By Courtney Sherwood

PORTLAND Ore. (Reuters) - A citizen's group in Portland, Oregon, said on Monday the city should drop policies allowing students to transfer public schools, saying it is making the schools less racially diverse and poorer.

"It's mostly white, mostly middle-class families, transferring out of schools that have students of color," said Kali Thorne Ladd, a member of the group which had been asked by educators to evaluate Portland Public Schools transfer policies.

These allow students to switch to schools in different neighborhoods, but they must enter a lottery if spots are limited. There is also a separate lottery system for students hoping to transfer to selective "magnet" schools which offer advanced curriculums.

The programs have drawn criticism as school officials seek to boost diversity in classrooms in the Democratic-leaning city of some 580,000 residents. White children make up nearly 60 percent of students.

The citizen's group recommended at Monday night's meeting that the neighborhood-to-neighborhood transfers should be scrapped and the magnet school lottery changed to favor students from diverse neighborhoods and economic backgrounds.

Committee member Teletha Benjamin said Portland schools with large populations of racial minorities had lost white students to transfers, which in turn sucks funding from cash-strapped community schools because the dollars are tied to students.

Many school systems across the United States remain highly segregated along racial and economic lines 60 years after the U.S. Supreme Court struck down the notion of "separate but equal" education, according to a UCLA study published in May.

Black and Latino students tend to be in schools with a substantial majority of poor children, while white and Asian students are typically in middle-class schools, it said.

Portland Schools Superintendent Carole Smith stopped short of endorsing the group's recommendations pending financial reviews and broader community input - a process that could take months.

(Reporting by Courtney Sherwood in Portland, Oregon; Editing by Eric M. Johnson and Angus MacSwan)