Bill Seeks to Reverse State Ruling Over School Funds

South Bay legislators have joined a scramble to push through a bill in Sacramento that would reverse an opinion by state Atty. Gen. John Van de Kamp that limits how schools may spend interest earned on money from the sale of surplus property.

The bill, authored by Assemblyman William P. Duplissea (R-San Carlos), would establish the right of school districts to use that interest for ordinary operating costs. Such use for the interest is a longstanding practice in districts with declining enrollment.

Several South Bay school districts, which for years have used interest earned on money received from the sale of surplus property for general-fund expenses, predicted dire consequences if Van de Kamp’s ruling is not overturned. The strongest response came from Ed King, business manager for the South Bay Union High School District, who said the district may have to close its three campuses next fall.

$1 Million in Interest

“As it stands now, there is no way we can stay in business without that income,” King said. He said interest on money from the sale of Aviation High School amounts to about $1 million a year in the district’s $15-million budget.

Under existing law, the principal from the sale of surplus school property can only be spent on capital improvements. Under Van de Kamp’s ruling, school districts must keep both the interest and the principal in capital accounts, using the money only for new construction or major rehabilitation projects. The ruling, which was issued in May in response to a request from the State Allocation Board, also restricts the use of some lease income. The State Allocation Board controls funding for school construction and capital improvements.

Tom Martin, a spokesman for state Sen. Robert G. Beverly (R-Manhattan Beach), said backers of the bill have only six weeks of legislative time before the Sacramento lawmakers adjourn at the end of August. But he said it is “realistic to hope we can get it through as an emergency measure.”

Martin said Beverly is backing the Duplissea bill, and support is expected from other legislators whose school systems are affected by Van de Kamp’s opinion. Of 1,029 districts in the state, 260 have declining enrollments, he said.

Assemblyman Gerald N. Felando (R-San Pedro) is one of the bill’s co-sponsors.

Other Schools Affected

Other South Bay schools potentially affected by the ruling include the Torrance Unified School District and the Manhattan Beach City Elementary School District.

Torrance, which has a $72-million school budget, earns about $1 million annually in interest from school sale proceeds.

Manhattan Beach has a five-year waiver to use part of its principal from the sale of school sites. It can use up to $1.6 million of $3.6 million earned from past sales of school property.

Since the district is in the second year of the waiver, it will not be affected by Van de Kamp’s opinion, but it would affect the district later, said Pete Schiff, district business manager. Manhattan Beach schools have a budget of $8 million this year.

South Bay school districts have relied on a longstanding opinion by the county counsel that it’s permissible to use interest income for such expenses as salaries and supplies. That opinion noted that state law does not specifically restrict the use of interest income and, therefore, under what is known as “permissive doctrine,” local school boards can determine how it is to be spent.

However, Deputy Atty. Gen. Clayton Roche, who drafted the new opinion, said “common law doctrine” is an even higher authority. Under common law--generally, court rulings and precedents that go back for generations--”the interest follows the principal and therefore, if there are restrictions on the principal, the same restrictions must apply to the interest.”

Lease Earnings

The attorney general’s ruling also restricts the use of earnings from the lease of school property, which has further complicated the issue for some local districts.

Although there have been disputes in the past over how interest can be spent, the attorney general apparently is the first state official to suggest curbs on how the schools may use earnings from leases.

By the end of last week, some confusion appeared to be rising around the new opinion. Roche told The Times that he had issued a clarification regarding limits on the use of lease income. Those limits, he said, apply only to income from leaseholders who have an option to buy the school property they are using.

Jack Price, superintendent of the Palos Verdes Peninsula Unified School District, said he was relieved to hear that clarification. Leaseholders in his district, who pay the district about $275,000 a year, don’t have options to buy, he said.

Some Districts Exempt

Curt Sutherland, a spokesman for the state Office of Local Assistance, said the attorney general’s opinion will not apply in districts where local taxpayers paid for the construction of their schools. In those districts--usually older ones like Peninsula that built schools without state funds--the property belongs to the local districts and they may use their discretion in spending the interest income.

Sutherland’s agency, which is part of the state Department of General Services, provides staffing for the State Allocation Board.

Schools totally or partially built with state money still belong to the state, Sutherland said, and therefore the state has a say on all monies, principal and interest, earned from the sale of such property.

Price greeted that news with relief also. “We have no outstanding debt to the state,” he said, “and we’ve paid every dime of interest” on old bond issues used to build Peninsula schools.

Price said a basic issue behind the interest battle is local control versus state control of school operations.