The D.C. Council's education committee approved $1.3 billion in new revenue yesterday to create a plan to rebuild crumbling city school buildings over the next decade.

The funding would be raised by increasing business and cigarette taxes and by postponing an income tax cut. Money from future budget surpluses would also be earmarked for the effort. Together with city funds already earmarked for schools, the total investment would be $2.5 billion in the next decade.

The measure now goes to the full council and the mayor. Kathy Patterson (D-Ward 3), chairman of the education committee, described it as a Marshall Plan, the name the United States gave its plan for the reconstruction of Europe after World War II.

Patterson said the money for renovating and upgrading schools is based on the assumption that the system will reduce up to one-third of underutilized space.

Council supporters say rebuilding school buildings is vital to keeping families in and drawing families to the District. The school population dwindled in recent decades as some parents abandoned poorly performing schools and decrepit facilities. School officials are expected to unveil a facilities plan in the spring.

"The time has come to finally address school capital needs," Patterson said. "Anyone who has visited even a half-dozen D.C. public schools cannot come away from those visits with any other conclusion."

School advocates praised the effort as a good start. Patterson rewrote the bill in recent weeks after business groups objected to her earlier proposal to increase hotel and parking taxes. Business leaders still expressed deep reservations yesterday about the proposal to raise the commercial property tax rate by 2 cents.

Barbara B. Lang, president of the D.C. Chamber of Commerce, said council members should look first to cutting "pet projects" that have been added during the recent good financial times before increasing business taxes.

Others said the package is not enough to meet the school system's needs. Council member Phil Mendelson (D-At Large), a member of the committee, proposed extending the package for five more years, which he said would raise an additional $500 million. The amendment failed after Patterson said she was uncomfortable supporting more money than the $2.5 billion school officials estimated they would need.

Council member Vincent C. Gray (D-Ward 7) pushed to have greater oversight of renovation funds, saying he was "cynical and mistrustful" of the ability of school officials to spend the dollars wisely. The city has one of the highest per-pupil spending rates in the nation, and past rebuilding efforts have been plagued by cost overruns and mismanagement. The legislation would create an advisory committee to oversee the rebuilding effort, but he said he would have preferred the creation of an independent authority.

Patterson, Mendelson and Gray voted in favor of the bill. Council member Carol Schwartz (R-At Large) did not, saying she wanted to first see a concrete plan for school closings. The fifth member of the education committee, Marion Barry (D-Ward 8), was absent.

An independent study released this year found that the school system, whose enrollment has declined from 69,000 to about 59,000 in the past five years, needs only 10 million of its 16 million square feet of space and that 37 schools are operating at 65 percent of their capacity or less.

District leaders have been pledging to improve schools for years. And as the city heads into a municipal election year, polls show that residents put improving city schools at the top of their political concerns.

Council member Adrian M. Fenty (D-Ward 4), a mayoral candidate, spoke at yesterday's markup session, even though he is not on the education committee. He said the city has failed to keep up its facilities for decades. In that time, he said, the city has built or renovated two convention centers and two city halls and now plans to build a second sports stadium.

"We have built so many things," he said. "Why are we so slow to make our schools look like we want to educate our children?"