Santa Rosa is planning to pay $2.7 million to the state to keep its redevelopment agency alive.
The payment would save the agency from elimination in October, but also would make it harder to fund current and future sewer, parks and road widening projects.
"This is kind of the lesser of two evils," said William Arnone, board chairman of the Redevelopment Agency of Santa Rosa.
The city is one of several local governments considering making a so-called "voluntary" payment to prevent their redevelopment agencies from being dissolved under budget legislation signed by Gov. Jerry Brown in June as a way to help close the state's $9.6 billion budget gap.
The County of Sonoma, and cities of Petaluma, Healdsburg, Windsor, Cloverdale, Sonoma and Ukiah are all weighing similar moves in the coming weeks. The California Redevelopment Association has estimated that the payments will cost Sonoma County agencies $17 million this year alone.
The state's Volunteer Alternative Redevelopment Program adopted by the Legislature grants a stay of execution to agencies that agree to pay their share of $1.7 billion in property tax revenue to the state this year and to forgo additional future property tax revenue.
That revenue instead will be shifted to other local agencies, like schools, county government and special districts, which Brown argues have a greater need for the funds given the state's financial crisis.
In Santa Rosa, the $2.7 million payment, plus another $631,000 the following year, will hamper the agency's ability to complete planned projects.
Specifically, $1.4 million set aside for the replacement of the sewer line on B Street and $1.3 million eyed for the Hearn Avenue crossing over Highway 101 will be tapped to pay the $2.7 million, according to a staff report.
While the current and future payments will hinder the agency's ability to complete projects, it's far better than the alternative, said Dave Gouin, the city's director of economic development.
"We as staff felt it makes sense to make the $2.7 million ransom payment to preserve $40 million in projects and programs for Santa Rosa," Gouin said.
The $40 million figure represents the value of all current and pending redevelopment projects, such as the widening of Stony Point Lane and extension of sewer lines to Leddy Avenue, both of which would come to a halt if agency funding were eliminated, Gouin said.
Critics of redevelopment say the agencies deserve to be reined in because they take the increase in property taxes for an area from a certain date forward, capping the amount that can go to other agencies. They also argue that redevelopment agencies adopted an overly broad interpretation of what is "blight," such as a golf course in Palm Desert.
But defenders say it is one of the most powerful tools available to local governments to create economic development. They also argue Brown's strategy is an illegal attempt to circumvent Proposition 22, which barred the Legislature from raiding local funds to balance the state budget.
Either way, Brown's budget has created turmoil in redevelopment agencies around the state.
"It has put a lot of projects in limbo," said David Kelley, a senior management analyst for the Town of Windsor.
An intersection realignment related to the installation of train crossing gates was ready to go in June but has been on hold since the budget deal was signed, Kelley said.
Agencies are still hoping they won't have to make the voluntary payments, which are due in two installments in January and March.
A lawsuit filed by the League of California Cities and the California Redevelopment Association asks the state Supreme Court to block the redevelopment legislation by Aug. 15, Gouin said.
Earlier this year, redevelopment agencies scrambled to shield their funds from the state after Brown first announced his intentions. They transferred funds to cities and housing agencies and struck funding agreements and contracts they hoped would prevent the state from diverting the revenue.
But the legislation signed by Brown nullified any such deal made after Jan. 1, and gave the state controller the authority to order the funds returned for possible redistribution to other agencies.
Santa Rosa's redevelopment agency will vote on the proposal Monday, followed by the City Council on Tuesday.
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