The salaries of all Loudoun County school employees would be frozen beginning July 1 under a budget proposed yesterday.

The $97.9 million budget proposal for the 1992 fiscal year introduced to the School Board last night would mean no raises or cost-of-living increases for 1,993 employees, including about 1,100 teachers, as school officials search for ways to maintain academic programs in the face of expected cuts in both local and state funding.

Acting Superintendent Harry Bibb said yesterday that the School Board could be required to find another $7 million in cuts because of the county's financial problems. With further cuts, the school system's budget actually could be smaller than this year's $94.9 million spending plan.

Bibb, an educator for 31 years, said he had never seen a worse budget situation for a school system. "Not as long as I've been in Loudoun or anywhere else," he said. "I've seen freezes, but never potential cutbacks like this."

The budget proposal makes no allowance for inflation, which is expected to run at 4.5 percent.

In anticipation of calls for further cuts, Bibb gave the School Board a list of 40 possible savings totaling $11.7 million.

Suggestions include eliminating as many as 51 teaching positions; cutting art, music and physical education classes; increasing average class size by one student; shrinking clerical staff in the central staff; and cutting teacher supplies in the 14,600-student system.

State aid to Loudoun schools is expected to drop next year from its current level of $19.8 million to about $17.2 million. At the same time, county funding is expected to shrink because of a sharp drop in local tax revenue, which county finance officials say could leave them with a $32 million revenue shortfall.

If county supervisors cut the property tax rate, a move some say they support, the need for at least $7 million in further cuts "is a very, very real likelihood," said County Administrator Philip A. Bolen.

School administrators plan to save $5.4 million by freezing teacher salaries. Wherever they could, school officials said, they kept spending unchanged from the current year. Spending includes about $2.5 million in interest payments for school construction costs and other debt, a small increase.

The biggest increases in the 1991-92 budget come from health care coverage, which will cost $1.5 million more next year, and heating oil and fuel costs, which are due to increase by $437,000.

School Board Chairman C. Carroll Laycock Jr. (Blue Ridge) said next year's budget may turn out even worse than it appears. "I hope it's only $7 million {in cuts}," Laycock said. "We know we've got to make cuts. None of us wants to do it."

After public hearings, the School Board will adopt a budget Feb. 26, which then will go to the Board of Supervisors for its approval. The supervisors could order further cuts by May 7, when they give final approval to the county budget and set the tax rate for fiscal 1992, which begins July 1.