Affordable housing project at risk of not getting built

The meeting was called after Habitat submitted a request for a $7.5 million unsecured line of credit from the city to help with the $7 million gap funding for the project, Merriment Village Apartments. At buildout, the proposed 217-unit affordable housing complex is estimated to cost $75 million.

Construction for phase one — which will include a four-story, 79-unit building on Walton Avenue and is estimated to cost $31 million — is set to commence next month. 

Last March, the California Department of Housing and Community Development (HCD) awarded Yuba City and Habitat a $24 million grant through the Homekey program, a statewide investment to sustain and expand housing for those experiencing or at risk of homelessness. 

But the city holds the purse strings to the Homekey grant, and will only disburse the funds if Habitat can show that they can cover the gap funding, as both parties decided in the initial agreement. 

Habitat has not been able to do so, the city said.

“Habitat’s in a situation where they’re having trouble showing that they can cover the gap funding,” City Manager Diana Langley said. “At this point, we’re kind of at a stalemate in the sense of options to move forward.”

Habitat for Humanity Yuba-Sutter CEO Joseph Hale explained to the council the fiscal progress Habitat has made on the project, including a generation of $3.7 million over the past 18 months. 

As well, Hale said they applied for a $1.6 million state HOME grant and a $2 million affordable housing grant with the Federal Home Loan Bank, which would cover nearly half of the remaining gap funding if awarded.

Other funding includes about $1.8 million from the city and $465,000 from the city’s 2020 HCD Permanent Local Housing Allocation (PHLA) funds. Habitat also stated they plan to save $300,000 per month for 12 months to contribute another $3.6 million, and are looking into additional funding from banks.

Hale said that the loan would be more of a safety net, rather than something they intended to use. 

“Whether it’s through the city or a bank, our ultimate goal is not to use it unless we can’t come up with the funding,” Hale said.

While the city was willing to work with Habitat on devising solutions, they made it clear that granting that $7.5 million line of credit would not be an option because the city is “already upside down” with its own $1.2 million budget deficit, as Mayor Dave Shaw put it.

“We’re really trying to figure out how we can go forward,” Shaw said to Hale. “I think you’ve already heard loud and clear that the option we received [for the line of credit] is not a starter. We’re in no position, even if we partnered with our colleagues at the county combined, we can’t come up with that.”

Yuba City and Habitat both stated they will meet with HCD — who did not have a representative at the meeting — to identify the best solutions to move forward, which could include securing additional funding, scaling back the project or adjusting the timeline. 

“It’s a great project,” Shaw said. “[This meeting] is not about killing the project — this is about covering the gap.”