Controller Relents on School Districts’ Use of Funds

The great scare over school interest money has been put to rest.

It started a couple of months ago when auditors from State Controller Gray Davis’ office descended on a number of school districts in the South Bay and elsewhere.

The auditors wanted to know what the districts were doing with the interest earned on money they got from selling surplus schools.

Startled school officials said they were spending the interest on things like textbooks, utilities and salaries and had been doing it for years.

After all, they explained, money gets a little tight when enrollment sags and the state funding goes down.

So the districts, rich in property but poor in cash, have to sell off their abandoned schools and use the interest to help keep their educational programs going. And it’s all perfectly legal, the school officials said; the county counsel told us so.

Not so, said the auditors. State law says the interest, along with the principal from sold schools, must be used only for building new schools or for major maintainence on the ones that are left.

Whatever the original purpose of the law, it hardly seemed to fit the needs of districts in the school-selling mode, like Torrance Unified, Palos Verdes Peninsula Unified, South Bay Union High and elementary systems in Manhattan Beach, Hermosa Beach and Redondo Beach.

The loudest outcry came from South Bay Union, which was told it would have to come up with $2.4 million--interest spent on operating expenses since the $15-million sale of Aviation High School in 1984--and put the money back into the district’s capital account.

It was panic time. The county counsel’s office was called upon to reaffirm its original ruling. Audrey Oliver, the chief deputy, fired off a letter to Davis’ office.

But her opinion was termed “off base” by Greg Newington, Davis’ chief auditor.

“It is not our intention to bankrupt or close down school districts,” he said. “But the law on this matter is very clear, in our opinion, and we will pursue it until there is a resolution.”

The resolution came this week from Richard J. Chivaro, an attorney in Davis’ office, in a letter to Steve Kuykendall, a Peninsula resident and unsuccessful school board candidate who had challenged the controller’s ruling.

Chivaro indicated that legal authorities in Sacramento had mulled over the matter and found a “lack of specificity” in the law.

Therefore, since Oliver’s argument is “equally plausible,” compared to other “persuasive” opinions, the state controller will go along with the county counsel and agree that the use of interest money rests “within the discretion of the local school boards.”

Local school officials said they are glad the scare is over.

“We’re pleased as punch,” said Ed King, business manager for South Bay Union. Now the district can use another $1.2 million in interest to help plug gaps in next year’s school budget, he said.

“We’re pleased, too,” said Nancy Mahr, a spokeswoman for the Peninsula district. Now the district can proceed with plans to use an estimated $1.7 million from property sales, for everyday expenses.

Another scare crossed some minds: Maybe another state agency will challenge the controller’s new ruling, or get legislators to put some undesired specificity in the law.

“Maybe if we don’t think about it, it will go away,” said one official.