WASHINGTON - California Gov. Pete Wilson at midnight Wednesday vetoed a bill designed to put the beleaguered Richmond Unified School District back on firm financial ground and resolve the lawsuit over its defaulted certificates of participation.

The veto, which came at the last minute possible by law, means that no settlement of the lawsuit is possible for the foreseeable future, according to attorneys defending the district in the case. The suit's first hearing, focusing on the constitutionality of the $9.8 million Richmond financing and others structured like it in California, is scheduled for Oct. 9.

"I think most likely we'll be in court a week from tomorrow," D. Ronald Ryland of Sheppard, Mullin, Richter & Hampton, attorneys for the issue's trustee, U.S. Trust Co. of New York, said yesterday "We will go forward until somebody pays us some money, and nobody has offered any."

The bill, initially viewed as a long shot, gained momentum after passing the Democratic-controlled legislature by large margins at the 11th hour before adjournment last month. Its sponsor, Assemblyman Tom Bates, yesterday pledged to push through another bailout bill that is perhaps more acceptable to the governor when the legislature reconvenes in January.

But the acknowledged in an interview yesterday that it may be difficult to rewrite the bill to please the governor. Gov. Wilson made it clear in his veto message and through other actions that he supports few aspects of the bill.

The chief provision to come under the governor's fire was the bill's state loan forgiveness plan, which had been engineered to quickly alleviate the district's debt burdens and enable it to settle the suit.

The plan would have required the state to immediately forgive $28.5 million in emergency loans it provided the school district during its bankruptcy last year, in exchange for obtaining surplus property from the school district. The state could then sell the property as reimbursement for the loans.

But the governor said "this proposal is too flawed to warrant enactment."

The state determined that the value of the surplus property was only about $15 million, far less than the amount of the loans, he said. And its only other option under the bill would have been to forego interest payments on $17 million of the loans, he said.

"The concept of using some of the district's assets to retire the loan from the state is a worthwhile objective," he said. "However, it is an objective that can largely be achieved under existing law. The district could manage, sell, or lease their surplus property in manner that allows the district to meet its obligations. I hope that they would do so."

Mr. Bates said the governor's statement that the state would be forced to lose money under the bill was inaccurate. Under terms of the bill, the district would still be "on the hook" to the state if sale of the surplus property failed to produce sufficient funds to fully reimburse the state.

Before shooting down the bill because of the loan-forgiveness arrangement, which was the heart of the bill, the governor's staff also made it known that the administration objected to other aspects. A draft veto statement, for example, said the administration also disagreed with a provision making the district eligible for desegregation funds.

Word that governor's staff objected to yet another provision of the bill allowing a refinancing of the defaulted issue had sent the Richmond school board scrambling on Tuesday to pass a resolution saying they would not avail themselves of the refinancing provision without the governor's consent.

The refinancing provision would have enabled the district to pay off the defaulted issue in full as well as pay for court costs in settlement of the case. But the school board's resolution said that rather than provoke a veto, it was prepared to continue the lawsuit and not use the refinancing provision.

The last-ditch attempt by the school board to get the governor to sign the bill was the last in a series of compromises instigated by Assemblyman Bates to secure the governor's approval.

Mr. Bates said he urged the school board to pass the resolution after hearing from the governor's staff that Gov. Wilson might veto the bill because he preferred to see the issues raised in the lawsuit settled in court rather than out of court.

Even though the lead attorney for the state at the state attorney general's office and the Education Department had signaled their willingness to resolve the suit, Mr. Bates said, the governor apparently decided personally that it should continue.

Some market participants agreed with Mr. Bates that while Gov. Wilson did not address the lawsuit directly in his veto message, his actions and other behind-the-scenes communications by his staff suggest that the administration does not favor a resolution of the lawsuit.

One market source expressed "shock and dismay" that the governor chose to block resolution, even though the suit could have dangerous implications for certificate of participation issues throughout the state.

"There was a lot riding on this bill," Mr. Bates said.

"The suit throws into question $20 billion of COPs in California," he said. "If the judge were to determine this is not a narrow case and rule the way the attorney general has asked, it would throw chaos into the bond market."

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