SAN FRANCISCO - A bill that would settle a developer's lawsuit and allow the city of Half Moon Bay to avoid paying an $18 million settlement cleared the California Assembly last week and now awaits disposition in the Senate.

AB 1991 was introduced as a vehicle to implement the settlement, which was negotiated in the wake of a legal setback that threatened to bankrupt the city.

In November, a federal judge ruled in favor of the developer who brought the lawsuit, awarding almost $37 million in damages. City leaders said the judgment could bankrupt Half Moon Bay, which has about 13,000 residents and a general fund budget in the $11 million range.

The local government had zoned the developer's property for new homes and started constructing storm drains before imposing a sewer moratorium that halted development for years.

The federal judge found that the coastal city was to blame for constructing the storm drains that turned the developer's property into a wetland that cannot be developed under state law.

In April, the city and developer announced a settlement that boils down to an "either-or" proposition: either the city obtains state legislation that will allow the tract to be developed despite the state's wetland rules, or it will pay the developer $18 million.

As the city doesn't have the $18 million, it expects to issue bonds if it has to finance the payment, according to city documents.

That nature of the bill has drawn opposition from the California Coastal Commission and numerous environmental organizations. The city's public employee unions, on the other hand, fearing the impact of the $18 million judgment on the budget, have come out in support of the bill, which was introduced by Gene Mullin, D-San Mateo, whose district includes Half Moon Bay.

The bill passed the Assembly on a 46-to-18 vote, with many "no" votes coming from members of the Assembly's Democratic majority.

The bill has not received a committee assignment in the Senate.

After losing the court case, the city hired Orrick, Herrington & Sutcliffe LLP as counsel and Piper Jaffray & Co. as financial consultant.

According to Half Moon Bay's most recent comprehensive annual financial report, as of June 30 it had $365,000 of outstanding bond debt, as part of a multi-city pool of lease revenue bonds issued in 2001 through the Association of Bay Area Governments.

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