Yuba City, county push HCD talks after Habitat seeks $7.05 million gap loan for Merriment Village

YUBA CITY, Calif. — Yuba City council members, county officials and Habitat for Humanity representatives met at a special Yuba City City Council session to address a funding shortfall for Merriment Village, a proposed 217‑unit affordable housing development awarded $24,632,331 in Homekey 3 funds. Habitat for Humanity Yuba Sutter requested an unsecured line of credit up to $7,047,672 to cover the remaining gap; council members said they would not approve an unsecured loan and directed staff to pursue discussions with the California Department of Housing and Community Development (HCD) and other funding partners.

The project’s Phase 1 is a four‑story, 79‑unit building fronting Walton Avenue. HCD’s original milestones required acquisition, construction or rehabilitation to be completed by Feb. 13, 2025, and capital funds expended with full occupancy by May 13, 2025. HCD later granted an extension that moves final construction completion to Oct. 13, 2026, and occupancy for the target population to Jan. 13, 2027.

Why it matters: The Homekey award is roughly $24.6 million; no Homekey funds have yet been disbursed because Habitat has not met preconditions in the recorded covenant and loan agreement. If the project cannot meet HCD deadlines and requirements, the state could seek reallocation of the award. Council members said they wanted HCD — the award manager — at the table quickly to explore scope adjustments or other remedies rather than returning funds.

Background and timeline

City staff recounted that the Merriment Village planning effort began in early 2022 after an ad hoc committee identified a vacant site on the east side of Walton Avenue. On May 2, 2023, the council authorized a joint Homekey 3 application with Habitat and committed fee waivers and future PLHA allocations (documented as $1,787,922 in fee waivers and $155,000 annually while the city receives PLHA). On Feb. 13, 2024, HCD issued an award letter for $24,632,331 in Homekey funding. A covenant and loan agreement between the city and Habitat was executed and recorded July 9, 2024; that agreement conditions disbursements on insurance, gap funding, execution of construction security documents and an affordability covenant.

Habitat’s request and its funding plan

At the meeting, a Habitat representative read a written plan stating: “Habitat for Humanity Yuba Sutter is committed to ensuring the success of this project by covering any funding gaps through a combination of organizational funds, gifts in kind, grants, general donations, and work completed by our staff. As of today, the remaining balance of gap funds stands at $7,047,672.” The presentation outlined several commitments and pending applications: self‑performed work valued at $2,150,000; an intended set‑aside plan of roughly $300,000 per month for one year to raise about $3,600,000; PLHA contributions from the city (the council authorized a $465,000 subrecipient agreement on Feb. 18, 2025); and pending grant applications including a $1,600,000 HOME grant and a $2,000,000 AHP (Federal Home Loan Bank) application.

Habitat said it has already invested about $3,700,000 in the site (property acquisition, assessments, design, permitting) and that interest earnings on the Homekey award could provide an estimated safety net (staff estimated roughly $1,000,000 per year in interest earnings since the funds were received). Habitat said it was pursuing bank financing — including talks with 5 Star Bank — to establish a credit line that would act as a safety net rather than an amount they expect to draw fully.

Council and county response

Council members and county officials expressed support for the project but repeatedly emphasized limits on the city’s ability to underwrite unsecured borrowing. Vice Mayor Boomgaarden said an unsecured $7.5 million loan was not feasible: “that’s not an option going forward, is an unsecured loan just because I... cannot, in good conscience, make a financial decision like that that would potentially place the city in jeopardy.” Several council members pressed Habitat for specifics on funds that could be delivered quickly and asked for clarity on what Habitat could place in escrow as a good‑faith deposit.

Sutter County representatives — including Chief Administrative Officer Steve Smith and Board Chairman Dan Flores — said the county had joined recent meetings and was willing to pursue conversations with HCD and other partners, but they did not promise funding. Flores said the county would “actively pursue” contact with HCD and bring any necessary items back to the county board for action.

Requests, next steps and deadlines

Council members directed multiple follow‑up steps: (1) the city and designated council members will pursue an expedited meeting with HCD to explore scope changes, timeline relief, or other HCD options; (2) an ad hoc committee meeting with HCD is scheduled for March 19, 2025, to begin those conversations; and (3) staff requested that Habitat present an updated, consolidated status report to the full council on April 15, 2025, including any revised financing commitments and bank responses. Council members also asked Habitat to identify what funds it could place in escrow on short notice (Habitat identified potential reimbursements and cashflow that could be available but did not commit a specific escrow amount at the meeting).

What did not happen

No vote was taken on providing city financing or a loan guarantee. Council did not approve any new city loan, and no Homekey funds were disbursed at the meeting. The covenant and loan agreement recorded in July 2024 remains the controlling document for disbursement conditions.

Community and procedural notes

Public commenters supported the project and urged action to preserve state funding; one public commenter, Johnny Burke, highlighted state accountability tools the governor had referenced and noted the risk of withheld future state housing funds if jurisdictions fail benchmarks.

The council closed the special meeting after directing staff and the ad hoc committee to pursue immediate discussions with HCD and other funders and to return with updated options to the full council.