SQL works but same function is confused

Hi all,

I have this query that when executed as a SQL statement, it works perfect! The table tools contains many records in a time series, with attributes like category but without the field status. I assign the value of status 'active' or 'inactive' depending on whether the tool record exists after a certain time (number of seconds).

SELECT category, v_status as status, count (tool_id) AS tool_count
FROM
(SELECT distinct category, tool_id, 'active' as v_status
FROM tools
WHERE time >= 123456
UNION
SELECT distinct e1.category, e1.tool_id, 'inactive' as v_status
FROM tools e1
WHERE not exists
(SELECT e2.category, e2.tool_id
FROM tools e2
WHERE e2.sim_time >= 123456
AND e2.category = e1.category
AND e2.tool_id = e1.tool_id)
) AS derived_table
GROUP BY category, Status

However, when I write a function to return the same result, using this SQL statement, and I declare a local variable v_status TEXT; it errors out when executed. The key complaint is:
ERROR: column reference "v_status" is ambiguous...
DETAIL: It could refer to either a PL/pgSQL variable or a table column.

The function returns table (category, status, and tool_count) using RETURN QUERY in front of the query.
I used <<block>> before Declare section and try using block.v_status but this is not allowed (has syntax error). When I use #variable_conflict use_variable, there is no error anymore, but the resulted Status field is null. Seemed like Postgresql does not assign the v_status as we wish.

CREATE OR REPLACE FUNCTION get_status
RETURNS TABLE (category SMALLINT, status TEXT, tool_count BIGINT) AS
$BODY$

#variable_conflict use_variable
DECLARE
v_status TEXT;
BEGIN
RETURN QUERY SELECT category, v_status as status, count (tool_id) AS tool_count
FROM
(SELECT distinct category, tool_id, 'active' as v_status
FROM tools
WHERE time >= 123456
UNION
SELECT distinct e1.category, e1.tool_id, 'inactive' as v_status
FROM tools e1
WHERE not exists
(SELECT e2.category, e2.tool_id
FROM tools e2
WHERE e2.sim_time >= 123456
AND e2.category = e1.category
AND e2.tool_id = e1.tool_id)
) AS derivedTable
GROUP BY category, Status;

END; $BODY$
LANGUAGE plpgsql;

Thanks in advance for your insight or suggestion!

Michelle