CRANSTON — The School Committee last night approved a settlement of its $4.9-million lawsuit against City Hall — a move that may be of little consequence given the City Council’s rejection of the deal Tuesday night.

The lawsuit, filed in May, was designed to boost local education aid for the fiscal year that ended Monday.

And the agreement, hammered out by lawyers for the city and schools over the last two weeks, was meant to do the same.

Now that the School Committee has signed off on the settlement, Chairman Michael A. Traficante said he hopes the council will reconsider.

“We’re holding out for negotiations,” he said.

Without a last-minute deal, the district’s lawsuit, known as a Caruolo action, will go to trial in Superior Court.

The legal showdown has been brewing for months.

School officials had long warned that the $125.3 million the city allocated the district for the 2007-08 fiscal year was not enough.

And when the district filed its lawsuit, in May, the city shot back –– asking for a court order directing the schools to live within their budget.

But as the sides moved toward trial, they held out hope for some kind of negotiated settlement.

A copy of the confidential draft agreement, obtained by The Providence Journal, points to a complicated, novel effort to resolve the short-term financial tussle –– and prevent future budget battles.

The city would pay all of the schools’ outstanding expenses for the 2007-08 fiscal year –– an amount now estimated at $5 million.

And up to $3.5 million of that amount would be added into the school district’s “base” funding formula –– a minimum allocation that the city must pony up year after year, under state law.

As a result, the school district would get the same bounce –– of up to $3.5 million –– for the newly begun fiscal year.

School officials have argued that boosting the base is critical if the district is to avoid further financial problems –– and more lawsuits against the city.

The agreement calls for five accounting and school finance experts –– two now working for the schools, two for the city administration and one for the City Council –– to sort through the schools’ budget and determine exactly how much money would be built into the base.

The standard: only expenses required by law, regulation or contract would be included.

But the accounting team would have other functions, too.

The group would identify mid-year cuts for the 2008-09 fiscal year and further reductions for the 2009-10 fiscal year; look at privatizing bus and food services; recommend changes in the schools’ approach to labor negotiations; examine consolidations of similar city and school operations and develop a more transparent schools budget.

The School Committee, according to the settlement, would “duly consider” the recommendations and “seriously consider implementing” them.

Councilman Emilio L. Navarro, who voted for the agreement Tuesday night, said the opportunity to force long-term belt tightening on the schools was part of the appeal of the settlement.

City officials, he noted, have long been frustrated by the fact that they must cover the school district’s bills but can do little about its spending.

But Republican Councilman Jeffrey P. Barone, who voted against the deal, said he was far from convinced that the settlement would force any serious shift in the schools’ spending habits.

In fact, he said, handing over cash for the 2007-08 and 2008-09 fiscal years would only encourage the district to continue what he called its free-spending ways.

But Mayor Michael T. Napolitano, a Democrat, issued a stern rebuke yesterday to Barone and the other council members who voted against the settlement.

The city could lose in court, he said, and wind up owing the schools more than is set forth in the agreement.

Moreover, Napolitano said, a court order would probably not impose the long-term checks on spending built into the deal.

“I’m very upset that [the council] didn’t go through with [the agreement],” he said. “This was the responsible thing to do.”

With no deal in place, the Caruolo matter appears to be headed for the courthouse.

The trial was originally scheduled to begin Monday, but has been put off.

Lawyers on both sides said they welcome the delay. After all, they had no time to prepare for the courtroom battle in recent weeks: they were too busy crafting the settlement.

dscharfe@projo.com