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Petaluma may sue state over redevelopment funding

Petaluma is preparing to sue the state in an effort to retain millions of dollars in redevelopment funds the city targeted for three major road projects — including one under construction.

At stake is about $38 million the city had been counting on from property taxes collected through its former Redevelopment Agency. The Legislature abolished redevelopment agencies throughout the state last year and has staked a claim to the tax receipts to supplement the state budget.

Former redevelopment agencies locally and statewide have been arguing with the state Department of Finance for the past several months over which planned redevelopment projects constitute “enforceable obligations.” Funding for those the state deems not under contract is taken by the state.

In Petaluma, the state has denied about $15 million in funds directed toward two Highway 101 interchange projects: East Washington Street, which has been under construction for weeks, and Old Redwood Highway, which is ready for bid.

It also denied $7.5 million that Petaluma earmarked for the Rainier Avenue cross-town connector project.

The state rejects Petaluma’s arguments that its signed agreements with Caltrans and the Sonoma County Transportation Authority, which administers local transportation tax money, constitute enforceable contracts.

“We’re very, very close to filing a lawsuit,” City Manager John Brown said. “Our concerns as expressed to the Department of Finance have gone ignored.”

First, the city is expecting a third denial and is proceeding through legally required administrative appeals.

“But given the reception from the department to our arguments thus far, I don’t see that bearing a lot of fruit,” Brown said.

City Councilman Mike Healy, chairman the city’s oversight board — the group that is overseeing the winding down of redevelopment business — said the city is basically going through the appeals motions.

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