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Gov. Ted Kulongoski signed a bill Wednesday that splits money from the future sale of the Oregon School for the Blind between a fund for the blind and the School for the Deaf, settling a legal challenge against the state.

House Bill 3687, passed by an overwhelming majority in both houses of the Legislature last month, provides "the remedy we were after," said Tyler Smith, a Canby attorney who represented supporters of the School for the Blind in the lawsuit.

Despite emotional protests from advocates for the blind, the Legislature voted in 2009 to close the Salem boarding school because it was too expensive, sending its 24 students to local public schools for services.

The lawsuit filed by Smith challenged the state's plan to sink proceeds from the blind school's sale into the state's Education Stability Fund, arguing people donated land for the school with the intent of supporting education for the blind and deaf.

The suit was filed by two former students, a former faculty member and five descendents of donors, who included Henry Failing, a Portland mayor and prominent banker during the 1800s.

The bill signed by the governor Wednesday grew out of negotiations over the lawsuit, which Smith said he now will drop.

"We think everyone is pleased the state was able to fix the errors and stick with the original intent of those donors," he said.

The school is expected to sell for more than $5 million, as it was appraised two years ago at $11 million, Smith said. Half of the money will go into Blind and Visually Impaired Fund, created in 2009 to provide resources and education services to visually impaired students across the state. The other half will go to the Oregon School for the Deaf, which remains open in Salem, for improvements, repairs and maintenance.

The Oregon Department of Education supported the bill and is glad to have more resources for the visually impaired and deaf, said Morgan Allen, chief lobbyist for the agency.

"The School for the Deaf is in desperate need of maintenance," he said.

Four former students at the School for the Blind filed complaints with their local school districts, saying services were unacceptable. At least one argued the school should be reopened to comply with federal special education laws.

All of those complaints were resolved in private settlements, Smith said. The resolution of his lawsuit, Smith said, ends all litigation pending against the state over the closing of the Oregon School for the Blind.