State Investigates County Plan to Raid School Fund

The state is looking into whether it’s legal for Orange County officials to divert money earmarked for schools and use it to solve their own budget woes.

County Board of Supervisors Chairman Bill Campbell announced the plan two weeks ago, saying officials would to county coffers to help fill a $49.5-million budget hole and stave off county layoffs.

Campbell said he was confident the state would reimburse the schools. But county Superintendent Bill Habermehl, who wasn't told of the plan ahead of time, said he doubts the state has the financial wherewithal to make Orange County’s schools whole.

And state officials now question whether the county has the right to even try to make a play for the funds.

"We're determining what the range of options are right now," said H.D. Palmer, deputy director of external affairs for the state Department of Finance. "Legal options may be one of them."

Currently, the county puts the property tax money in question into an account called the “education revenue augmentation fund.” From there, it is supposed to be distributed to school districts throughout Orange County, according to two finance officials in the county Department of Education, who noted that the fund was already expected to be $30-$40 million short this year.

This means the total potential shortfall to local schools . 

Campbell said county lawyers he consulted are confident Prop. 98 requires the state to reimburse the schools. Passed by state voters in 1988, the initiative guarantees school funding will comprise about 39 percent of the state budget.

Palmer said Orange County officials haven't shared their legal findings with the state, but he suspects they may be "rewriting or misinterpreting" the law.

"It does seem to us it may run afoul of the rules of the road," Palmer said. State officials are looking into potential responses but won't make a move until the county does.

Meanwhile, Habermehl and other school officials are closely watching revenue reports from Sacramento. Lawmakers added  if state tax revenues didn’t keep up with the rosy projections on which the state budget was based. So far this year, the state is $3.7 billion behind, reports the Sacramento Bee.