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Major, multi-million dollar transportation projects in Petaluma continue to face an uncertain fate after the state recently denied an appeal for money the city says it is owed through its former redevelopment agency, and now city officials are teaming up with local lawmakers to fight for the funds.

The denial by the Department of Finance is just the latest installment in a saga that cities around California are facing after the state, in a revenue-enhancing move, dissolved redevelopment agencies earlier this year. For decades, those agencies channeled millions of property tax dollars to cities for development in blighted areas.

In Feb. 2011, when it became clear that Gov. Jerry Brown planned to eliminate the agencies, Petaluma council members unanimously approved a $41.5 million spending package in an attempt to commit redevelopment money for Petaluma projects.

Specifically, Petaluma's deal committed the agency's funds to several projects, including $15.4 million for a new interchange at Highway 101 and Old Redwood Highway and $7.5 million for the long-awaited Rainier cross-town connector, as part of a five-year capital improvement plan that also included about $6 million for affordable housing programs with local non-profit groups like COTS.

But in May, the California Department of Finance denied most of the financial commitments Petaluma requested be honored, to the tune of about $34 million.

Petaluma appealed that decision, but this month received a rejection letter by the Department of Finance that stated the department was no longer reconsidering items it had previously denied.

"For the state to make an arbitrary decision through the Department of Finance is unacceptable," said Mayor David Glass, pointing out that the city committed to the projects long ago, and that the decision could hang up hundreds of construction jobs in Petaluma.

The $28 million East Washington Street interchange project, which includes about $4 million in redevelopment funding, is already in full swing, and the $42.5 million Old Redwood Highway interchange project is set to go out to bid soon. Petaluma has committed about $15 million in redevelopment funds to that project, roughly $11 million of which has been rejected. Uncertainty over that money could potentially jeopardize the funding and ability to move forward of the agencies tasked with carrying out the construction, the Sonoma County Transportation Agency and Caltrans.

After hearing that the city's appeal had been rejected, Glass and city staff met with Suzanne Smith, director of the SCTA, Assemblymember Mike Allen and representatives from State Senator Mark Leno and Assemblymember Jared Huffman's offices to discuss what could be done.

Everyone seemed to agree that the city urgently needs redevelopment dollars to complete the two projects, though SCTA spokesman James Cameron said on Tuesday that his agency is moving ahead with both the East Washington Street interchange and Old Redwood Highway interchange for now.

Petaluma Economic Development Director Ingrid Alverde said the city is making day-by-day decisions on these projects until it has a concrete answer on redevelopment dollars.

"There's not a clear sense yet of how the projects will be completed," she said.

Meanwhile, Assemblymember Huffman has written a letter on the city's behalf asking that its request be closely considered, and Glass has been in close contact with Petaluma's future State Senator Lois Wolk on possible legislation.

Part of the problem, said Assemblymember Mike Allen, who is running to be Petaluma's representative in the November election, is that the Department of Finance just doesn't have the manpower to give each request the attention it is due. The agency isn't staffed to deal with the hundreds of redevelopment agencies suddenly being dissolved, and one of his goals once the legislature is back in session is to get more staffing in the department.

"What we're trying to do is get detailed answers," he said. "A blanket denial is not helpful in terms of moving the dialogue forward."

In the meantime, he said, it's important for cities like Petaluma to sort out projects, designating which ones are most urgent.

This could be a point of contention in Petaluma, as Glass contends that the shovel-ready projects with contracts in place are the ones that Petaluma needs to focus on, while Council Member Mike Healy, who chairs the committee tasked with overseeing the transfer of redevelopment funds, maintains that other projects, like the Rainier Cross Town Connector, are equally committed and important to fight for. He said he planned to fight for Rainier in addition to East Washington and Old Redwood Highway.

Should all appeals to the Department of Finance and attempts by lawmakers fail, Healy, Glass and Alverde all pointed to another avenue the city could take: litigation. "A lot of cities have gone that route," Alverde said, but acknowledged that would be a last resort. "It's not in the taxpayers' interest if we all start suing each other, she said, "and we're hopeful the finance department can see that."

(Contact Jamie Hansen at jamie.hansen@arguscourier.com)