LOS ANGELES - San Diego officials are readying the city's first tax-exempt bond issue for a new sewer improvement plan after a U.S. District Court judge approved the bond sale last week.

San Diego is expected to sell between $300 million and $500 million of revenue bonds this fall, following months of wrangling over upgrades to the city's sewer system and treatment plants, said Patricia T. Frazier, financial management director for the city.

U.S. District Court Judge Rudi M. Brewster issued the interim order Friday. It approves issuance of bonds for the sewer program and other projects while freeing the city for 19 months from having to meet the deadlines contained in an improvement plan previously ordered by the court.

The ruling says economic hard times justified setting aside the $2.5 billion plan, which would have required steep rate increases.

The city welcomed the decision. "We've been waiting a long time for this to be resolved, and finally this is a resolution," said Shari Sacks, supervising economist for San Diego. "For financing purposes, this is a big step forward."

San Diego has been trying to frame a program for its sewers since 1988, when the state and federal governments sued the city for noncompliance with requirements for secondary treatment of wastewater.

Under court order, the city negotiated an improvement plan with the U.S. Environmental Protection Agency and the California State Water Resources Control Board. The plan includes certain court-imposed deadlines, or milestones, for sewer improvement and water cleanup.

But Judge Brewster's interim order last week says the city could disregard these milestones for 19 months and instead implement its own improvement plan. The judge will revisit the issue next year.

The judge referred to "changed circumstances" in his order, saying the recession and reduced water usage had hurt sewer revenues in San Diego, making the court-ordered $2.5-billion sewer plan more difficult for the city to finance.

Just how much the city's scaled-down projects would cost remains unclear, but Ms. Frazier said they will be much cheaper than the court-ordered plan.

"We are ecstatic," said Ted Bromfield, chief deputy city attorney. "We think this will give the reassurance necessary to the market and to bondholders. The judge is saying that the court will not affect this bond issuance for these specified projects."

In 1989, the city selected the Public Resources Advisory Group and Grigsby Brandford & Co. to be financial advisers on the sewer bonds. Orrick, Herrington & Sutcliffe is bond counsel.

Under the court-ordered timetable, the city initially expected to increase sewer fees and to sell $1.6 billion of tax-exempt bonds between 1993 and 1998 to pay for an upgraded sewer system. The city was considering politically unpopular sewer rate increases of 15% annually, starting next year.

In April, however, city officials charged that the court's plan was costly, inefficient, and potentially harmful to the environment. They proposed an alternative that would reduce the project's scope and keep rate hikes to about 6%.

San Diego discharges about 180 million gallons of sewage effluent daily that undergoes "advanced primary" treatment several miles off Point Loma, Calif. The EPA argues that the Point Loma plant must be converted to a secondary treatment plant, which would remove a higher percentage of solids from the wastewater.

Judge Brewster said, however, that Point Loma could remain at the advanced primary stage until at least May 1993.

"What this does is reduce the scope of the program, at least for the near term, and reduce the impact on ratepayers," said Ms. Frazier.

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