SAN DIEGO — For more than a year, San Diego County officials have been pushing a controversial plan for Lemon Grove — a collection of tiny “sleeping cabins” intended to offer shelter to homeless people.

But unbeknownst to county officials, a land deal underpinning the effort skirted federal regulations — a rub in the county’s plans that is set to cost taxpayers $2 million pulled from other homelessness efforts.

The county-backed project to build dozens of small cabins faced major headwinds earlier this year after the Federal Highway Administration refused to endorse a deal between the county and the state Department of Transportation, or Caltrans, for leasing a vacant lot at the intersection of Sweetwater Road and Troy Street.

Under the original plans, the site appeared exactly what the county had been looking for, after officials retreated from similar proposals in Lakeside, Santee and Spring Valley in the face of local opposition.

In Lemon Grove, the county pressed forward anyway. The cost for the site would be negligible: The county aimed to lease it from Caltrans for $1 a month.

But in October, the county revealed that the Federal Highway Administration was insisting Caltrans sell or rent the site at market rate.

At the time, there was little information publicly available about the federal agency’s decision making.

Caltrans had made similar deals in California for projects to combat homelessness without opposition from the feds, county officials said. Supervisor Monica Montgomery Steppe told The San Diego Union-Tribune in October that county officials “did not know” why the FHWA had reversed course.

Internally, however, county homelessness and project-management staff have known since the summer that the proposed $1-a-month lease with Caltrans violated federal regulations, emails obtained by the Union-Tribune through a records request show.

In a Sept. 12 email to about a dozen county and Caltrans officials, the county’s deputy director of project management, Scott Christman, detailed that the county had learned only in August how the lease was potentially problematic.

Caltrans had originally bought the parcel using federal funds as part of its ongoing expansion of state Route 125.

Per federal regulation, excess land bought with federal money has to be sold at fair market value. The Biden administration had stopped enforcing that regulation, but under President Trump, the FHWA had begun enforcing it again, Christman said in his email.

Ariel Gibbs, a spokesperson for Montgomery Steppe, stressed that the FHWA has never explained why it decided to renew enforcement.

In a statement, the FHWA said it “works closely with state DOTs to ensure federal requirements are met regarding the disposal of excess real property.”

The Lemon Grove property was first floated as a site for the cabins last summer, and Caltrans spokesperson Aaron Hunter said the transit agency has known how federal regulation might impact the project.

But after Caltrans learned the FHWA had rejected the lease, Richard Covey, a deputy director with the agency’s San Diego district, told Christman in a July email that he was “not sure who came up with the idea” of selling the property at market rate.

What’s more, lines of communication between Caltrans and the FHWA had already been disrupted because of staffing cuts at the federal highway agency.

In May, Covey told Christman it could take a while to get the $1-a-month lease approved, because “one person is now responsible for all of California” at the FHWA.

The FHWA did not return a request for comment about its staffing.

Since the feds rejected the lease, county efforts to buy the site from Caltrans have moved quickly. In October, the Board of Supervisors approved the purchase and told staff to find $2 million in the budget for it.

The FHWA has since signed off, and now all that’s left is for the California Transportation Commission to approve it, said county spokesperson Tim McClain. A vote is expected in March.

At first, worry abounded over whether the county could afford purchasing the land.

In September, Christman wrote to county and Caltrans staff that the county “does not believe we have the funding or the time to purchase the property.”

County officials mulled moving the planned tiny cabins to another Caltrans-owned property in the San Diego neighborhood of Jamacha, emails show. But that site was also bought by Caltrans with federal funds, and moving the project there would face even more red tape because it’s in the SR-125 right-of-way.

In recent weeks, the county decided to tap $2 million in unused money from its Office of Homelessness Solutions budget to buy the site, McClain said. If the state transportation commission backs the sale, building could start in the spring.

Construction is expected to cost $11.1 million, and operating the site is expected to cost $3 million a year.

Once complete, it would host 60 cabins and on-site services to provide people meals and case management services.

Each one-room cabin would have basic amenities — a bed, an air conditioner, bookshelves and lighting — but no bathroom or cooking facilities. Each cabin would cost the county between $12,000 and $19,000 to build, depending on the size, the county says.

The site would offer access to behavioral health services and have 24-hour security, and drugs and alcohol would be banned.

©2025 The San Diego Union-Tribune. Visit sandiegouniontribune.com. Distributed by Tribune Content Agency, LLC.