DALLAS -- Two taxpayers have sued the Dallas Independent School District, accusing administrators of illegally diverting bond funds to pay the salary of teachers reinstated after the district amended its $544 million budget.

The two, Don Venable and Richard E. Finlan, Filed suit Tuesday in Dallas County District Court asking a judge to block the use of $2.3 million of bond proceeds and force the district to find other ways to balance its budget.

But Superintendent Marvin Edwards said the two have it all wrong.

"We're not using bond money to reinstate teachers," he said. "It's a frivolous lawsuit, and it allows them to receive publicity. They're attempting to discredit the school district."

The suit charges that to fund teaching positions, the district reimbursed the general fund with bond proceeds for projects already planned or paid for -- an act they say is illegal under Texas law. It also alleges that the action effectively taxes residents twice, because property taxes pay for the general fund and debt service.

Mr. Finlan said he also has contacted the Internal Revenue Service and plans to ask the agency to declare taxable any bonds whose proceeds were misused. An IRS spokesman could not be reached for comment.

"What they did is like going to the bank and taking out a 30-year loan to pay the light bill," said Mr. Finlan, who is a frequent critic of Dallas bond programs. "It's not good business. We want to see those bond funds used for [projects] that voters approved."

Mr. Venable added, "We're trying to get a judge to tell them to be accountable."

But Mr. Edwards said his district is still using the bond funds for designated projects. In fact, he said the district has only legally reimbursed itself for $900,000 in projects completed in past years and decided to use bonds, rather than operating funds, for $1.4 million in capital expenses this year.

The bond funds were part of the district's last capital issue, in 1985. Dallas expects to ask voters next fall to approve a new school bond plan of at least $275 million.

"We identified projects legal to do with bond money and transferred bond money to do those projects," Mr. Edwards said in an interview. "There has been nothing illegal or unethical throughout this process."

He said the use of $2.3 million was authorized after consulting with the district's bond counsel, McCall, Parkhurst & Horton in Dallas.

The district recently amended the budget it passed Aug. 20 to cover the cost of reinstating 127 teaching positions cut in earlier budget-balancing efforts.

The cuts were part of an effort by administrators to counter a $47 million loss in funding blamed on the state's controversial new school finance law.

Dallas is among an estimated 100 districts in Texas that must share nearly $400 million in property tax wealth with poor districts under the so-called Robin Hood plan state lawmakers passed in April.

The jobs were restored after teachers, students, and parents gained national attention by protesting outside the district administration building.

Last week, the district announced that it would be able to restore the teaching jobs after reaching an agreement for teachers to cooperate and use fewer sick days, which will require the district to spend less on substitutes.

Mr. Edwards said he believes the rating agencies will be satisfied that the combination of new funds, cutbacks, and concessions does balance the budget.

He also said he believes rating agencies are more concerned about the declining fund balances the district has experienced in recent years. That will likely be a matter for discussion when Moody's Investors Service visits the district to review its triple-A rating this fall.

Dallas is the last major city school district with the agency's top rating. Standard & Poor's Corp. has assigned the school AA-plus.

"We think that we can show that we are going to be able to go in the other direction on the fund balances," Mr. Edwards said.

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