Santa Barbara city officials and staff breathed a sigh of relief this week after hearing good news from the state of California.

Officials got word Tuesday that they would be able to keep $1.4 million of Redevelopment Agency money the state had threatened to seize. Those funds come from property taxes from the area encompassed in the downtown corridor as well as the waterfront.

The state could raid local coffers of redevelopment money by ordering localities to pay $2.5 billion statewide to offset state education costs. The city’s share of the mammoth amount comes to $8.2 million, with $6.8 million payable in the 2010 fiscal year.

But that demand was challenged in court this summer by the California Redevelopment Association. The challenge was upheld, and the CRA advised the city not to submit its $1.4 million payment to the county for 2009’s fiscal year. The city put the amount aside as a precaution until the legal measures were resolved.

Housing and redevelopment manager Brian Bosse said the staff recently received word that the state will not be seizing the $1.4 million that was on appeal because of a decision made in trial court to deny the state’s claim, although another $6.8 million for 2010’s fiscal year is still under appeal — which the CRA is also fighting, and it maintains that seizing the funds is “unconstitutional,” Bosse said.

That amount is being argued in court, and “we’re hoping for the best,” he said.

Bosse recommended that officials come back shortly to approve a number of a projects that could benefit from the $1.4 million. Sidewalks at East Beach, funding breakwater lighting at the Waterfront Department and several restroom projects, including restrooms at the Cabrillo Ball Field and Pershing Park could all be considered by the City Council.

News of the state’s loss came while the council was asked to approved the Redevelopment Agency’s 2010 Capital Improvement Program, which it did unanimously.

With a pared down budget, and because of the uncertainty from the state, only a few capital improvement projects were chosen out of the 42 submitted for consideration. The request totaled more than $40 million, while only $4.6 million is currently available.

Projects going forward after Tuesday’s vote were a renovation of a former muffler shop on Chapala Street so that it can be used for administration from Fire Station No. 1, as well as funding for street lighting on Brinkerhoff Avenue, between West Cota and West Haley streets, and a restroom renovation at Chase Palm Park.

Three other projects involve replacement of downtown sidewalks, upgrading and repairing several downtown parking structures, and a renovation of the plaza outside the library.

Noozhawk staff writer Lara Cooper can be reached at lcooper@noozhawk.com.

Lara Cooper, Noozhawk Staff Writer | @laraanncooper

— Noozhawk staff writer Lara Cooper can be reached at lcooper@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.