Petaluma to ask Supreme Court to hear funding case

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After two unfavorable rulings, Petaluma officials are hoping to plead their case to the California Supreme Court for millions of former redevelopment dollars that could potentially aid affordable housing projects or the Rainier crosstown connector.

Following a closed session discussion with the city council last week, City Attorney Eric Danly said that Petaluma plans to file a petition for the highest court in the state to review its case, City of Petaluma v. Keely Bosler – a battle over deadlines, authorizations and how the city and California Department of Finance interpreted each in 2012 after the tumultuous end of state redevelopment agencies, or RDAs.

“The council is supporting the petition because these funds are incredibly important to us and incredibly important to the community,” said Councilman Mike Healy.

The petition comes after the 3rd U.S. District Court of Appeals last month affirmed a lower court’s decision, which marked the second consecutive ruling against Petaluma.

Before RDAs were officially dissolved on June 28, 2011, the city and its local agency had entered into a cooperative agreement to finance $45 million worth of projects, according to court documents.

After the dissolution was enacted and successor agencies were formed to facilitate the transition, new procedures were put in place to determine which payments the state had to fulfill, and it ultimately required an approval from the Department of Finance.

In 2012, the city requested funding for five unspecified items, but was repeatedly denied by the department despite receiving the necessary agreements between local officials, the successor agency and its oversight board, according to court documents.

Representatives from the Department of Finance did not respond to requests seeking comment. Bosler, the defendant named in the lawsuit, is the state’s current Finance Director.

With a deadline of June 27, 2012, looming, city officials made multiple efforts to amend and resubmit their request, but didn’t receive the final oversight approval until nearly a month after it had passed.

Hanging in the balance are approximately $8.6 million in assets, Danly said. About $6 million of that total was positioned for site and economic development, and the rest for affordable housing.

“When we’ve loaned funds and get those repaid, we can roll that into other projects,” Danly said. “But there’s no new money coming in, and the $2 million, that’s a significant housing project right there.”

Former Petaluma Mayor David Glass and previous city councils were relying on the agreed upon capital in order to move several projects forward, including the Rainier crosstown connector, said Mayor Teresa Barrett. By taking the case one step higher, she considers it as the city’s latest effort to “leave no stone unturned” in the fight for the connector.

“It was confiscated by the former governor, and ever since that time we’ve been working diligently to try and receive the money,” Barrett said. “We took a loan out and are on the hook. We feel we should be able to use the money as intended.”

After former Gov. Jerry Brown’s controversial decision to dissolve the state’s approximately 400 RDAs when he was facing a $27 billion deficit, many cities like Petaluma scrambled to earn late-stage approvals during the wind-down process.

For years, municipalities leaned on redevelopment tax credits to help pencil out projects that would transform blighted properties into fruitful developments, operating under the assumption that rising property taxes could pay off the initial debts that first financed the project.

But the funding model failed to account for under-performing developments, or provide adequate oversight and enforcement. Ultimately many RDAs ended up squandering the property taxes, which burdened the state’s coffers during the height of the Great Recession.

A 2010 investigation by the Los Angeles Times found that at least 120 municipalities combined to spend $700 million without producing a single unit. Many projects faced inexplicable delays or often spent most of the funds on planning and administration, and in some cases cities spent over $800,000 per affordable unit, the report said.

Petaluma was not one of those jurisdictions, though. According to a database compiled by the Times, the city spent the approximately $15 million it was reportedly provided in fiscal years 2000-08 efficiently. Redevelopment funds helped transform the downtown Theatre District, as well as several affordable housing complexes that have been fully occupied for decades.

Unlike Brown, Gov. Gavin Newsom has inherited a budget surplus of $21.5 billion, and plans to use nearly half of the record windfall in one-time investments for issues like housing, education and wildfire prevention.

Newsom’s budget proposals included an infusion of more than $2 billion to build affordable housing, and Petaluma officials are hopeful they can earn a share of that by bringing the Bosler case to the Supreme Court.

“There’s little downside and huge upside, and that kind of thinking has motivated this litigation all along,” Danly said.

(Contact News Editor Yousef Baig at yousef.baig@arguscourier.com or 776-8461, and on Twitter @YousefBaig.)

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