The city may not have to spend the money if the project proceeds as initially planned, with Neighbors of Watertown obtaining grants, loans and investors to cover the proposed $4.8 million rehabilitation work.

City Manager Jerry C. Hiller described the money as "more of an insurance policy" to allow Neighbors of Watertown to continue predevelopment work on a project to fix up a century-old apartment building and renovate a dozen other houses nearby.

Neighbors has been denied a $250,000 federal grant that would have been used to buy properties that must be demolished and is still in negotiations with Larry V. Silverstein to purchase four rental properties he owns in the area.

Part of the reason Neighbors was denied the grant money was because it could not show it had control of all of the properties within the proposed Near East Side Neighborhood Improvement District.

Mr. Hiller told council members at a work session Monday that the project is "in jeopardy" because of the lack of funding. He said Neighbors "doesn't have the resources to absorb a $20,000 loss."

"They're looking for us to take the risk," he said. "If the deal falls apart, that's when they need a check."

Councilman Peter L. Clough said the city, with budget woes of its own, doesn't have the resources available, either. He said he would be more comfortable with the arrangement if a deal had been reached on the Silverstein property.

The money, if needed, would not come from next year's city budget. Mr. Hiller said there is enough money remaining from a federal Urban Development Action Grant the city received many years ago for rehabilitation work and the Emerson Place work would be an eligible use for the funds.

The city will also apply for a state Small Cities Community Development Block Grant to help pay for all general fund and most water and sewer fund costs for the first phase of the project.

Of the $339,000 the city would be expected to contribute for demolition of structures, storm drainage improvements and sewer and water line connections to the Emerson Place apartments, all but $7,400 from the city water fund and $6,900 from its sewer fund would be covered by grants.

Mr. Hiller did caution council members that if the city's grant application is unsuccessful, the city would have to pay the full $339,000.

Council members expressed confidence that the project would move forward, that Neighbors likely will never need the city's $20,000 and that the potential benefits to the city outweigh the risks.

"You're looking at $20,000 to possibly get $4.8 million," Councilman Paul A. Simmons said. "If that's what it takes to keep this moving forward, then I'm all for that."

"I'm confident this project is going to go forward, too," Councilwoman Roxanne M. Burns said. "If I had a doubt in my mind, I'd be hesitant."

The council voted unanimously to guarantee the money for the project. Mrs. Burns said she hopes "this sends a message to Neighbors of Watertown that we are committed to this project."

The city has hired an appraiser to inspect Mr. Silverstein's four properties. NOW and Mr. Silverstein have been unable to agree on a sale price for the properties, although the landlord has indicated he would accept a price based on an appraisal by a neutral party.