Santa Rosa's redevelopment agency is racing to approve a $2.2 million low-interest loan to the nation's largest mall owner, Simon Property Group, in hopes of boosting the fortunes of the aging Coddingtown mall.

City staffers, who have been working on the deal with mall representatives for about two months, accelerated the loan approval in an effort to spend the money before Gov. Jerry Brown diverts it to bail out the cash-strapped state, said David Gouin, the city's director of economic development and housing.

The goal of the loan is to jumpstart upgrades needed to draw new tenants to the struggling 1960s era mall, including a brewery and restaurant interested in opening in the former Narsi's Hofbrau space. It would also give the mall's corporate owners an incentive to boost their own investment in the property.

"We're trying to stimulate the reuse of an underutilized retail asset in a recessionary economy," Gouin said.

The proposal may anger redevelopment critics who for years have questioned whether taxpayers should make loans to Fortune 500 corporations. The Indianapolis-based Simon Property Group had a total market value of $56 billion in 2009, and earned profits of $309 million.

The company owns the downtown Santa Rosa Plaza and Petaluma Outlets, and bought a 50 percent stake in Coddingtown in 2005. Simon has made no secret of its interest in tapping public dollars raised from the sprawling Gateways redevelopment district, which covers 1,335 acres of the city's urban areas, including Coddingtown.

Redevelopment programs are intended to use increases in property tax revenue to finance public and private improvements that help eliminate blight and increase economic productivity of commercial and industrial areas.

Redevelopment districts don't increase tax rates but benefit when property values rise. That increase is referred to as the "tax increment."

Simon officials in 2006 lobbied the city to use future tax dollars from the new district to help build a parking garage at the mall. A lawsuit challenging the district's legitimacy held that up for years, and the subsequent recession put a crimp in Simon's plans for a multi-million makeover of Coddingtown.

After the suit was resolved in 2009, the agency started planning how to spend the tax revenue generated in the district.

There are commercial properties throughout the Gateways district that are not operating at their "highest and best uses" due to high vacancy rates, Gouin said, and Coddingtown is one of them. Getting new tenants will increase property tax revenue and sales taxes for the city.

"This is an incentive loan that is trying to cause this to happen faster than it otherwise would in this recession," Gouin said.

Codding Enterprises officials referred questions to Simon. Simon spokesman Les Morris declined comment.

The city is set to loan the mall partnership, Coddingtown LLC, up to $2.2 million with a 12-year term and an interest rate of 3 percent, which is below market rate.

The money would only be extended after the improvements were completed. Need for the loan became clear when the mall was building a shell to attract the newly opened Whole Foods Market, according to a city staff report. Upgrading the mall's undersized utilities was costly.

Improving the water, sewer and electrical service to the rest of the mall to attract new tenants would be a "substantial financial burden" and an "obstacle to further private investment in the site," the report said.

In exchange for the loan, the mall has agreed to allow city buses to cross part of the parking lot near JC Penney, creating a "transit island" where there is now a stop on Range Avenue.

Gouin said he didn't have a value for the proposed transit easement but understood the mall would only be losing three or four parking spaces.

While the loan's low rate is a key subsidy, the real savings for comes in how the loan can be repaid.

The city has structured it to count 50 percent of the mall's anticipated property tax increase toward repayment of the loan. That means the agency would waive half the tax increment it would otherwise receive from the mall.

Doing so creates a strong incentive for the mall to invest aggressively in upgrading and filling the mall with tenants, Gouin said. That's because the faster owners upgrade the mall, —with a new north entrance and new restaurants, for example — the faster property values will rise and resulting taxes will help pay off the loan.

If the owners don't invest more in the mall and the property values never increase, Gouin explained, the subsidy will vanish. The owners will be on the hook for the full principal and interest payments on the $2.2 million loan.

The redevelopment agency meets Monday at City Hall, following the Housing Authority's 1:30 p.m. meeting.