State to rescind $45 million in funding for L.A. Unified

The welcome news arrived in February: The state controller said he would forgo immediate claims his office had on a special payment of $70 million in state funds to the Los Angeles Unified School District, which allowed officials to sweeten the salary pot and reach agreement over a new teachers contract.

State Controller John Chiang, less than two months into the job, was praised by the district and teachers union as a hero of the moment.

Now comes the unwelcome denouement.

State auditors announced Thursday that they would take back most of the money -- $45.4 million -- but in future years.

The total adjustment is “one of the state’s largest” for this type of audit, said Garin Casaleggio, a spokesman for the controller’s office. “The school district is only receiving 2.6% of what it claimed for this one program.”

The funds largely were for remedial academic efforts outside regular school hours. They fell into a category of programs that are ordered by the state and therefore, by law, must be paid for by the state. School districts frequently fund the costs upfront and wait for the state to repay them.

The wait can take years, and there’s a catch: The state can repossess these funds if, at some later date, auditors conclude that a school district made inappropriate or unsupported claims.

The most recent school year under review was 2002-03. L.A. Unified itself flagged the problem by notifying the state of errors, but then failed to follow through by filing corrections. At an early sit-down with auditors, in spring 2006, the district identified $39 million in incorrect claims. The auditors continued their work, confirming L.A. Unified’s math and finding an additional $6 million worth of mistakes from two other years that the district had not reexamined.

Then something most curious happened, district officials said: The state paid L.A. Unified the money anyway. School district officials said they presumed they were being paid for other, valid claims and did not realize for months that the money was doomed to be lost.

In the meantime, the funds -- $70 million -- saved the day in contentious contract negotiations with teachers, bridging the last gap. To put the amount in perspective, $27 million equals a 1% raise for one year for teachers; $40 million pays for 1% for all district employees.

The deal with the union remains intact; the district will repay the state with a revenue deduction in future years.

“It’s not unique to L.A. Unified that a substantial portion of these claims get challenged,” district general counsel Kevin Reed said.

“This is not an issue with Mr. Chiang. It started before him. We and other school districts would love an opportunity to work with the controller for a more rational system.”

howard.blume@latimes.com