State rejects Santa Rosa's plea to keep $35 million in redevelopment funds

State finance officials have rejected as invalid nearly $35 million that Santa Rosa's former redevelopment agency claimed it was legally committed to spend on a variety of local projects.

The decision was another blow to the city's nearly two-year effort to prevent the state from redistributing the property tax revenue that had long allowed the agency to build infrastructure and promote economic development.

The department did authorize the city to spend about $1.6 million during the first half of next year to make payments on debts it deemed valid, such as payments to existing bond holders, and some administrative costs.

"It's discouraging to see our state Legislature choosing not to recognize these contractual obligations for local community projects that if completed, lead to increased property and sales tax revenue on which public services and schools rely," said Dave Gouin, the city's director of economic development and housing.

State officials, however, contend that binding contracts, as defined by state law, did not exist when the measure went into effect.

More than 400 redevelopment agencies statewide were dissolved Feb. 1 as part of an effort by Gov. Jerry Brown and the state Legislature to divert their tax revenues and related assets to help plug the state budget gap.

Many of the agreements that the agency views as "contractual obligations" are with City of Santa Rosa, deals that were signed in an attempt to ensure tax dollars continued flowing to those projects, even if they remained years off. But the state law that dissolved redevelopment agencies noted such agreements would not be honored, though subsequent legislation created a path for some to be recognized.

While not a surprise, the decision was disappointing because city officials believed they had been clearing all the hoops necessary to preserve some of the money, particularly $5.6 million in bond proceeds and $7.6 million in loans the city had made to the agency.

But the state finance officials made no mention of these efforts in their rejection letter, Gouin said.

"That doesn't give us confidence," he said. The city plans to appeal the decision with the state Department of Finance.

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