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Santa Rosa officials have agreed on a strategy to protect nearly $14 million in redevelopment funds from a state budget grab, but they remain sharply divided over a $2.2 million loan to Coddingtown mall that some see as a sweetheart deal.

After a long afternoon of debating ways to preserve funding for projects as diverse as affordable housing in Railroad Square and widening College Avenue, an ideological debate flared among city council members over whether taxpayers should loan money to the nation's largest mall owner.

A majority of the council members characterized the loan as proof that the city is pro-business and willing to make investments in its economic future.

"We are here to help businesses do business in Santa Rosa, and this is a movement in that direction," said Councilman John Sawyer.

But several others questioned the wisdom and terms of the loan, given that one of the beneficiaries is Simon Property Group, a Fortune 500 company that owns 50 percent of the mall.

"I have no problem with Simon making money," said Councilman Gary Wysocky. "My problem is with the sweetheart deal that takes away resources that should be going to other things."

The debate capped a day of maneuvers that have been in the works for weeks to help protect millions in redevelopment dollars. Gov. Jerry Brown has threatened to snatch uncommitted redevelopment cash to fill the state's $25 billion budget gap.

A joint meeting of the city council and redevelopment agency struck "funding agreements" between the two bodies that commit $4.3 million in redevelopment dollars for projects in the current budget but not yet in contract.

They include $2 million for the Hearn Avenue overcrossing, $500,000 to widen Stony Point Road, and $86,000 for a bike path along Colgan Creek.

City staff also sought direction from the two bodies about what it should do with another $7.2 million of non-tax increment funds and reserves.

Officials agreed that the bulk of that money, $5.5 million, should be steered toward the mixed use, transit-oriented development in Railroad Square beside the future SMART train station.

The John Stewart Co. wants to renovate the Cannery with Club One Fitness Center on the first two floors and 68 low-cost senior rental apartments on the third, fourth and fifth floors.

Officials agreed that another major project, replacing a leaking sewer line under B Street, is high enough on the priority list to set aside $1.4 million.

Debate about the merits of these items was minimal. Officials advised staff to draft the agreements and bring them back later for approval.

But the $2.2 million Coddingtown loan that followed the joint meeting demonstrated sharp divisions.

Councilman Jake Ours said the loan made sense because it was structured to "prod the developer" into making investments in the property that it might not otherwise make.

"I think this is a classic redevelopment technique," he said.

The city is betting that the loan will translate into increased property tax revenue for the city, said Scott Bartley. "This is an investment in our economic future."

But others said it just didn't feel right to strike a deal with a company like Simon. Marsha Vas Dupre said she thought making the loan was "giving in" to the Indianapolis-based mall owner.

"I just cannot drum up any sympathy for them," she said.

Susan Gorin said the community is "incredibly sensitive" to the perception that the mall, which was added to the sprawling Gateways redevelopment late in the process and would eventually ask for a city handout.

She said she was "having a little difficulty trying to make a compelling case" for the loan given that Simon continues to invest in distressed malls around the nation.

Wysocky said the city shouldn't make an "undermarket loan" to a mall that is "sitting in the catbird seat" in an area poised to "explode" with growth following the construction of a nearby SMART train station.

Sawyer said he understands the "wringing of hands" in the community over the wisdom of such decisions but said it's important for the city to forge partnerships with the business community.

Mayor Ernesto Olivares agreed the city needs to show that it can work with the business community.

"We need to really solidify and revive some strong partnerships to get things turned around for us," he said.

Olivares, Sawyer, Ours and Bartley voted for the loan, while Wysocky, Gorin and Vas Dupre voted against it.

The loan will only be made to Simon after it completes the upgrades, which it says are vital to bringing in new tenants and restoring some of the luster the 1960s era mall has lost in recent years.

[END_CREDIT_0]You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com.