Santa Rosa claims it is owed nearly $5 million for loans that it made to its redevelopment agency over the years.
But when the state abolished development agencies last year, it declared such loans invalid, putting them at risk of never being repaid.
Now the city thinks it has figured out a way to protect those loans and ensure the payments continue.
The plan is for the City Council to reenter the loans with the former redevelopment agency, which city officials hope will reaffirm their legality and convince the state Department of Finance to keep its hands off the local funds.
"We see this as our last opportunity to protect resources that serve Santa Rosa's general fund from being included with redevelopment as the state completes its sweep of the former agency's money," said Dave Gouin, the city's director of economic development and housing.
Cities and counties commonly made loans to their redevelopment agencies as seed money and to allow them to incur the debt that state law required before agencies could begin receiving the "tax-increment financing" upon which they survived.
That was until 400 redevelopment agencies statewide were dissolved last year as part of Gov. Jerry Brown's plan to use their revenues to help plug the state budget gap. Local agencies have been strategizing ever since for ways to fend off state efforts to access those funds.
There are three loans in question totaling $4.96 million due between now and 2039.
The first was a $1.2 million loan the city made in 2004 to fund the establishment of the Gateway Redevelopment Area, the area along the Highway 101 corridor deemed blighted. The redevelopment agency never made any payments on the 6 percent loan, and the balance now stands at $1.7 million.
The second was a 6-percent loan made to fund the Transit Oriented Redevelopment Project Area, which sought to boost development around Railroad Square and the future SMART rail station. Since in 2004, the agency had drawn $378,000 in principal and today owes the city $402,000.
The third loan was a $4.5 million loan made in 2005 to fund the combined Santa Rosa Center/Grace Brothers Redevelopment Area. The loan was for 5.9 percent interest and at the time of dissolution, the agency owed the city $2.9 million.
The new agreements provide for a shorter repayment period for two of the loans, which now must be paid by 2020 instead of 2034 and 2039. Also the interest rate for all three has been lowered to 3 percent, to reflect current yields.
The city hopes that the approval of the new loans by its oversight board, which occurred last week, will make it clear that the loans are valid and, in the state parlance, "enforceable obligations."
In an odd twist, the City Council will in effect be striking a deal with itself. That's because it is the so-called "successor agency" to the former redevelopment agency. The "successor agency" will hold a separate meeting after Tuesday's City Council meeting to vote on the new loans.