The closing of one of the city’s oldest educational watchdog groups is raising questions about what some observers describe as a “chilling effect” on critics of the education system.

Because the city is contracting out a historic number of services to community groups, many groups are either loath to criticize city policy or incapable of raising any funds with which they might criticize, they said.

Observers said difficulties faced by the Educational Priorities Panel, a 30-year-old coalition of advocates for the city schools whose dissolution goes into effect this month, reflect both trends.

The longtime executive director of EPP, Noreen Connell, said one challenge was the number of members who stopped participating in advocacy efforts after the mayor took control of the schools. “A lot of the people who were contractors or very close to the Bloomberg administration were not participating in EPP any longer,” she said.

A member of EPP who represented the Presbytery of New York City, Cecilia Blewer, said member groups’ discomfort with taking a hard line against certain policies led the EPP to dampen some criticism — and, on some issues, such as mayoral control of the schools, to avoid speaking out altogether. “There was a timidity that didn’t used to be there,” Ms. Blewer said. At the same time, outside support also dissolved.

The president of the teachers union, Randi Weingarten, said EPP’s dissolution is a punishment for speaking plainly. Reports from the group have objected to the Department of Education’s new per-student funding formula, criticized its move to empower school principals as treating them too much like private contractors, and characterized claims that the city is pushing more money into classrooms as overstated.

“They actually spoke truth to power, and I think they got hurt for it,” Ms. Weingarten, said.

A Department of Education spokesman, David Cantor, said EPP “performed good work.” He added: “I’m sorry to see it go.”

Mr. Cantor said the group’s closing is a result of a victory, not a failure: the resolution of a decades-long lawsuit aimed at sending more money to city students, which concluded in a billion-dollar settlement recently.

The executive director of the city-based Democrats for Education Reform, Joseph Williams, said the so-called chilling effect seems “entirely self-inflicted.”

“If you want a system of mayoral control to be most accountable, you absolutely have to have people who are willing to stand up and call the mayor’s team on things from time to time,” he said. “But this situation seems to have much more to do with EPP wrapping itself so tightly around the ‘more money for schools issue’ and not clearly articulating what they are supposed to be doing now that the money is pouring into the school system.”

Ms. Connell said she is optimistic that a group will emerge to fill the role EPP once played. “The demographics in New York City are changing. There’s going to be more middle class parents in the schools,” she said. “They will make demands, no matter who’s the mayor.”