LOS ANGELES -- Los Angeles County and Malibu. Calif., have settled their long-running dispute over a bond-financed sewer system in the seaside city.

On Tuesday, the Los Angeles County Board of Supervisors voted 3 to 2 in favor of a settlement agreement with the city. The Malibu City Council approved the settlement on June 22.

The agreement ends a longstanding feud over the county's involvement in Malibu's wastewater plans.

In 1989, amid controversy tied to some local opposition, the county sold $34.4 million of tax-exempt assessment bonds to fund a new sewer system in Malibu. The beachfront community fell under the county's jurisdiction because it was unincorporated at the time.

County officials contended that Malibu's current septic tank system was inadequate to handle the area's sewage and created a health hazard. But opponents of the major sewer system, who disagreed with the county's claims and also feared that the proposed system could spur too much development, sued the county to try to halt the project.

Malibu incorporated in 1991, but there has been continuing disagreement over whether the city or county maintained jurisdiction, over the wastewater plans. The bond sale was able to proceed in the face of litigation because the opponents agreed to a court stipulation that prohibited them from contending that the assessment district was invalidly formed, or that the bonds were unlawfully issued.

As a safeguard in case work in the assessment district was halted, the bond issue was structured to allow an extraordinary debt redemption at par.

County officials could not be reached for comment yesterday on their plans for the bonds, and they previously declined to predict how the debt might be handled if the project ground to a halt. They have said that a full or partial call may not be the only option if, for example, they were able to structure an escrow account to retire the issue over the life of the bonds.

According to the settlement agreement, "the district shall terminate as soon as the law allows after redemption or maturity of the bonds and collection of all delinquent assessments."

The agreement also provides that the county will not collect any annual assessment installments due after June 30, 1993. Property owners. under the agreement, also have one year to bring any delinquent assessment payments up to date before the county can start foreclosure proceedings.

The financing district previously tapped a reserve fund to cover some delinquencies, though a county official has stressed that the withdrawal did not seriously deplete the account. The bonds are secured by assessments on property in the district and are not an obligation of the county.

The settlement agreement calls for Malibu to implement various wastewater measures by the end of 1994, including potential on-site inspection of septic systems.

The agreement also phases in protection for the county from any future damages allegedly caused by the absence of a county wastewater system. Malibu's share of any such liability rises from 50% today to 100% by December 1, 1997.

Among other things, county officials have expressed concern they could be the target of allegations over whether the existing septic system played a role in any potential future landslides.

David Carmany, Malibu's city manager, said the city's proposed wastewater management program will focus on the septic system, and possibly include such measures as on-site inspection and pumping regulations.

He said he did not know how the existing bonds will be handled because that issue is "entirely within the purview" of the county for disposition.

The sewer district has spent more than $10 million on items such as engineering and design work and upgrading some small existing sewer lines. But Carmany said millions of dollars also have been collected in assessments, though he did not have the exact amount available.

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