LOS ANGELES--In a move that may throw California's recent budget agreement out of whack, state Controller Gray Davis has refused to certify language allowing California to recapture $1.1 billion of funds paid to schools during fiscal 1992.

Part of this year's budget agreement allows schools to keep $1.1 billion of funds paid during fiscal 1992 that were in excess of minimum guaranteed state funding levels. That money is to be recaptured by the state during fiscal 1993, which began July 1.

But Davis said he told legislators months ago that the budget language was not sufficient to allow for a recapturing of funds. He said a technical bill to correct the language is needed before he will certify the language.

"It annoys the heck out of me," Davis said in a phone interview yesterday. "We told them this language is defective, then they try to jam me and make me certify it. However, no great harm is occurring. We're not trying to do an end run around the Legislature."

Even though no technical bill has been passed, Davis said he is continuing to make payments to schools at levels that recapture the $1.1 billion. He cautioned that this could change if the language is not corrected.

Davis said state Superintendent of Schools Bill Honig is billing him at levels that include the $1.1 billion reduction.

Alarmed by the controller's stance, state Finance Director Thomas W. Hayes sent a letter to Davis on Monday asking him to clarify his position on the school funding issue by noon today. If Davis does not respond, Hayes said in the letter that he will "assume [Davis has] rejected my request to implemented [the budget school funding provision] as the Legislature and the administration intended and proceed accordingly."

A spokesman for the controller said he interprets this statement as a possible lawsuit threat. Ranking officials could not be reached at the Department of Finance for comment.

Davis said he intends to respond to the letter by noon today and called on Gov. Pete Wilson to request a special session of the Legislature to resolve the issue.

The budget agreement, which was passed Sept. 2, has a statute of limitations for legal action that expires Oct. 28, which is the reason for the deadline in Hayes' letter.

Opponents of the controller's interpretation met yesterday to discuss possible legal action. Some of those opponents are concerned that if the budget is thrown out of balance, the state may look to other sources for revenues, such as cities or countries.

"There has been discussion of a coalition possibly taking some legal action," said Ron Roach, spokesman for the California Taxpayers' Association. "We are not alone in this."

Sources said a coalition could include the California Association of Countries, the Howard Jarvis Taxpayers' Association, the California Chamber of Commerce, and the League of California Cities.

In his letter, Hayes charges that Davis' refused to certify the current language in the budget would increase the funding levels for schools this year and in future fiscal years, thereby surpassing levels agreed upon in the budget.

The fiscal 1993 budget agreement included an accounting maneuver reducing last year's school appropriations by $1.1 billion because the money was in excess of levels guaranteed by Proposition 98, a constitutional amendment that guarantees 40% of the state budget for schools.

Legislators converted the $1.1 billion into a loan to be rapid from this fiscal year's Proposition 98 allocations.

The school budge provision contains a "poison pill" allowing for the suspension of Proposition 98 minimum funding levels if an appellate court finds that the loan provision is unconstitutional or invalid.

Davis contends that SB 766, the budget legislation that allows this loan and creates Section 703 in the budget, contains a technical error requiring corrective legislation.

"At the time the loan was made there was no money," said Scott Schaefer, a spokesman for the controller. "Can you go back retroactively and call it a loan when the money is already appropriated? There may be a legal question."

A bond official statement for the state's recent $1.3 billion general obligation bond sale discloses that if corrective legislation is not forthcoming, the ending negative fund balance for fiscal 1992 would be $3.274 billion instead of $$2.191 billion. It also says that the beginning negative fund balance for this fiscal year would also be increased.

However, the official statement says the state Department of Finance believes there would be no change in the beginning negative fund balance for this fiscal year, even if corrective legislation is not approved.

Officials from Wilson's office did not have details on the controversy.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.