More than 22,000 primary and secondary school teachers are suing their local councils for back pay, according to the association that represents Chile's 334 city councils.
If only a quarter of the teachers involved in the 500-plus cases win, it means councils would have to pay out Pounds 35 million or more.
"It would break the system," says Luis Parra, director of the legal department of the National Teachers' Association, which represents Chile's 100,000 teachers. The country's education budget for 1995 is Pounds 1.2 billion, around 4 per cent of GDP.
The crisis in educational financing dates from 1981, when the military government decided to decentralise the powerful ministry of education, by transferring control of schools to local councils, then run by the military's appointees.
An elected government assumed power nationally in 1990, and elections were held for city councils in 1992. Newly-elected officials inherited an administrative nightmare: they pay the bills for education, but have little say in how money is spent.
The ministry decides curriculum and negotiates wages and benefits with the National Teachers' Association education grant, is calculated on a per-student basis, but in many cities this does not even cover teachers' salaries.
"We're just the teller's window, where people get paid," says Giorgio Martelli, executive secretary of the Association of City Councils. But when there is a shortfall between the ministry's payment and costs, cities have to make up the difference. For all but the three wealthiest cities in the country, that has proved a heavy burden: about 10 per cent of local budgets goes on education.
To compound the difficulties, national laws limit city councils' sources of revenue to property taxes (also set nationally), and sale of vehicle and business licences.
Teachers, whose minimum wage rose from Pounds 100 in 1990 to Pounds 335 a month this year, have taken the cities to court over two main issues.
The first involves an old public- service law. Before the military transfers, teachers were legally public employees, so their wages were index-linked to inflation.
These salary increases ceased when the transfers of power began and teachers are now suing for the difference.
Five such cases have already gone before the country's Supreme Court, with teachers winning two, and city councils the last three.
Tension between councils, the ministry and the teachers is running high. But they share the hope that draft amendments to the teaching statute, now before the Senate, will eliminate the law's ambiguities and provide extra funds to get over the current impasse. With luck, these will go through next month. Then, they would be able to get on with the extensive reforms planned for education this year.