Published: 20 April 2012 05:50 PM

The state Department of Finance has rejected payment of nearly $159 million in projects and debts from Riverside’s former redevelopment agency, potentially leaving the city’s general fund on the hook for at least some of that amount.

City officials said they’re working on a response they hope will clear up the state’s objections and they’re ready to negotiate, but they haven’t ruled out litigation to protect the city’s finances.

The news came in a letter last week from the Department of Finance, Riverside City Manager Scott Barber said Friday. The rejected amount is about 10 percent of Riverside’s outstanding redevelopment debt of $1.5 billion, Barber said.

The city and a separate oversight board had sent the state a list of obligations they say are allowed and should be paid under the 2011 law that dissolved redevelopment agencies. State officials disagreed with a number of items on the list, including construction contracts for the new downtown fire station, Municipal Auditorium and Doty-Trust Park, as well as a disputed amount of loans from the city to the redevelopment agency and nearly $18 million from bonds issued in 2007 that the state says should not be spent.

“We think that much of their interpretation is wrong,” Riverside Mayor Ron Loveridge said. “The city will be actively and fully engaged in challenging the (Department of Finance) interpretation.”

The fire station and auditorium work are under way, and the park is nearly ready to open. City loans to the redevelopment agency, if not repaid, could be a future hit to the $214 million general fund.

Riverside is not alone in its dispute with the state. About 400 redevelopment agencies were disbanded to help close a state budget gap. As of midday Friday, the finance department had received about 240 payment schedules and had rejected various expenses on about 20 agencies’ payment plans, spokesman H.D. Palmer said.

Other Inland agencies with rejected expenses include Coachella, $2.29 million; La Quinta, $2.07 million; and the March Joint Powers Authority, about $415,500.

Property tax money that formerly went to redevelopment agencies is now set aside in a state-controlled trust fund that’s only paid out for approved debts.

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