The governor's budget advisers have decided to scrap plans for issuing a bond to settle a long-running lawsuit over flood damage.

At issue is a tentative court agreement for the state to pay $464 million to settle claims stemming from a levee break on the Yuba River in 1986. The break left water on some 7,000 acres near the communities of Olivehurst and Linda, and hundreds of homes and a shopping mall were flooded.

The idea to pay that settlement with a bond, first unveiled in January, would have been precedent setting. The Legislative Analyst's Office (LAO) has said it knows of no previous attempt by the state to issue what's known as a judgment bond.

An LAO analysis in February also raised a lot of questions about the proposal-- wondering if the bond would require a vote of the people, and pondering the final cost to the state, considering a bond would likely be paid back over 30 years.

The first hint of the administration's decision to dump its bond proposal can be found deep inside budget adjustment documents sent to the Legislature today.

The administration now wants to pay $11 million of the settlement out of the 2005-06 budget. And the biggest portion-- $428 million-- would be paid over 10 years, with interest, thanks to an offer by financial investment giant Merrill Lynch to front the cash now.

Bottom line: the new plan for settling the lawsuit is more conservative in how it's structured, but would cost the cash-strapped state more in the short-term.