Lake Zurich to delay paying back loan until Dec. 2009

Lake Zurich village officials are trying to determine how to repay a roughly $6.1 million bank loan used to buy downtown properties for redevelopment before an Oct. 1 deadline.

That's the amount outstanding on an original $7.5 million line-of-credit extended by Inland Bank, formerly Cambridge Bank, in 2004.

The village has no money to repay the debt now, finance director Al Zochowski said.

That's due to a deficit in a special taxing district established to fund downtown redevelopment and any debts it incurred. Officials blame a downturn in the housing market that scuttled two downtown redevelopment projects, hurting revenues.

"The incremental revenues just aren't supporting the debt service that's required on an annual basis," Zochowski said.

The village's annual debt obligations, including the Inland loan and $20 million in borrowed bonds, amount to slightly more than $1.6 million.

Officials considered refinancing the Inland loan, but found it wouldn't save any money with current market interest rates no cheaper than the 4.75 percent interest the village is paying on the debt, Zochowski said.

The deadline to repay Inland can be extended to Dec. 1 or until the village is ready to renew its loan, which will buy time until December 2009, he said.

Meanwhile, the bank is holding the title to village-owned properties in escrow until the debt is cleared.

The village also must to figure out how to refinance the $20 million in bonds borrowed for downtown redevelopment. By Dec. 15, the village owes roughly $1.2 million in principal and interest payments on the bonds, money it doesn't have now.

The village owes Lake Zurich Unit District 95 $532,000 in tuition reimbursement for new students generated from within the special tax increment financing district.

That payment, due in October, will short the TIF fund by roughly $650,000. Officials plan to plug that hole by borrowing from the water and sewer fund.

The village faces the same problem next year when anticipated TIF revenue of about $1.5 million won't cover debt obligations for $1.7 million, Zochowski said.

"It's bad," Village Administrator Bob Vitas said. "Financially, we're a solvent organization and our credit rating is good, but our TIF fund is fragile. If this economy gets any worse than it is, or markets get any worse than they are, it could get scary."

Service cuts, layoffs, and possibly liquidating some village land assets may be on the horizon.