Work on a 41-unit low-income apartment housing for developmentally disabled people in Santa Ana is about 75 percent done.
"It's very important," said Tara Barauskas of A Community of Friends. "There's very little affordable housing for people with disabilities in Orange County."
The housing's future is in question as the state demands $56 million from the city. The money previously earmarked for low and moderate income housing was due Friday.
"We're in a rock and a hard place because they told us go ahead and do these projects," said Santa Ana Mayor Miguel Pulido. "Now in the middle of those projects, they're saying we want the money back."
The state is asking for the money as a result of eliminating more than 400 redevelopment agencies in the state. The State Department of Finance is asking nearly 20 cities in Orange County to turn over nearly $260 million dollars.
The Santa Ana City Council held an emergency meeting Friday. Several people urged council members to fight the state. Habitat for Humanity has a contract with the redevelopment agency to build 17 houses.
"We urge the city council to do everything in your power to preserve housing funds," said Mark Korando, Vice President of Habitat for Humanity.
California Department of Finance officials say they've been talking with Santa Ana officials throughout the entire process. And that this shouldn't feel like a surprise.
"We think what they're doing is illegal," said Mayor Pulido. We think it's wrong."
Instead of paying the money due, council members decided to file a lawsuit against the state Friday. The Santa Ana City Council also decided to continue paying for projects like the low-income apartment housing that is already under way.
"We're very glad for ourselves and all the other projects underway," said Barauskas.
As a last resort, California warns that cities that don't pay up could see sales and property tax revenues withheld. City officials say they plan to travel to Sacramento to plead their case.