St. Charles seeking safest way to help finance First Street development

St. Charles officials want to take advantage of millions of federal stimulus dollars to revive the stalled First Street redevelopment project with the least risk to taxpayers.

The city would declare itself a "Recovery Zone" - meaning it has experienced economic troubles as a result of increased poverty, unemployment and rampant home foreclosures - and gain the ability to issue a special kind of bond that would help finance the final phase of the First Street project.

"It's very hard to get money for projects right now," said Chris Minick, the city's finance director. "We view the Recovery Zone Facility Bonds as a fairly significant economic development tool if you have a project that has had trouble getting funding."

But the city wants to add safeguards to ensure the developers don't take the money and leave nothing to show for it.

The First Street project is considered the cornerstone of the future for the downtown area in St. Charles. The third phase of the project is stalled but would bring three new buildings to the downtown for office, retail and residential use. An additional parking deck with 211 spaces also is part of the third phase.

Recovery Zone Facility Bonds, part of the federal stimulus, are aimed at spurring private development. The city would issue the bonds, tax-exempt to investors, and effectively loan the proceeds to developers.

Because the bonds are tax-exempt, their interest rates can be lower, because investors still will get a good return. That means developers can pay less interest on the amount they get from the city, and they get more bang for their buck.

But if the development doesn't get done, the city and therefore taxpayers could be out their money.

"If we determine we will go (with Recovery Zone Facility Bonds), we will make sure that we put adequate safeguards in place," Minick said.

Minick said there are several ways to protect the city and taxpayers from that risk.

The options include securing the bonds with a letter of credit that creates an escrow account that the developer funds, having the developers guarantee the debt in writing, or having the city take an ownership interest in the project like a bank does with a mortgage, where the city would get some of the profits until the developers' debt is paid.

Minick said all those are options to alleviate any public fears or worries by the city council that St. Charles and its taxpayers could be left with a lot of debt to repay and nothing to show for it.

"There may be several projects in and around town where these bonds might apply," Minick said. "First Street is certainly one we have kind of concentrated on."

The first step for the city would be to pass a resolution declaring itself a Recovery Zone. There is no timetable for doing that yet. Any city wishing to issue Recovery Zone Facility Bonds must do so before Dec. 31, 2010.