A deal that would have netted the city $142 million for the long-term leases on 12 rental housing complexes was nixed by the prospective buyer, city officials announced Thursday night.

William Rice, an official with the managing partner of Honolulu Affordable Housing Partners LLC, said in a letter to city Budget Director Nelson Koyanagi that the group would not be able to come up with $35 million demanded by the city by March 31, the deadline for closing specified in an August 2012 sale agreement.

In anticipation that a deal could not be reached, the Caldwell administration got Council Chairman Ernie Martin to introduce Bill 6, giving the administration permission to restart the formal “request for proposals” process on the 12 complexes. The measure is expected to be up for the first of three required full Council approvals next Wednesday.

The cancellation of the deal is causing a $20 million shortfall in the city’s current year $2 billion operating budget, but the loss was already a foregone conclusion since HAHP had requested a delay in payment that would have extended into the new fiscal year.

The administration needed to program the revenues into this year’s budget in order to spend it, city Managing Director Ember Shinn told Council members last week.

Koyanagi said the city will only cut services as a last resort to fix the shortfall, and will instead look at holding off scheduled payments to “provisional” or rainy day accounts first.

Meanwhile, the city is spending about $8 million to maintain the complexes and pay for the debt incurred by their purchase over the years.