O.C. and State in Tentative Accord on School Funds

State and local education officials have come to a tentative agreement with Orange County to keep all school funds in an account separate from the ailing county treasury, officials said Monday.

Administrators at the state Department of Education said they will not send $47 million due Orange County districts at month’s end unless they get a guarantee from the Board of Supervisors or a court that the money will be used only for education.

The county’s bankruptcy attorney, Bruce Bennett, said Monday that he would probably approve such a plan.

“The concept that new money provided by the state should be segregated and applied solely for its intended purposes is sensible and is acceptable to the county,” Bennett said. “That pattern will hold where it continues to make sense.”

Ronald Wenkart, an attorney for the Orange County Department of Education, said he had faxed a draft of the plan to county officials late Monday and expected approval as early as this morning. He said the plan would include segregation of all incoming school funds and a conservative investment policy for that money.

“If we can reach this agreement, that’ll get us out of the woods in the short term and we can continue to operate,” Wenkart said. “Then we can deal with the long term.”

Calling last week’s bankruptcy filing “surely one of the gravest crises yet to confront public education,” County Supt. of Schools John F. Dean said he is “hopeful that special protections can be put in place . . . to ensure that monies collected for public education are available only for those purposes.”

But until the plan is secure, officials in local districts remain concerned about everything from meeting their payroll to paying their electric bills. Teachers are paid monthly. Other district employees are normally paid semimonthly, but were scheduled to receive paychecks both this Friday and last because of the holidays.

The now-daily memo from Dean to local superintendents Monday said he “anticipates” approval of this Friday’s payroll to 28,000 school employees and that he has “not yet heard” about January paychecks for the county’s 20,000 schoolteachers.

“We’re not trying to unduly panic people, but we feel an obligation to be honest with them and say, ‘We don’t know,’ ” Capistrano Unified School District spokeswoman Jackie Price said. “We can’t guarantee that there will or will not be a Jan. 3 pay. It’s out of our hands.”

Other school administrators said they are still keeping capital improvements on indefinite hold, have frozen all hiring and stopped all but essential purchases.

“We’re not making any large purchases for paper, pencils and crayons,” said Jack Sarnicky of the Anaheim City School District. “Things that are normally stocked at a level to last a couple of months, we are just using what’s on hand . . . letting those stocks come down until we hear whether we can pay vendors.”

Leaders of the county’s 31 school districts have scheduled a special meeting this morning at 7:30 for further updates on the ongoing crisis.

In Sacramento, Secretary of Child Development and Education Maureen DiMarco expressed confidence that the schools would continue to run smoothly, while Assembly Speaker Willie Brown said the Legislature should consider emergency loans to schools.

“There are a lot of people expecting 30-some school districts to go belly up. That’s a rash, unwarranted assumption at this point,” said DiMarco, who is from Cypress. “I think everyone is legitimately concerned, but I certainly urge people to not panic at this point. We don’t have information that warrants panic at this point.”

Brown, meanwhile, said schools should be considered separately from cities and other government agencies as state officials consider bailing out Orange County.

“We can’t afford to let school districts shut down,” said Brown, who is considering convening a special session of the Legislature in response to Orange County’s crisis. “You have to step up to the plate, because (schools) are running out of money now.”

In fact, county officials said, the schools may be the first to receive solid assurances about their future, with plans in the works to set up a fund separate from the county treasury.

Late Monday afternoon, acting state Supt. of Public Instruction William D. Dawson sent a letter to Board of Supervisors Chairman Thomas F. Riley demanding that the supervisors agree by Friday to segregate all local tax revenue, state and federal money earmarked for public schools from the county treasury. Dawson also asked in the letter that the supervisors use the segregated funds to “ensure the orderly conduct of public education . . . making the payment of school district payrolls a top priority.”

“Education is different than any other public service, it is required by the Constitution,” said Susie Lange, spokeswoman for the state Department of Education. “The state is under an obligation to continue the education of children, where they don’t have an obligation to continue sewer service.”

In his letter to Riley, Dawson said that unless the supervisors agree by Friday to protect school money from the bankruptcy action, he will circumvent the county and find a way to deliver money directly to the schools.

“Quite frankly, we’re not going to send it, not unless we get some guarantees that these funds are going to be used for running the schools in Orange County,” Patrick Keegan, director of the state’s school business services division, said of the $47 million due local schools at month’s end. “If we can’t get those guarantees, then we’re going to have to rethink and see where we can put the money so the school districts can access it.”

Administrators at school districts throughout the county have said repeatedly in the week since the bankruptcy filing that if incoming funds are immediately separated from the rest of the county pool, schools will be able to function normally for several months.

The next step, several administrators said, will be to gain access to money deposited with the county before the bankruptcy filing--more than $1 billion that belongs to schools.

“I want that money returned home,” Laguna Beach Unified Supt. Paul M. Possemato said.

“It’s a hand-to-mouth existence,” added Jerry Buchanan, Huntington Beach City School District assistant superintendent for business. “It’s no fun not having the reserve in the bank to cover you.”

Many other administrators echoed Buchanan’s frustration at the dearth of information and lack of written guarantees protecting payroll and other expenses coming from the county. Several have retained private bankruptcy attorneys, although they remain unsure what legal action, if any, they will take.

“My hope is that lines of communication will open up quickly. School districts are usually silent players, but we do have political muscle,” said Cypress Supt. William D. Eller. “There are a lot of parents and grandparents of schoolchildren out there who are concerned about what’s going to happen to the schools.”

Times staff writers Eric Bailey and Dan Morain in Sacramento and correspondents Bill Billiter, Debra Cano, Leslie Earnest and Danielle A. Fouquette contributed to this article.

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