East Peoria providing $16M loan for mixed-use development project
A long-anticipated mixed-use development in downtown East Peoria is getting a $16 million “development incentive payment” in the form of a loan from the city.
Construction on the 501 Blutowne project is expected to begin on a West Washington Street lot adjacent to City Hall in early October. The development by Flaherty & Collins Properties is expected to include around 220 residential units and 10,000 square feet of retail space.
Mayor John Kahl says the estimated cost of the development has grown to around $55 million. He said they turned to this development incentive option after pursuit of the original funding approach risked a negative impact on the city's bond rating.
“We had to pivot on a dime, so we got ahold of the city council and we went in a different direction,” Kahl told WCBU. “The city was in position to loan the money at 5% interest, which is what they're paying us back. So essentially, I feel good about it.”
On Tuesday night, the City Council unanimously approved a supplemental appropriations ordinance for the 2023-24 fiscal year that included the $16 million loan for the project. The council had already approved issuing the loan at a previous meeting.
East Peoria Finance Director Jeff Becker said the money would come out of the city’s general fund account.
“This isn't getting into our reserve that we keep, which is 120 days operating cash,” Becker said. "This was other funds that we had set aside and that we're using for this."
Becker said the 5% interest will generate approximately $12.4 million for the city over the span of the loan, which runs through 2050 to correspond with expiration of the West Washington Street TIF (tax increment financing) district.
“The city gets 100% of the tax increment, which is a difference of what the land was when the TIF was created, versus what the land is generating and TIF revenues after that,” Becker said. “So this project will generate new tax dollars, and those tax dollars are what we use to make this whole thing happen.”
The loan agreement includes a requirement for the development to maintain a minimum fair cash market value of $48 million, resulting in an equalized assessed value of at least $16 million.
“One of the things that we did to protect the city, and they agreed to, was a minimum EAV on this development, because in order to make the numbers work we needed to guarantee that they're not going to come back five years from now and try to get their property taxes lowered,” Kahl said.
Kahl said the funding was originally going to come through bonds issued by the city under approval from the Tri-County River Valley Development Authority (TRVDA). Although the TRVDA board voted to approve the bonding in July, the vote was not unanimous.
Kahl said the opposition votes put East Peoria in a difficult position.
“That meeting was on like a Wednesday, and we had a bond meeting scheduled for the following Monday,” Kahl said. "Any type of objection or discourse must be disclosed during the bond meeting, and that was going to affect the city's bond rating, which is excellent."
“It was a 6-3 vote in favor of the project, so technically they could have issued the bonds. But I wasn't about to jeopardize the city's financial position over this development. In the end, the project stayed alive.”
The supplemental appropriations ordinance approved Tuesday also included $500,000 for preliminary engineering services for a new East Peoria Police Department facility.