Hearing Set on Fate of Prop. A Funds : Tax: State appeal court will discuss what to do with $350 million already collected on sales tax increase that was ruled unconstitutional.

A state appeal court has opted to hold a hearing on the fate of $350 million collected under a half-cent San Diego County sales tax that was levied for new jails and courts but was ruled unconstitutional, court officials said.

The 4th District Court of Appeal will hold oral arguments Nov. 4 in San Bernardino, the court announced recently.

The money has been sitting in a special account, frozen since the state Supreme Court ruled in December that the half-cent sales tax increase had not been enacted properly.

Voters set up the tax in 1988 by approving a local initiative, Proposition A, by a 50.6% margin. But the Supreme Court ruled that it would have taken a two-thirds margin to approve the levy under provisions of Proposition 13, the landmark 1978 property tax-cutting measure.

The Supreme Court ruling was finalized Feb. 13, and local retailers immediately stopped collecting the tax, dropping the sales tax in the county to 7.75% from 8.25%.

The high court sent the case back to the 4th District to figure out what to do with the $350 million.

The county wants the money. But the loose coalition that brought the suit challenging the tax--mostly activists linked to the Libertarian Party--wants it refunded, by an additional one-cent temporary rollback in the sales tax.

The last legal briefs in the case were filed May 8, and lawyers had said in recent weeks that an opinion should have been forthcoming.

But, in a Sept. 25 order, the 4th District court set the Nov. 4 date for oral argument. The court did not indicate what issues it plans to consider.

Regardless of the outcome of the case, county supervisors are once again asking voters for a half-cent sales tax increase for criminal justice needs.

On the November ballot is a measure that would generate an estimated $125 million annually for jails, courthouses, a communications complex, officers to run those facilities and more police for municipal law enforcement agencies. It, too, is called Proposition A.