L.A. District May Forfeit $20 Million : Education: State panel votes to withhold some money earmarked for high school site if deal for Ambassador Hotel is scuttled in favor of cheaper land. Officials want to keep savings for eventual use.

The state’s school construction funding board voted Wednesday to force the Los Angeles Unified School District to forfeit $20 million if the district abandons its plan to build a high school on the site of the historic Ambassador Hotel.

The State Allocation Board did agree to give the district $30 million to buy land to build a campus on an alternative site--a vacant 24-acre lot near Temple and Beaudry avenues in Downtown Los Angeles--if that plan is approved by the Los Angeles school board and is found to be environmentally sound.

The Los Angeles Board of Education voted unanimously Monday to drop the condemnation action that would allow the purchase of the hotel from millionaire developer Donald Trump. It sought to abandon the project because protracted legal battles and the area’s plunging real estate values would force the district to pay more than the land is worth.

District officials appealed to the state Wednesday to allow them to use $30 million of the $50 million allocated for the Ambassador to buy the cheaper Temple-Beaudry site, while retaining $20 million for the future purchase of a site in the mid-Wilshire area, which desperately needs a new high school campus to relieve overcrowding.

District lawyer Rich Mason said the state board’s refusal to allow the district to pull out but keep the $20 million “may force us to go ahead with the condemnation action.”

After hearing arguments from Mason and Trump representative Barbara Res, the state board voted 4 to 1 to hold back the $20 million if the district drops the plan to purchase the Ambassador property, which has been controversial from the start.

“You got yourself into this spot . . . I didn’t get you into this mess,” Assemblyman Steve Peace (D-Chula Vista) said before voting with the majority to reject the district’s compromise offer.

Res said the vote was “good news for us and good news for the taxpayers and good news for the school kids. . . . This gives Los Angeles an opportunity to get a school at this site and make a deal with us and not get sued.”

But school board member Jeff Horton, who represents the mid-Wilshire area, said the loss of the $20 million would be a blow to the cash-starved district, which buses 5,000 students every day from crowded schools in the area to San Fernando Valley campuses.

For more than three years, Trump and the district have been locked in battle over the Ambassador site, unable to agree on a price. The district sued to take 17 acres of the 23.5-acre parcel by eminent domain, but faced the likelihood that a jury would set the price far higher than the $50 million the district says it can afford--more even than the land is worth, given the decline in real estate prices since the court case began in 1990.

Trump contends that the 17 acres, at 1990 prices, are worth $110 million; the district’s appraisal was $45 million.

Horton said even with the $20-million loss of state funds, he will urge board members at meeting Monday to drop the court case and buy the Temple-Beaudry site. “A trial is a loser,” he said. “If we go to trial and get a price of $60 million, it might as well be $100 million because we can’t pay it.”

However, Res said the district in January offered $82 million for the entire site, then backed out of the deal in March “because they said politically it wasn’t a good idea.” At that time the district was struggling to stay solvent and was embroiled in contract negotiations with teachers facing pay cuts.

“They approached us and we talked among ourselves and decided maybe we should put an end to the litigation, because it’s costing us $1.5 million a year to maintain the place,” Res said. “They negotiated a price . . . we shook hands, they brought in the lawyers and the papers were drawn up. Then they walked away.”

But Horton said that offer was only “a potential deal that we didn’t accept, because we couldn’t figure out a way to pay for it. The board never agreed upon it. We knew there was no way, in the midst of the negotiations with the teachers and all, that we could raise that kind of money.”

To begin court proceedings, the district had to borrow $48 million for a deposit on the property. The Trump organization accepted that money, but if the district drops its court case, Trump would have to return it, minus legal fees and court-assessed damages. The district has already paid about $8 million in interest on that loan.

“I’m afraid we still have to drop the condemnation and either they’ll keep the $48 million and realize it’s the best deal they’ll get in today’s market and we’ll get the land; or they’ll fight us for damages, then pay us back, or they won’t pay us and we’ll foreclose on the property,” Horton said. “Whether the kids in this area are going to get a school is in their hands.”

Banks reported from Los Angeles and Gillam from Sacramento.