A Northern California city has agreed to plan for more low-income housing and pay the state’s legal fees to settle a fair housing lawsuit, Gov. Gavin Newsom and other state officials announced Wednesday.

The state sued the city of Elk Grove last year alleging that the city unlawfully denied a 67-unit homeless housing development in a historic neighborhood despite having recently approved a similar market-rate development in the same area. Wednesday’s settlement calls for the city to identify another site in a high-resource community for low-income housing, accept state reporting and monitoring requirements for compliance with housing laws and pay $150,000 in attorneys’ fees and costs.

The suburban Sacramento community of 178,000 already had settled with the developer, Excelerate Housing Group, to allow for a separate low-income project at a different location.

“We can’t solve California’s homelessness crisis without creating new housing and supportive services,” Newsom said in a statement. “Elk Grove is not immune to this challenge, and the city’s decision to block these efforts — wasting valuable time and resources — is especially shameful. We expect Elk Grove to follow the law — continued refusal will not be tolerated.”

Excelerate first proposed the project, Oak Rose Apartments, on a vacant site in 2021 under state laws intended to streamline the approval of low-income housing in communities behind on mandated housing production goals. Under pressure from nearby residents, city officials repeatedly rejected the development, saying that it was inconsistent with the character of the historic area, the state’s lawsuit said.

The developer sued the city in 2022 and the state followed with its own litigation last May. The city’s prior settlement with Excelerate called for the developer to abandon Oak Rose Apartments. But it allowed Excelerate to put forward an 81-unit low-income project, Coral Blossom Apartments, on a different vacant parcel in the city. The city voted to advance Coral Blossom Apartments this summer.

California Atty. Gen. Rob Bonta said, despite that agreement, the state needed to enforce the law against Elk Grove given the depths of California’s housing crisis.

“While I am pleased that this is now behind us, and that Elk Grove ultimately approved even more homes for those most in need, the city’s refusal to do the right thing over and over again cannot be swept under the rug,” Bonta said in a statement. “These are not ordinary times.”