State finance officials again have rejected bids by Sonoma County and Santa Rosa to continue with several high-profile redevelopment projects, a move that may trigger them to join the growing list of local governments suing the state.
The latest rejections from the Department of Finance will likely prompt the county to proceed with its lawsuit against the state, a county attorney said.
"At this point, I don't think we have any choice but to move forward with it," said Steve Shupe, a deputy county counsel.
Meanwhile, Santa Rosa leaders met behind closed doors Wednesday to consider their city's legal options after again being rebuffed by the state. Officials declined to say what was discussed, but said they will not be complying with a state order to turn over $6.3 million in unused housing development funds by today.
"We are in the process of evaluating the letters from the DOF, and we will not be releasing any money until we have completed that analysis," City Attorney Caroline Fowler said.
The county had held out some hope that its negotiations would clear the state's previous objections to the county's bid to continue with its two signature projects: street and sidewalk improvements along Highway 12 north of Sonoma and overhaul of a former shopping center in the Roseland area of Santa Rosa.
The multimillion dollar projects and other smaller county efforts along the Russian River, as well as dozens of city redevelopment proposals in Sonoma County, were thrown into limbo after the state legislature shut redevelopment agencies in February.
The county had argued on several fronts that it could continue with the projects and keep more than $16 million in accumulated or anticipated tax funds associated with them.
Before this week, state finance officials three times rejected those arguments, deeming that contracts between the county and its former redevelopment agency did not meet the requirements of the state legislation. Their letter Tuesday did not budge from that stance, according to John Haig, the county's redevelopment manager.
A similar ultimatum is going out to cities and dozens, if not hundreds, of the 400 local governments that once had redevelopment agencies statewide.
"My understanding is that they're saying no to pretty much everybody," said Shupe, the county attorney.
Santa Rosa received two letters recently from the state rejecting its appeals and largely upholding previous rulings finding that the city couldn't hold onto $35 million in funds for projects that were not "enforceable obligations."
"We have exhausted our administrative process on this," said Dave Gouin, the city's director of economic development and housing.
At issue was whether the city had the right to hold onto property taxes for several projects because the city re-entered into funding agreements for those projects after the state passed laws dissolving the state's redevelopment agencies.
The law was written in a way that appeared to create a path for the city to keep the money for projects that gained the approval of the local oversight board.
But the Department of Finance ruled that it retained ultimate authority over such decisions, and the oversight board shouldn't have approved projects that conflicted with the definition of an enforceable obligation.
The low-income housing funds the state is demanding by today include $4 million that had been earmarked for a long-delayed housing project in Railroad Square.
San Francisco-based developer John Stewart still hopes to build 93 units of affordable housing on the site of a former cannery near West Third Street and Santa Rosa Creek.
The redevelopment funds were supposed to help kick-start the project and leverage millions more in state and federal funding, much of it aimed at supporting transit-oriented housing projects.
City officials and Stewart both argued that the project should be allowed to proceed because of the city's former redevelopment agency signed agreements with the state and with Stewart promising to provide the funding for the project.
"That theme is not unique to Santa Rosa," Gouin said, noting that Petaluma, which already has sued the state, and Sonoma County both maintain that they struck agreements with third parties and should be allowed to consummate them.
There could be consequences for Santa Rosa to failing to turn the money over to the state by today. The Department of Finance letter points out that not paying the money "may result in offsets" that would reduce future sales and property tax distributions to the city.
But Gouin said that doesn't appear likely in the short term.
"We've concluded that there isn't an immediate consequence for Friday, and were taking a little more time to evaluate our options," Gouin said.
The Sonoma County Board of Supervisors in October authorized a lawsuit challenging the state ruling. That complaint is in the final stage of preparation and would join at least two dozen others that have been filed in Sacramento by municipal governments challenging the redevelopment shutdown.
In the meantime, Sonoma County supervisors last week authorized the use of $450,000 in general fund money to complete engineering and design plans for the Highway 12 project.
Supervisors argued that allocation, which was the first use of county discretionary money for a former redevelopment project, was warranted to keep the effort alive and make it competitive for state and federal funds.
You can reach Staff Writer Brett Wilkison at 521-5295 or brett.wilkison@ pressdemocrat.com.
You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. OnTwitter @citybeater.
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