A $6.3-million, low-income housing project planned for Freeland may be derailed because of a permitting issue.

Island County Housing Authority officials confirmed this week that the costs of septic system requirements may exceed initial expectations and the increase in costs may torpedo the project.

“We can’t go over this budget, we just can’t,” said Teri Anania, executive director for the Housing Authority.

The organization is not a department of county government, but a state special-purpose district that provides affordable housing to low-income and elderly residents.

It currently owns and manages 110 public housing units on properties in Oak Harbor, Coupeville and Langley.

Its newest project, Sunny Side Village, is planned on a nearly 9-acre lot off Fish Road, between Highway 525 and Scenic Avenue. Designs call for the construction of 26 units in four separate two-level buildings.

They are expected to provide housing for people who make between 30 percent and 60 percent of the area median income for Island County — about $67,500. Rents will range from $587 to $986, depending on income.

So far, the agency has spent nearly $1 million on the project, which has been in the works since 2008. It recently hit a major hiccup when county regulators realized that the effluent produced by the large development may have adverse impacts on a nearby well.

Nitrate levels in the water source are already elevated. The plan to treat effluent using a series of separate septic systems won’t be enough to keep the levels from going over the brink, said Keith Higman, director of Island County Public Health.

As a result, the Housing Authority is going to have to rethink its septic plans.

“They have to mitigate the nitrate loading,” Higman said.

There aren’t a lot of options. There’s a good chance that a water treatment plant will have to be constructed. The cost impact is unclear, but officials agree it will likely push the project over budget.

Anania is hopeful an alternative can be found. If one isn’t, and a water treatment plant is required, that would put permitting under the purview of the state Department of Health, which opens the door for another problem.

The standards to be met are the same, no matter which agency is doing the permitting. Anania said a state review may result in delay and ultimately the loss of $2.5 million in funding from the Washington State Housing Trust Fund.

The Department of Commerce, the agency that manages the fund, has already given the housing authority an extension once for not being shovel-ready. Anania said she doubts another would be granted.

Funding for the project comes from a range of sources, including the trust fund.

Of the nearly $1 million already spent, $575,000 was from two county pots: one for low-income housing and the other for homelessness.

The remaining $416,000 came from Housing Authority coffers.

Adding to the unexpected permitting headache, the project is now under fire from residents who are concerned about a range of issues, not the least of which relate to the potential impacts on water quality.

Residents who live near the proposed development met with housing authority officials recently to learn more about the project but many said they are dissatisfied with the answers they received and brought their case before the Island County Commissioners on Monday.

Many complained that the surrounding roads aren’t up to the task of supporting such a large development. They lack sidewalks and are so narrow is some placed that there is barely enough room for two cars.

“There’s some real problems there,” Denise Lorenz said.

Others believe not enough was done to let the community know the project was being proposed. The two-week public comment period last year, which is required by law, passed by unbeknownst to most in the neighborhood.

Some claimed the site is currently home to bald eagles, others questioned the high cost of the project, and still more wondered whether the location is a good fit for a low-income demographic.

“I think the site is just completely inappropriate for the functions being proposed,” said Lew Randall, president of the Freeland Advocates for Informed Responsible Solutions.

According to Anania, a traffic study has been performed and a concurrency certificate issued. She also addressed the total price tag, saying “soft costs” for government projects can be considerably more pricey than those in the private sector.

Soft costs are expenses not associated with construction, such as architectural, engineering and legal fees. They can also include the cost of pursuing grants or funding studies necessary for permitting.

Anania said many of those who voiced concerns had “valid points” and that it’s not the organization’s intention to propose an unsafe or environmentally irresponsible project.

“We’re not in the business of being bad neighbors,” she said.

The Housing Authority will do what it can to address those issues, but community concern alone won’t stop the project from moving forward, she said. The same cannot be said about the septic issues, however.

While Anania said she is hopeful that a solution can be found, the future of Sunny View Village is entirely dependent on getting a permitted septic system.

“If we don’t get the permits, obviously, we’re dead in the water,” Anania said.