PORTLAND — The mayoral election has highlighted the need for more affordable housing and social services on the peninsula.

But now a project at 66-68 High St. that would provide both is in doubt, unless the developer can cut $1 million in costs.

Community Housing of Maine is working on a project called Elm Terrace, which would establish 35 affordable apartments and a social service facility for the residents at the corner of Danforth and High streets.

Twenty of the units were planned in a historic building formerly owned by the University of Southern Maine in a historic district. Another 15 units were to be built in an addition.

Community Housing originally estimated the project would cost $8.5 million, but a more recent estimate came in at $10.9 million. The increase prompted the Maine State Housing Authority to demand a $1 million cut if the project is to receive $1.65 million in state funding that was previously promised.

“That’s just way too much money,” MaineHousing spokeswoman Deborah Turcotte said.

Without the state funding, the project is unlikely to move forward.

“Delaying or denying approval at this stage of development would cripple the project and place (Community Housing) at significant risk,” Joanne Campbell, CHOM president, said in an Oct. 5 letter to MaineHousing.

According to an article in the Sun Journal newspaper, the project may be at the center of a political struggle between the MSHA director, a Democrat appointed by former Gov. John Baldacci, and the administration of Republican Gov. Paul LePage.

While many appointees serve at the pleasure of the governor, the Sun Journal said the MSHA director can only be removed with just cause for fraud, stealing or fiscal malfeasance.

State Treasurer Bruce Poliquin, who sits on the MSHA board, has not been shy about criticizing the cost of affordable housing.

Last week, Poliquin told WVOM radio in Bangor that MaineHousing had already pulled its support for Elm Terrace. But Turcotte said MaineHousing simply rejected the project’s $314,000-per-unit cost and is still working with CHOM on a less expensive plan.

CHOM attributed the project’s cost increase to the downtown location, prominence of the site, importance of the building and presence of hazardous materials.

In her letter, Campbell pointed said the $69,000 per unit promised by MaineHousing falls under the agency’s $77,000 cap. She also noted that more than $3 million of project costs are being provided by non-MaineHousing sources.

Campbell said CHOM also secured additional financing from the city of Portland and convinced equity investors to contribute more.

Mary Davis, the city’s director of housing and urban services, said the city approved $350,000 in funding from the U.S. Department of Housing and Urban Development in May.

Community Housing Executive Director Cullen Ryan said the group is working on other ways to make the plan palatable to state officials. Although CHOM first thought lower costs would not be possible, Ryan now said he believes the group can meet the goal.

“CHOM is working with the many parties involved to reduce costs,” he said. “We hope that the result of this will allow an improved project to be quickly approved by MaineHousing.”

Davis said the city is also considering amending the site plan for the project to include more housing units, which would drop the per-unit cost.

According to planning documents, CHOM would add three units to the project by converting three three-bedroom apartments into three single-bedroom units and three efficiencies.

That would bring the per-unit cost down from about $314,000 to $287,000. Turcotte said the average cost of housing units underwritten by MaineHousing is  about $200,770.

But the change must be first approved by the Planning Board.

Also, the city’s Historic Preservation Committee is considering adding the existing building, at one time the city’s Children’s Hospital, to the National Register of Historic Places, which would make it eligible for additional tax credits.

While MaineHousing criticizes the per unit cost of the project, Ryan said the cost is being driven by reusing the historic building. If the group tinkers too much with the plan, it risks losing other sources of funding, like tax credits.

“Because of the layering and sometimes conflicting requirements from multiple funding sources, it can be a costly and complicated effort to repurpose historic landmarks,” he said. “But as our Legislature and local officials have agreed, it is an important thing to do.”

Turcotte, the MaineHousing spokeswoman, said the ongoing negotiations between CHOM and the agency are normal for the underwriting process. She said the agency would review any updated plans submitted by CHOM.

“If they add more units, they take away square-footage (per unit),” she said. “All those things are looked at.”

Turcotte said MaineHousing supports the project, which she said would provide services for mothers struggling with dependency and allow them to be reunited with their children.

Planning documents indicate the “resident facilities” will be provided on the daylight basement level.

“There are so many benefits to having Elm Terrace open,” Turcotte said. “But we need to – as part of underwriting – come up with a cost that achievable, not just for MaineHousing and the tax-credit program, but the developer.”

Ryan said the group hopes to schedule another meeting with MaineHousing soon to go over the changes. The group hopes to have the project completed by the end of next year, he said, but any further delays could jeopardize that time line.

“We hope this becomes a reality,” Ryan said. “If the project isn’t approved, it will mean many people out of work, lost community reinvestment, a declining landmark on a gateway to the city, no abatement of hazardous materials, no preservation of this beautiful building, and a loss of affordable housing and linkage to the community for families that desperately need it.”

Although Campbell said Community Housing had invested $600,000 over the last 18 months, Davis said the city could recover its $350,000 investment if the project does not move forward.

“That money has not been spent,” she said. “We would take that money back and look at other projects.”

But Davis said she hopes that will not be necessary, given the need for affordable housing and preserving historic buildings.

“There’s a lot of reasons the city would want this project to move forward,” she said.

Randy Billings can be reached at 781-3661 ext. 100 or rbillings@theforecaster.net. Follow him on Twitter: @randybillings

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