What is the difference between sex and gender?

That is what one Southern California school district is trying to decide and the outcome could cost it millions.

So far the Westminster School District (search) is the only district in California refusing to adopt an updated anti-discrimination policy that adds the word "sex" to guidelines that already include the word "gender."

"We could lose all state and federal funding," said Jim Reed, president of the Westminster school board. "Which in our case amounts to 40 million dollars."

Some board members oppose the change because it would also broaden the definition of "gender" to include a person's "perceived sex."

Board member Judy Ahrens is against the change because she fears what might happen if a boy decides he'd rather be perceived as a female and heads for the girl's bathroom.

"The ramifications could be that we have some peeping Toms," said Ahrens. "Kids get curious in the sixth grade."

But Reed disagrees. "I do not think that by the board complying with the state law ... and adding these words to our complaint procedure is somehow magically going to transform these young men into hysterical perverts, if you will," he said.

Westminster school officials have until early April to fall in line with state standards or face a series of potential consequences, including the state seizing control of the district.

Click here to watch a report by Fox News Channel's Anita Vogel.