Up until Wednesday, Neighbors of Watertown thought it had located the entire $7.8 million needed to renovate the Franklin Building on Watertown's Public Square.

Then, in the midst of applying for state grants, Neighbors Executive Director Gary C. Beasley discovered he had a $140,000 shortfall for the project.

The problem stemmed from the agency's plan to raise $4 million by selling tax credits on the project. Tax credits fluctuate like other market-driven products though and, on Wednesday, the price for them dropped more significantly than Neighbors had anticipated.

"It's a complicated project; it's a complicated building," Mr. Beasley said. "Certainly there's a consensus to see it through to completion."

The Franklin Building is owned by Public Square Developers LP; Watertown Local Development Corp. is the general partner via the limited liability corporation 50 Public Square.

On Thursday, Mr. Beasley went to the WLDC for help. Also known as the Watertown Trust, WLDC already has invested $700,000 in the Franklin Building project.

To pay for the renovations, Neighbors also had acquired a $1.25 million Restore NY grant, $250,000 in bank financing and a $350,000 Community Development Block Grant through the state's Office for Small Cities.

A total of $650,000 had been awarded for the Community Development Block Grant, but the Trust reserved half of that in a funding pool that eventually will be used to help businesses moving into the building's new commercial space.

Neighbors also is applying for a $50,000 grant from National Grid and a $1.6 million deferred loan from the state's Division of Housing and Community Renewal.

To make up the rest of the funding, Neighbors planned to apply for a historic tax credit from the National Parks Service. The credits were expected to raise $1.3 million after they were sold to investors.

A similar tax credit, provided by the state's Division of Housing and Community Renewal for providing affordable housing, was expected to raise $2.7 million.

Mr. Beasley said his agency anticipated a drop in the price of tax credits last year and had adjusted for the change based on discussions with potential investors.

"Yesterday we got firm quotes and the investors had dropped below what the estimates were that they would be paying at this time," Mr. Beasley said.

Neighbors decided to lend the project $70,000 from the fee the agency eventually will receive as the building's developer.

To make up the rest, Neighbors asked the Trust to make good on a promise to match funds for Public Square renovations.

In 2005, Neighbors was awarded a state grant of $200,000 to help restore buildings facing the square.

Distributed under the New York Main Street program, the grant was designed to be used for work on interiors and facades. Neighbors had planned to use $70,000 from the program to work on the Franklin Building.

Although WLDC agreed to provide matching funding for the project last year, Mr. Beasley said, Neighbors had not planned to use those funds.

"I didn't want to assume; I wanted to go to the meeting and discuss options," he said.

The funding question was not welcomed by trust board member James P. Fayle, who said fluctuations in the tax credit should have been anticipated.

"At this late in the game, why are there so many unknowns and so many lack of alternatives?" he said. "Especially with seven plus million dollar deals, it's good to have options."

Mr. Beasley responded that the sudden drop was one no one could have predicted.

The Trust agreed to apply $70,000 in matching funds, as long as Neighbors applied for the money along with other New York Main Street applicants.

Mr. Fayle's was the only dissenting vote.

In a related decision, in which Mr. Fayle also was the sole dissenter, trust board members voted to admit Neighbors of Watertown as an additional member of Public Square Developers LP and designated the agency as a managing member. The move was designed to improve the agency's chances for state grants.