WEST WARWICK — Scattered phrases, laughter and some shouting spilled out into the empty hallway last night at Town Hall, where, behind closed doors, the Town Council was meeting to discuss a settlement offer proposed by the School Department.

The offer would resolve the $1.1-million lawsuit — known as a Caruolo Action — the school district filed against the town in April. But after more than an hour of discussion the group emerged to unanimously vote for a counteroffer to the School Department. Town Solicitor Timothy A. Williamson said the offer would be given to schools attorney David G. Lussier today.

Council member Angelo A. Padula Jr. said he didn’t apologize for the council’s passion.

“We get carried away because we’re worried about our people,” he said.

The counteroffer agreed upon last night would make the entire amount the School Department needs to pay all debts — $1,162,343 — a loan that the department would have to repay to the town within three years. That amount, Williamson said, would not count toward the “maintenance of effort” regulation that requires towns to keep funding to schools consistent. The School Department would also pay for legal and expert fees incurred by the town in defense of the Caruolo suit.

In addition, the deal would require that two members of the Town Council be included as ex-officio members in negotiations with the school unions, and that the schools hire a labor attorney to assist in negotiations. Liaisons from the Town Council and School Committee would also make up a subcommittee that would meet at least monthly to discuss finances. The offer also seeks a consolidation of similar offices within the School Department and Town Hall.

Town Council member Edward A. Giroux said that while he was glad to see the two sides negotiating, the shortfall is a clear sign that things need to change in the district.

“If they can’t get their finances in order, maybe the Town Council can help them,” he said.

The town cut nearly $4 million in spending from its budget this year in response to less funding from the state and other spending obligations.

The School Committee will meet tonight to discuss the pending lawsuit and, presumably, the offer presented by the Town Council. The Town Council may meet tonight as well, should a response come from the school district regarding the counteroffer.

The town’s offer was in response to a proposed settlement presented by the School Department last week. According to Lussier, a recent review of school accounts showed that $613,216 of the $49.4 million budget taxpayers approved for the schools in 2007 was never paid to the district. Under the settlement proposed by the schools, the town would pay that money — less $475,000 to cover the schools’ overdue contribution to the state teachers pension fund. In addition, Williamson said last night, the schools proposed that the town loan the district $549,127 to pay any remaining outstanding debts.

The concept of the settlement was flawed, Williamson said, as the money the district claimed it never received was actually a budgeted increase in state aid that never materialized. The town has no obligation to cover that shortfall. Given that, Williamson said, the settlement offer “was insufficient.”

The trial was originally set to begin yesterday. Last week, a motion to dismiss the lawsuit was postponed to allow the two parties time to negotiate a potential settlement. Lawyers from both sides will confer in court tomorrow, Williamson said.

tbuford@projo.com