LAUSD SETTLES DISPUTE WITH IRS.

Byline: Helen Gao Staff Writer

The Belmont Learning Center will not include a retail complex under a deal with the Internal Revenue Service, which had accused the Los Angeles Unified School District of using tax-exempt bonds to pay for construction of private businesses, the Daily News has learned.

Under a tentative agreement, the IRS will not challenge the tax-exempt status of the bonds as long as district officials notify the agency if they plan to lease part of the school complex for private use.

School board member David Tokofsky welcomed the settlement, to be approved today by the school board.

``It seems like it's in the interest of the district to not belittle the IRS anymore and instead settle with them,'' Tokofsky said.

Superintendent Roy Romer had earlier dismissed the IRS inquiry as a ``tempest in a teapot'' that financially hurt the district.

School officials have not yet determined how they will use the space initially earmarked for retail business.

Charles Anderson, manager of tax-exempt bonds field operations for the IRS, and Joseph Zeronian, LAUSD's chief financial officer, both declined to comment on the tentative settlement.

A 78,700-square-foot retail center, possibly anchored by a supermarket, was initially proposed for the Belmont Learning Center. But in September 2001, the IRS issued a preliminary ruling that it would be improper use of tax-exempt bonds to finance a retail center involving private interests.

If IRS officials had let the adverse ruling stand, investors would have faced a tax liability, which, in turn, would have given them grounds to sue the school district.

IRS officials said they reached their decision after considering the financial impact of their audit on the district's ability to sell its tax-exempt bonds, also known as certificates of participation.

When news of the audit hit in May 2001, interest rates rose for the district's bonds, and investors returned $44.6 million of the outstanding Belmont certificates. But later the district was able to find buyers for $55 million worth of certificates at an interest rate of 3.75 percent.

The written settlement also says ``the district bears a significantly higher risk than normal of a failed remarketing of the certificates'' and ultimately ``a significantly higher interest rate'' if the audit were to continue.

The district has already spent about $74.7 million of the $91 million in Belmont certificates. District officials estimate that completing Belmont would cost at least $100 million in addition to the $175 million already spent.

The district resorted to issuing certificates to fund Belmont after a citizens oversight committee rejected using funds from the $2.4 billion Proposition BB school construction and renovation bond measure passed in 1997. Belmont certificates are being paid off with the district's operating funds.