SACRAMENTO -- The Brown administration has once again denied a $30 million settlement between the San Francisco 49ers and South Bay schools, setting up a courtroom showdown over the coveted taxpayer funds.

The California Department of Finance late Tuesday rejected an appeal from the 49ers and local officials, ruling they had violated new state redevelopment laws in agreeing to split the money between the team's Santa Clara stadium and the classroom. It echoes the state's preliminary ruling in October, which reached the same conclusion.

It comes as a separate state agency weighs the fate of $300 million worth of Santa Clara redevelopment projects, with county officials arguing this week that the city should give up the funds.

The battle over the stadium money now must be resolved in court. The 49ers, state, city, county and other local governments trying to get their hands on the $30.2 million are locked in a complicated lawsuit while the money is frozen under court order.

A Sacramento Superior Court judge could declare the true owner of the funds as soon as March 22. In preparation, attorneys for the 49ers, state attorneys general and lawyers for local leaders have filed competing and equally fierce legal arguments in the past two weeks and will continue doing so for the next two months.

The skirmish has not disrupted ongoing construction of the $1.2 billion stadium, which is on schedule to open for the 2014 NFL season.


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Tuesday's ruling, while expected, follows months of twists and turns.

City of Santa Clara voters had voted to earmark the redevelopment tax funds for the stadium in 2010. But after the state eliminated redevelopment agencies earlier this year, a newly empowered county oversight board tried yanking the funds away from the stadium to spend on local schools.

After a public debate and court battle waged on, the sides agreed to a compromise in August, with the 49ers delaying their full share of the funds for a few years while giving the schools about half the money they were seeking. But the state Finance Department rejected the settlement on Oct. 15, saying it was reached a year after redevelopment agencies were scrapped and, thus, was void.

Local officials pleaded their case during an appeal on Nov. 26. They argued that the original deal that outlined the stadium contract was reached in 2010, well before the state began talking about scrapping redevelopment agencies.

However, in an four-page ruling sent to Santa Clara City Hall on Tuesday night, which also covered other Santa Clara redevelopment projects, state finance officials said the latest settlement is voided because it is a "new agreement" reached just months ago.

"I'm obviously disappointed in the outcome but not surprised that they agreed with themselves," Mayor Jamie Matthews said, noting the state had a financial interest in denying the tax funds for the stadium. "The process is not set up to be objective or fair to the cities."

The 49ers declined to comment.

Meanwhile, county officials this week said in a separate report that the city of Santa Clara owes the state a total of about $302 million after "illegally" trying to keep redevelopment assets.

The advisory report comes as state Controller John Chiang decides whether officials in Santa Clara can keep those funds. Chiang recently ruled that Milpitas and Morgan Hill illegally transferred redevelopment assets and is in the process of weighing projects from hundreds of cities around California.

"My initial reaction was, 'I told you so!' " said Deborah Bress, a spokeswoman for Santa Clara Plays Fair, which opposes the stadium and city government. "What they did was irresponsible from the beginning. Now it's coming back to bite them."

In the report to the state, county Finance Director Vinod Sharma and a private auditor said city officials improperly transferred all assets from their redevelopment agency, which included cash, property and investments, to other city departments or funds.

City spokesman Dan Beerman said the city will contest the county's report.

Contact Mike Rosenberg at mrosenberg@mercurynews.com or 408-920-5705. Follow him at Twitter.com/rosenberg17.