The City of Falls Church, with its vaunted public schools, seems like the last place to have engaged in discrimination against children.

But on Friday, the city announced that it had settled a fair housing complaint with the U.S. Department of Housing and Urban Development arising from just such concerns.

The essential trouble was money for city schools, and it started with an agreement that Falls Church struck with the developers of the Broadway, an 80-unit condominium in the middle of the city. According to that agreement, if the building attracted more than eight schoolchildren as residents, the developer would pay the city $15,000 for each one over the cap, up to a limit of $225,000.

City officials initially described the agreement as a reasonable way to recoup some of the school costs that the project would hoist onto the city.

But to fair housing advocates who read of the arrangement in The Washington Post in May 2003, that stipulation amounted to an inducement for developers to discriminate against families with children.

"What that essentially did was to act as an incentive for developers not to market their project to families," said Jon Gant, a deputy assistant secretary for enforcement at HUD. "The city realized very quickly that they were pushing the limits [of fair housing laws] at the very least."

The city dropped that part of the agreement in January, but the investigation and its resolution has marched forward.

Under the terms of the settlement, the developers, Waterford Development and Nova-Habitat, and their marketing consultants, McWilliams/Ballard, must pay $120,000 to help run fair housing programs and reviews in the city. They will be run by the city and the Equal Rights Center, which was a party to the settlement agreement.

"They were all named in the complaint, and they all denied the complaint," said David Lasso, an attorney for Waterford and McWilliams/Ballard. "Their view of it was they just needed to move on and get this resolved rather than fuss over whether it had any merit or not."

The agreement "was never meant to be an inducement to violate fair housing laws," said Mayor Daniel E. Gardner. The settlement with HUD is "a positive agreement but not corrective with respect to the City of Falls Church."

Councilman Samuel A. Mabry, a critic of some of the city's development rulings, said, "The agreement shows that the city and developers were clearly on the wrong track."

The city is joining with the Equal Rights Center on an initiative to promote fair housing, which includes a free, one-day fair housing conference, newspaper ads and other measures.

The laws still permit local governments to ask developers to pay "impact fees" for schools, provided that they are assessed on a per-unit basis, HUD officials said.

As local governments pursue ways of growing without being overwhelmed by school operation and construction costs, they have increasingly turned to such fees.

The practice of assessing such fees based on the number of children seems to have been an anomaly in the Washington area, but Carolyn Y. Peoples, HUD's assistant secretary for fair housing and equal opportunity, said similar situations have come up elsewhere.

"We're seeing these kinds of cases around the country," Peoples said.

"Cities and developers are trying to balance growth with the costs of schools. As long as they do it within the law, they won't have a problem."