The D.C. City Council refused last night to approve a special election to fill the vacant Ward 1 seat on the Board of Education, tossing the political issue back to a divided board that has been unable to agree on a temporary appointee.

The council, meeting in a regularly scheduled night session, also gave preliminary approval to an unemployment compensation bill that would cut benefits paid to the jobless and raise employer taxes in an effort to erase a deficit of nearly $60 million in the city's unemployment insurance fund.

The proposal for a special school board election was made by council member Frank Smith (D-Ward 1), a former board member whose election to the council created the vacancy on the 11-member school panel. The school board, in several attempts, was unable to decide on a candidate to replace Smith and voted to ask the council to authorize the election.

The election proposal was defeated on a voice vote, but not before several council members sharply criticized the board.

"I don't doubt in my mind whether there is a crisis in the Board of Education," said Jerry A. Moore (R-At Large). "If they don't solve this problem, I don't see how they can solve other problems. They need to try a little harder."

Council members Polly Shackleton (D-Ward 3) and John A. Wilson (D-Ward 2) noted that the school board has opposed efforts by the council to become more involved in school issues.

Wilson, who referred to the school system as "a forbidden forest," said, "I have not been on a journey to Oz since the sixth grade and I don't plan to go on one tonight."

Hilda Mason (Statehood-At Large) and some other council members said the issue was representation on the board, not frictions between the council and board. "The real issue here is democracy," said Mason, who also introduced legislation that would require special elections to fill vacancies on the board.

R. David Hall (Ward 2), chairman of the school board's finance committee, said last night that the board had expected the election proposal to be defeated. He said the members would now consider asking the Board of Elections and Ethics to hold an election that would be financed by the school board rather than the city.

The unemployment measure, approved by voice vote, would reduce from 34 to 26 the maximum number of weeks a worker can receive unemployment benefits. In addition, it would bar workers from receiving benefits if they were fired. A move to delete that provision also failed by a voice vote.

The measure also provides for a nine-member study commission that will review the effects of the new law during the next two years.

A final vote on the bill is scheduled in two weeks.