The state Department of Finance is refusing to pay back millions of dollars Huntington Beach once loaned to its now-disbanded redevelopment agency, a decision that may lead to litigation and leave a large hole in the city's general budget.

Following a decision in December by the state Supreme Court that declared the state's redevelopment agencies (RDAs) unconstitutional, cities began submitting listings of legally binding agreements or contracts the disbanded agencies had to their county auditors and the state finance department for a review — and payback, said City Manager Fred Wilson.

Those listings included bonds or loans the RDAs had issued for various projects. The process was part of the agencies' winding-down activities.

Part of the listing Huntington Beach submitted in February was $71.8 million the city advanced to its former agency over the last 20 to 30 years.

The state is now contending that the $71.8 million the city loaned to the agency is not repayable under the law that was passed to dissolve redevelopment, Wilson said.

"At this point, we don't believe we'll see any of that money," he said.

In a letter to the city from the Department of Finance, Program Budget Manager Mark Hill said the law states that "agreements, contracts or arrangements between the city, county or city and county that created the redevelopment agency and the former redevelopment agency are not enforceable obligations."

Wilson said the state is taking a strict interpretation of the law to make its case against paying Huntington Beach and other cities. City Attorney Jennifer McGrath said she believes the $71.8 million is repayable under the law.

At this point, the matter may end up getting decided in court.

"Many cities are in the same situation we're in," Wilson said. "And we're in the process of trying to decide what to do next, how to challenge the state because we feel that there's a strong case."

For now, the city will be left with about an annual $4.9-million hole in its budget.

"It's wrong," Wilson said. "These were costs that were incurred and I think the state has an obligation to repay us for those costs."

mona.shadia@latimes.com

Twitter: @MonaShadia