WASHINGTON - The California Legislature yesterday sent Gov. Pete Wilson a bill to bail out the Richmond Unified School District and enable it to settle a much-watched lawsuit over its defaulted certificates of participation.
But aides to Gov. Wilson said he is leaning toward a veto. He believes leniency toward a badly managed district would set a bad precedent when many of the state's other school districts have been struggling to make ends meet, they said. The governor has until the end of the month to act.
As passed overwhelmingly just before adjournment by both houses of the Democratic-controlled Legislature the bill would give the Richmond district a fresh start financially by arranging the forgiveness of $29 million of state loans, which constitute by far the district's largest debt load.
Under a swap arrangement, the state would discharge the loans for 16 parcels of surplus property from the school district valued at more than $29 million. The state could then sell or rent the property as repayment for the loans.
The bill's architects say the district would be able to use its newfound financial freedom to pay off the $9.8 million of certificates. which went into default more than a year ago, through an unusual refinancing that the bill also would authorize.
To make the refinancing sail in a market that has grown wary of Richmond's notorious reputation, the bill would change the school district's name to "West Contra Costa County" and include a state guarantee of the refinanced issue. It would authorize the state to pay future debt service out of school apportionments if the district ever walked away from its obligation.
Hopes that the bill would pass the Legislature and be signed into law last month prompted attorneys on both sides of an investor lawsuit over the defaulted certificates to postpone a critical court hearing in the case.
But in private meetings in recent weeks with the bill's sponsor, Assemblyman Tom Bates, aides to Gov. Wilson, said they made it clear that he disapproves of the bill's loan forgiveness and surplus property, provisions.
"The state does not want to be in the business of taking surplus property, from the district and selling it," said Bill Furry, aide in the governor's child development office. That is a bad precedent for other school districts."
The governor and his "closest adviser on fiscal matters." state Department of Finance Director Thomas W. Hayes, have taken "a close personal interest" in the Richmond issue, the aide said.
But they are insisting that "the state not be responsible for the sale or lease of the district's property," he said. In a counterproposal to the Legislature, the governor's office suggested the school district first sell or lease the property, and then repay the state loans, he said.
That process probably would take months or even years and prevent any immediate resolution of the lawsuit, state officials said.
Rachel Richman, legislative aide to Mr. Bates, said the state Senate attempted to address the governor's concerns with various amendments in recent weeks, including one requiring the district to take responsibility for the state loans again after 15 years if the state has been unable to recoup its money through the sale or lease of the surplus property.
"We think this bill is a good compromise," she said. "We want to make sure that the state gets the money it's owed, and that the school district has a decent credit rating and can go back into the education business instead of being in the loan business or surplus property management business.
"We feel that everyone involved - the governor, the Legislature, and the school district - have a common interest in seeing the debts repaid and the school district back on its feet."
Support for the bill grew to be near-unanimous in the Legislature, she said, as lawmakers came to "understand that what happened in Richmond shakes up the COP market in a way the Legislature does not want."
Discussions with the governor's office have been "collaborative" and "constructive." she said, and Mr. Bates is still "hopeful that the governor will sign the bill." But she added that she has "not received any indication from the governor's office" that he will do so.
"Anybody who thinks this bill is a slam dunk should think twice." she said.
Mr. Furry said the governor's aides are presuming he will veto the bill because of the stipulation that the state dispose of the surplus property. He said the changes the Senate made in the bill appear to go too far in absolving the district of its responsibilities.
"The governor is not going to adopt a bad policy on the loans. period," he said. "If somehow it's necessary to arrange a deal on title property and the loans that will resolve the lawsuit, that's fine. But we're not going to adopt a bad policy on the loans in order to resolve the suit."
Mr. Furry suggested that rather than accept the bailout bill, the governor might be willing to revise the district's repayment schedule on the state loans, if necessary, to resolve the lawsuit.
State Controller Gray Davis, recalling discussions with the governor over the Richmond situation, said Tuesday it was also his "instinct" that the governor would veto the bill.
The veto possibility looms despite the support the bill has received from the two offices representing the state in the Richmond lawsuit. Taking the lead in the case are Attorney General Daniel Lungren and Department of Education head Bill Honig, both of whom are elected separately from the governor.
Michael Hersher, deputy general counsel of the education department, said the department would be "thrilled" if the district regained financial independence, as the bill intends, and stopped being a charge of the state.
The attorney general, who has taken the controversial position in the lawsuit that Richmond's defaulted issue was unconstitutional, is publicly "neutral" on the legislation, state officials said.
But in conversations with the governor's staff, Mr. Furry said, the attorney general has backed the bill. "I get the impression they would like the district to repay the COPS and let the suit resolve itself." he said.
"The attorney general thinks this is a bad lawsuit with bad facts, and you don't get good law out of a messy case," he added.