District students are receiving an inferior education compared with Fairfax and Montgomery county pupils because of deteriorating buildings, overworked principals and teachers and the large percentage of the school budget required to educate below-average students, according to a report released yesterday by a coalition of parents and business leaders.

The report called a lack of adequate funding the major cause of the problems, coupled with the extra money spent on small classes and remedial help for the District's below-average students, who represent a large percentage of the system.

The report found that the school system's expenditures for below-average students come "at the expense of its other students."

But because of "overall funding limitations and great need, the results are educationally unsatisfactory for all students."

Below-average students "and all average and high achievers receive more limited services than their suburban counterparts," said the report, compiled by Parents United for the District of Columbia Schools, a leading lobbying group for increased school funding.

"Despite significant progress in recent years, especially at the el- ementary school level, educational performance remains in need of substantial improvement," the report said. "Buildings and equipment suffer gross deficiencies, and lacks in staffing detract from the quality of instruction."

The report, the first comprehensive look at problems crippling the District school system in several years, painted a bleak picture of education for the city's 88,000 students and 4,000 teachers in 184 schools, despite the fact that the District will spend $360 million this year on education.

The study, which was released a week after Superintendent Floretta D. McKenzie submitted the schools' proposed budget for the next fiscal year, found that:

*D.C. school buildings "are in poor repair and often pose actual danger to students and teachers." In addition, because of a lack of staff, "principals are required to spend an inordinate amount of time acting as receptionists, processors of paper work and security guards."

*Fairfax and Montgomery county schools spend more money per student than District schools and have an abundance of services and resources.

*D.C. officials are required to provide small classes and other special services for learning-disabled students, and below-average achievers comprise about 60 percent of the system's students. As a result, a large portion of the budget is spent on below-average students, and average and gifted students are forced to attend crowded classes and work with substandard supplies.

The report was not intended to "accuse school officials of not doing their job; what we're saying is the schools need more money," said Delabian Rice-Thurston, executive director of Parents United.

She added that the study was intended to make city officials and members of Congress, who must approve the District schools' budget, aware of the "tremendous" financial need of the schools.

"We're demanding well-educated children out of city schools, but we are not spending the money that is needed to achieve that," she said.

Janis Cromer, spokesman for the city school system, said that the imbalance of funds devoted to below-average students is "more complicated" than the report suggests. "It's not a taking away from one group of students or another. It's that such a high percentage of our student population doesn't have the advantages of more affluent neighborhoods, and therefore they depend on the schools to provide those services."

She added, "We certainly agree with many of the findings of Parents United. It's helpful to us in that it helps us get the parents' viewpoint and have their support to get adequate funding," she said.

D.C. school board member Nathaniel Bush, chairman of the board's finance committee, described the study as "ludicrous and ridiculous," saying that it compares an urban school system with suburban schools, which have far fewer low-income students and have wealthier parents.

"A disproportionate number of our students are from poor communities, and federal law decrees that we provide them certain services," he said.

"We are at the forefront nationally in adhering to those laws, yet we have increased funding in recent years for gifted and talented students as well."

The group of about 18 civic and business leaders who prepared the report includes Delano Lewis, vice president of the Chesapeake & Potomac Telephone Co.; the Rev. John P. Whalen, executive director of the Consortium of Universities of the Washington Metropolitan Area; Francis P. Cotter, a Westinghouse Electric Corp. vice president for government affairs, and James Eichberg, president of the Smithy-Braedon Property Co.

Rice-Thurston said Parents United asked business leaders to assist in the study because "we wanted to give the business community the chance to visit classrooms and see what's happening in our school system and in comparable school systems and let them decide for themselves whether what has been happening is reasonable.

"What they have found is that the D.C. school system is not meeting the needs of the children or the community," she said.

The study also found that:

*he District spends $52 per pupil for textbooks, supplies and equipment, compared with $91 per pupil in Montgomery County and $70 in Fairfax County.

*Fairfax and Montgomery county schools have newer, cleaner school buildings, more resources and smaller classes than D.C. schools. For example, "All schools in the study have the same number of librarians, but all the suburban schools have aides and clerks, whereas no District school librarian has any such assistance."

*More than $99 million is needed to renovate the District's dilapidated school structures.

The parents and business leaders visited 12 schools in the District and Fairfax and Montgomery counties and evaluated the financial resources and educational services available in each jurisdiction.

By computer they selected "typical" schools for in-depth study in each region. The District schools were Coolidge High in Northwest, Kelly Miller Junior High and Slowe Elementary in Northeast and Stanton Elementary in Southeast.

The Fairfax schools included George Marshall High, near Tysons Corner, and Columbia Elementary, while those selected in Montgomery included Rockville High and Baker Intermediate.