WASHINGTON - The California Legislature gave final approval late Tuesday to a bill authorizing the Richmond Unified School District to settle a lawsuit by investors and pay off its defaulted certificates of participation through a refinancing.
The final Assembly vote of 66 to 4 follows the Senate's overwhelming approval of the bill last week.
While the bill's author, Assemblyman Tom Bates, D-Berkeley, said he expects Gov. Pete Wilson to sign the measure, administration officials said that is not certain.
Four state agencies are recommending that Wilson sign the bill, including the two defending the state in the lawsuit for its role in the default two years ago. But the governor apparently has not personally focused on the issue, aides said. He has until Oct. 7 to decide.
The governor's staff said last month that Wilson might oppose the bill because the prohibition against school district deficit financings like the Richmond financing was too broadly worded. But the wording was changed in an amendment that Bates offered before the bill cleared the legislature.
As first written, the bill would have banned lease-leaseback arrangements like the one underpinning the Richmond financing. But it also could have prevented school districts from renting out surplus property to generate additional operating income, as is currently allowed under the state education code, said Bill Furry of the governor's child development office.
Now that Bates has changed the language to clarify that only public lease financing for operating deficits is to be banned, the child development office supports the bill and is recommending that the governor sign it, Furry said.
Carl Rogers of the state finance department said his agency also insisted that the prohibition be corrected before the agency would support the bill.
The state education department and the attorney general's office, both of which are independent agencies defending the state in the lawsuit, back the legislation because it is needed to clinch a proposed settlement they reached late last month with the trustee of the defaulted $9.8 million issue. All parties in the case have agreed to the settlement.
Even though the bill now has the nearly unanimous support of the state agencies that influence the defaulted issue's fate, aides said no one is sure what the governor - known for his mercurial tendencies and feisty independence - will do.
"Sometimes what happens with bills is a big surprise," Rogers said, noting that in the past Wilson has vetoed bills favored by the finance department. Keith Yamanaka, deputy attorney general, said state attorneys drafted the settlement aiming to preserve Wilson's option to veto, the bill.
D. Ronald Ryland of Sheppard, Mullin, Richter & Hampton, the attorney for the defaulted issue's trustee, U.S. Trust Co. of New York, said it is possible that Wilson may neither sign the bill into law nor veto it. Under state law, if the governor doesn't act, the bill would become law after 30 days.
In favor of the bill's becoming law are several factors that have changed from a year ago when the administration scotched the school district's first offer to settle the suit through the refinancing plan.
Last year, state officials from Wilson on down said they wanted to pursue the court case because they had hopes of getting a favorable decision right away from the Contra Costa County Superior Court, where the case was just getting underway.
The state had been drawn into the suit over the defaulted certificates because it controlled the school district at the time of the default and had drafted a financial recovery plan for the district which envisioned no payment on the certificates for 10 years.
Several of the court's decisions have gone against the state in the last year, beginning with the court's ruling in December that the Richmond issue was constitutional despite the state's attempts to portray it as a violation of the state constitution's debt restrictions.
Superior Court Judge John F. Van de Poel ruled this spring that the school district was liable under the lease contract for making past due certificate payments, and he ordered the district to do so.
The school district appealed the adverse decisions, but the trustee's case against the state remained pending in the superior court and was scheduled to go to trial Tuesday.
According to Rogers, in the last year as the case dragged on, most state finance officials concluded that the matter should be put to rest, and that the refinancing was the best way to do it.
"Everybody would like to see the case resolved and move on," Rogers said. "We don't like to see any school district get in trouble, whether Richmond or Comptom or whatever. It blackens everybody's eye. But you just try to pull together and forgive as much as you can, and let the school districts get back to their basic business" of educating children, he said.
Another factor that helped win the support of the finance department and other state agencies for the refinancing bill was that the proposed settlement does not require the state to provide any further cash assistance or loans to bail out the Richmond district, Rogers and other state officials said.
Under the refinancing plan, the school district would take full responsibility for making the lease payments on the 30-year certificates issue refinancing the defaulted 10-year one.
State and school district officials said they believe the district will be able to find room in its annual $100 million budget to make the estimated $800,000 of yearly payments on the new issue. Yearly payments on the defaulted issue totaled about $1.4 million.
"We wanted to minimize the state's role" in the settlement, Rogers said. "It's always better when the state doesn't have to get involved or put up any money, and you get the school district to live up to its responsibilities."
