Schools Warned of Closure, State Takeover : Education: Officials are told to insist on 100% refund of investments at first gathering since bankruptcy. Group is compiling ideas for recovery to present to county.

About 100 school officials from throughout Orange County, meeting here Wednesday for the first time since the county declared bankruptcy, were warned that schools will be shut down or taken over by the state unless all the money school districts placed in the county’s now-failed investment pool is repaid.

County and state education leaders, as well as an attorney representing schools in the bankruptcy, told local school board members and superintendents they must insist on a full refund on their investments--which totaled more than $1 billion--and make the county itself take the loss.

“If you don’t get access to your money, you’re out of business. The state will take you over,” attorney Merrill Francis said to the group gathered at county Department of Education headquarters. “This is a wealthy county. It may have to raise fees. It may have to raise taxes. It may have to sell off some property. It may have to cut.”

Francis said the committee of pool participants is considering ideas for recovery to propose to the county, including an added half-cent sales tax and a five-year extension of Measure M, which could raise more than $500 million.

But Francis noted that even if investing agencies were fully reimbursed--a prospect county officials have insisted is impossible--schools would still lose about $60 million in expected interest this year, which could translate to cutting 1,800 jobs.

“It’s our goal to get 100% of the principal back,” Francis said. “But that doesn’t mean schools won’t feel the pain.”

In the audience, some were dubious of the relatively upbeat outlook.

“We go belly up in April if we don’t hear anything,” confided Santa Ana Unified School Board Trustee Audrey Yamagata-Noji. “We can make it through March, then we’d have to close. That’s very soon.”

State Secretary for Child Welfare and Education Maureen DiMarco said her office would continue to act as a liaison among state, county and local officials, but reiterated Gov. Pete Wilson’s pledge that the state would not bail out Orange County.

“You don’t want the state involved if you can possibly avoid having the state involved,” said DiMarco, a former Garden Grove Unified trustee. “I can assure you, there are no such things as bailouts in the state of California. There are horrific things called loans. State intervention is not something we want to come about.”

Indeed, officials plan to use the threat of a state takeover of local schools to lobby the Board of Supervisors and the public about the importance of refunding all money tied to education.

In a 25-page document sent Wednesday to school leaders countywide, Westminster school district Supt. Gail Wickstrom outlined a four-phase “100% campaign” that begins with lobbying supervisors and writing letters to the editors of local newspapers.

If the county refused to repay schools in full, the plan calls for litigation, district bankruptcies and acceptance of state aid.

The plan describes the schools as “innocent victims,” stresses the county’s “moral and legal obligation” to repay schools, and says a failure to do so would result in “very deep and dramatic cuts to the instructional programs” that would make property values and the quality of life in Orange County “plummet.”

If the county proposes a plan to repay schools less than 100%, the plan calls for a news conference denouncing the “ugly” proposal, a mass-mailing of thousands of letters to the Board of Supervisors, and rallies in the streets.

At Wednesday’s meeting, school board members questioned county officials about everything from what money was being used to pay the county’s public-relations firm to whether districts could waive the March 15 deadline for notifying employees they would be out of a job the following year.

Many asked repeatedly if the five school districts that borrowed heavily for the sole purpose of reaping profits from the now-bankrupt pool were being considered equally to other districts, which had only their operating funds tied up in the pool, as required by state law.

“I think we need to stick together. We want all of these to be treated the same,” said Ronald Wenkart, general counsel for the county Department of Education. “It’s all district money, it’s all money for kids. We want 100%.”