North Vallejo supportive housing project in financial peril

VALLEJO – A planned 47-unit supportive housing project under construction on Broadway in North Vallejo is facing a $6.1 million budget shortfall caused by construction delays and the loss of a key partner, according to information revealed by city officials last month during an emergency request for sales tax revenue to bail out the project.

Construction on the project began in September 2022. City officials estimated that it would cost $22 million with an expected opening date in the spring of 2023. But delays and funding problems have pushed the overall estimated cost of the project to $26.9 million, Assistant City Manager Gillian Haen (who until recently went by Gillian Hayes) said at a Measure P committee meeting on April 22.

The problems arose when one of the project’s grants fell through, suspending construction. The city incurred additional costs from stopping and restarting construction and for expansion of security services during the work stoppage, according to Haen.

The city had also planned to transfer ownership of the project to the homeless services organization Shelter Inc., which also operates Shelter Solano in Fairfield. The organization would have served as the owner-operator of the project once construction was complete but those negotiations fell apart because of staff turnover at the organization, Haen said.

The failed deal had included a contribution of $2 million from Shelter Inc. The loss of that funding contributed to the budget shortfall.

The city is still considering working with Shelter Inc. in some capacity, but ownership and the $2 million in funding is off the table. After the negotiations broke down, the City Council decided to take on ownership of the project, Haen said. 

The building is 70% complete, but contractors who have not been paid for their work filed liens against the property, which must be answered by the first week in June or the city may incur additional legal costs. The project grants also include conditions that require the facility to open its doors and begin offering services by December. If the project is not open by this deadline, significant portions of the funding could be forfeited.

“The $6 million gap is something that we need to close in order to not lose those other grants that we have secured for this project.” Haen said. “Our risk is that we would then have to pay back the rest of the grants that we've already spent and utilized – upwards of $20 million dollars.” 

The $20.9 million that has already been spent or allocated is made up of $17.5 million in grant funding, which includes $11.6 million in state project HomeKey funds, $3 million in Solano County American Rescue Plan Act funds and $390,000 of Vallejo’s American Rescue Plan Act funds. 

At the April 22 Measure P committee meeting, Haen asked the committee members to recommend $4.2 million in funds be allocated from the seven-eights-cent sales tax hike passed by voters in 2022. She said that the money will allow the city to pay contractors and keep the project on track while they look for additional grant funding to cover the $1.9 million that remains of the total $6.1 million budget shortfall.

The City Council already approved $7 million of Measure P funding for urgent road repair projects and the next stage of design for the proposed new police headquarters, leaving $8.9 million in the fund. The committee is currently reviewing a plan to recommend $4 million be allocated to a set of projects that include blight and dumping abatement, additional security services in high crime areas, and youth and homeless services. 

This leaves approximately $4.8 million in funds that are not earmarked. The $ 4.2 request for Broadway project would leave $600,000 in the fund until anticipated funds of more than $1 million per month are credited to the account for March and April. 

Measure P committee Vice Chair Brien Farrell said during the meeting that he felt uncomfortable receiving the request at the last minute along with the framing that the city could potentially lose $20 million if the funds are not approved.

Committee member Jackie Jones and Farrell both questioned Haen about what the city would do if they did not have the Measure P funds to fall back on.

“The project would probably fail,” Haen said. “I don't have any other funding opportunities at the tips of my fingers. We already went back to the state and asked if they had any more money for us, they didn't. We'd probably be begging for another year or two to apply for another grant and the project would sit vacant until that point that we found the funding.” 

Farrell asked if the city could draw on its reserves to fund the project. 

Assistant City Manager Natalie Peterson said that the reserve funds are already at the minimum recommended balance of 17.5% of the annual budget, which equates to two months of the city’s operating costs.

Haen said that although the funding has been challenging, the cost of the project is reasonable compared to the cost of other affordable housing developments in the state.

“The average cost for affordable housing in California right now is $700,000 per door,” Haen said. “And I am proud to say that by tightening our belt on this project, our average cost per door is $460,000.”

Measure P committee Chair Jasmine Salmeron said that she is hesitant to recommend the use of Measure P funds. “Right now, personally, I don't feel like I could support this entire grab for everything that's left in our balance,” she said.

Other committee members expressed similar sentiments, but they agreed to draft additional questions for staff and complete the discussion at the committee’s next meeting, which has not been scheduled.

The City Council ultimately decides how to spend Measure P funds. The committee’s role is to make funding recommendations for the council to consider and to review how the funding is spent on each project. 

Haen noted that the city staff plans to request that the council allocate the $4.25 million in Measure P funds for the project on May 14.

Editor's note: this story has been updated to reflect the correct position titles of Measure P committee Chair Jasmine Salmeron and Vice Chair Brien Farrell.