Just when the battle between the San Francisco 49ers and South Bay schools was supposed to be over, the state of California has rejected a $30 million settlement that sought to split taxpayer funds between a football stadium and the classroom.

The state's decision could result in millions of dollars lost to both the Niners and struggling local schools and will send the battle over the money back to court. But it won't slow ongoing construction of the 49ers' new Santa Clara stadium.

Santa Clara voters had earmarked $40 million in redevelopment taxes for the new stadium in 2010, but local officials shocked the region in June by trying to take the final $30.2 million for local governments, primarily schools. An ensuing public argument pitted football fans against school parents.

However, the saga ended -- or so everyone thought -- with a compromise in August, when the 49ers agreed to delay their full share of the funds for a few years and give school districts about half the money they were seeking.

But the California Department of Finance, which is in charge of enforcing how redevelopment funds are spent, denied the settlement in an Oct. 15 letter publicized Monday. Finance officials said all redevelopment-related contracts needed to be signed before the Legislature and Gov. Jerry Brown approved a law in June 2011 scrapping redevelopment agencies.


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Technically, the most recent agreement to give schools a portion of the money did indeed come well after the cut-off to assign redevelopment funds. But Santa Clara Mayor Jamie Matthews called the state's ruling a "mind-numbing bureaucratic interpretation," saying the original deal with the 49ers was struck years ago and was only modified recently as part of a state-mandated process.

"I can tell you, it's really frustrating," said Bobbie Plough, superintendent of the Santa Clara Unified School District, which stood to gain $7.5 million over three years from the agreement. She said the state's decision could mean more cuts on top of the district's move this year to reduce the school year by a week. "Why are we doing this if they're simply going to overturn our decisions?"

The local schools and governments on Nov. 26 will ask the state to overturn its ruling, and the Finance Department is expected to make its final decision by Dec. 18. If that fails, the 49ers' ongoing lawsuit over the funds, which had been left on pause in light of the settlement, would resume with a hearing on March 22.

The 49ers expressed disappointment but said the decision would have no impact on their expected move to Santa Clara in 2014. Construction on the $1.2 billion stadium began in April, and the remaining 97 percent of funding has already been secured.

"The settlement would have ended the litigation and delivered immediate funding to the school district," the 49ers said. "We will turn this matter over to the legal team and await a resolution by the court, hopefully sometime next year."

Matthews suggested the Brown administration waited to release the funds until after the Nov. 6 election, when Brown is asking voters to approve Proposition 30, a tax hike that would help fund schools.

Finance Department spokesman H.D. Palmer rejected Matthews' claims and said the state has denied redevelopment funds to many other cities because their contracts came too late. More than 400 cities that had redevelopment agencies are going through a similar process.

Contact Mike Rosenberg at 408-920-5705. Follow him at twitter.com/rosenberg17.