CRANSTON –– Despite renewed calls for a settlement, the City Council seems poised to fight the School Department’s $4.9-million lawsuit.

The schools sued City Hall in May to increase local support for education for the fiscal year that ended June 30.

Last week, in a 3-3 vote, the council rejected a proposed settlement.

Three of the council’s nine members were not present for the vote, though, and members who support the deal are convening the panel for a second tally tomorrow night.

But two of the three council members who missed the first vote –– John E. Lanni Jr. and Richard D. Santamaria Jr. –– suggested yesterday that they are leaning against the agreement.

“I’m not opposed to a settlement,” Lanni said. “However, I have real questions concerning, what does it accomplish –– other than a bailout.”

He went on to say the School Committee has made “no honest effort” to cut spending and added that he is “not optimistic” the settlement will win approval.

Santamaria used similar language, saying he is “open-minded” about the settlement, but “not optimistic” about its chances.

“I would rather have it go through the judicial process,” he said.

Councilwoman Maria Bucci, the third member who missed the vote last week, did not return a call for comment yesterday.

If the settlement bid fails, the schools’ lawsuit –– known as a Caruolo action –– would go to trial Monday in Superior Court. Lawyers were busy taking depositions in the case yesterday.

The city and schools have been on a collision course for months.

School officials had long warned that the city’s $125.3 million appropriation for the 2007-08 fiscal year would not cover all of the district’s expenses.

The schools ran out of money in late June, just a month after the School Committee filed its lawsuit.

The city countered with a legal filing of its own –– asking for a court order that would compel the school district to live within its means.

And last month, lawyers for both sides got to work on the settlement.

A copy of the confidential agreement, obtained by The Providence Journal, points to a novel effort to resolve the schools’ immediate financial troubles and prevent more lawsuits down the line.

The city would pay all of the district’s outstanding expenses for the recently completed fiscal year –– a figure now expected to reach $5 million.

Up to $3.5 million of that amount would be built into the school district’s base funding formula –– a minimum allocation the city must put up year after year, according to state law.

A panel of five financial experts would comb through the district’s budget and determine exactly how much would be built into the base.

The group would also look at ways to trim the school budget; explore privatization of school bus and food services; recommend changes in the schools’ approach to labor negotiations; examine consolidation of similar city and schools functions; and work with the school district’s chief financial officer to develop a more transparent budget.

The School Committee, according to the agreement, would “duly consider” the group’s recommendations and implement them “unless there exists legitimate, good-faith reasons to do otherwise.”

The School Committee endorsed the agreement last week. And council members who voted for the deal said it represented a unique opportunity to impose fiscal discipline on the schools.

But Councilman Jeffrey P. Barone, who voted against the agreement with Councilman Terence Livingston and council President Aram G. Garabedian, said the reform measures built into the settlement are not strong enough.

He also objected to any boost in the school district’s base funding, arguing that the city cannot afford to underwrite what he deems out-of-control school spending.

School Committee Chairman Michael A. Traficante, who is urging the council to approve the settlement, objected to Barone’s characterization of the schools’ fiscal habits.

He said the committee has cut close to 80 positions from the district’s payroll in the last three years, from central administrators to assistant principals to teachers and custodians.

“We haven’t sat on our hands,” Traficante said.

Council Vice President Paula B. McFarland, who voted for the settlement last week alongside Councilmen Emilio L. Navarro and Anthony J. Lupino, said it is clear the city has not provided the schools enough money for at least two years.

And the district, she said, is bound to win something if the Caruolo lawsuit goes forward.

Better to lock down a compromise, she suggested, than to gamble on a courtroom battle that could leave the city further in the hole.

But Livingston, who voted against the agreement, said he would hold firm unless there are substantial changes.

“If it’s the exact same settlement, I will vote the exact same way,” he said.

And Garabedian, the council president, said he welcomes a legal fight.

He said a judge needs to clarify a tangle of state laws surrounding city and schools finance.

One law, for instance, imposes a cap on the property taxes a municipality can raise to fund schools and city services.

But another state law, according to some readings, allows school districts to circumvent that cap through Caruolo lawsuits.

The lawsuits, by this reading, can force cities and towns to hike property taxes more than the cap allows.

“If there was a time we needed a judge to act, this is the time,” Garabedian said.

Tomorrow’s council session is scheduled for 8 p.m. in City Hall.

dscharfe@projo.com