Under the agreement with the state Department of Environmental Protection, Paterson also agreed to upgrade the system - at a cost of about $24.5 million - and to submit quarterly reports on its progress.
In a statement, DEP Commissioner Bradley M. Campbell said the improvements will help raise water quality and safeguard the public health. Paterson officials could not be reached for comment.
The city's trouble with environmental officials stems from a system of sewer pipes that handle storm water and sewage. Ordinarily, Paterson's street litter and human waste are piped to Newark, where they are filtered in a wastewater treatment plant. But during heavy rains, the treatment plant can't handle the extra capacity, and the overflow dumps directly into the Passaic River.
In 1999 the DEP fined Paterson $15,000 for failing to comply with state law on pollution discharge, and in May 2000 the department took the issue to court.
The agreement announced Monday marks the settlement of that Superior Court complaint. Under its terms, Paterson will pay a $7,500 fine and an additional $371,669 - the amount DEP officials believe Paterson should have spent on clean-water equipment in the first place.
Paterson is under order to begin work this year on sewer improvements. Its first progress report is due July 31.