Petaluma still weighing appeal in bid to get redevelopment money

Petaluma is still fighting for the return of more than $20 million in redevelopment funds the state took from the city in 2012 when it dissolved redevelopment agencies throughout the state.

The city has two lawsuits pending against the state Finance Department, involving funds the city had planned to use to pay for the Old Redwood Highway and East Washington Street interchanges with Highway 101 and the long-planned Rainier Avenue crossing.

In total, the city believes it is due $21 million, City Manager John Brown said.

A state court ruled against Petaluma in both suits, but the city is mulling appeals. Last month, the appellate court granted the city until early June to file appeals.

"There are a lot of wheels moving behind the scenes, but it's all in closed session, so I can't comment," said Councilman Mike Healy.

The council has conducted several private meetings with City Attorney Eric Danly in preparation for filing the appeals. Danly was out of town and unavailable to comment.

"We're still in the game," Brown said. "We're pretty much staying the course."

Last year, Petaluma paid the state $8.75 million after losing at the trial court level. The state demanded the payment or threatened to begin withholding sales tax and property tax revenues the city would normally receive.

Petaluma argues that redevelopment funds had been legally obligated to a pair of projects along Highway 101, at East Washington Street and at Old Redwood Highway, well before the state dissolved redevelopment agencies.

In a move to shore up the state budget, the state did away with redevelopment agencies in February 2012. The agencies had allowed local governments to keep tax revenues raised from city-designated redevelopment districts, instead of distributing the money among other government agencies, as with other taxes.

But a judge ruled that Petaluma's financial agreements — made in 2007 and 2009 — between Petaluma's redevelopment agency, Caltrans and the Sonoma County Transportation Authority were not legally enforceable contracts. Therefore, the state was due the local tax receipts, the ruling said.

Both highway projects were already under construction — East Washington Street's work for a year — when the court ruled the agreements weren't "contracts." The legal losses forced the city to use other funds, including bond proceeds and traffic-impact fees, to fund the city's portion of the work.

More than 120 municipalities throughout the state that had redevelopment agencies — including those in Sonoma County and Santa Rosa — have sued the state. Court decisions have been inconsistent, Danly has said.

The council is scheduled to discuss the issue again on May 19.

You can reach Staff Writer Lori A. Carter at 762-7297 or lori.carter@pressdemocrat.com.