wasted," they said. "We're taking him back to Devereux ... when school opens, come hell or high water. We'll borrow the money or do whatever we can."

The main complaint from parents and county educators alike is the timing of the decisions made by the state. "If we'd known this earlier, we could have started appeals," said the parents of 18-year-old Michael.

Masem and Phillips spent last week-end mapping out alternatives for the parents. The county will try to place in their programs most of the 25 that the state thought should be in public schools. The other 40 will be supported in private institutions by the county if parents decided to appeal, Phillips said.

If parents of all 40 appeals, the county could pay approximately $120,000 for the 40 children during the two months it will take to get a ruling. With state aid, the county would only have paid $40,000 for two months.