Queens Creek considering $84M in road, water work
Queen Creek Town Council will vote Wednesday on funding options to pay for infrastructure improvements the town is obligated to build for the LG battery manufacturing plant.
In 2022, the Town Council approved a development agreement that requires the town to build new roads, widen roads and water and sewer infrastructure improvements to the site.
The South Korean company LG Energy Solution announced in March it was quadrupling its initial investment at the Queen Creek factory to $5.5 billion. Two different types of batteries, one for electric vehicles and another for energy storage systems, will be manufactured at the plant. When operating, LG will be the town’s largest employer.
The council will make two separate votes at Wednesday’s council meeting to approve an interfund loan and a second external interim funding source. With the new funding options, could come debt that was not previously expected for the project.
The total cost of the improvements is estimated to be $84 million. The town planned to pay for the improvements with two types of construction sales tax revenue paid by LG on the construction of their facility.
The largest portion is expected to be covered by a state reimbursement program that would cover 80%, or $67 million, towards the improvements. Queen Creek would use its local construction sales tax revenue from the battery manufactory facility to pay for the remaining 20%, or $17 million.
From April 2022 to June 30, 2023 the town has already incurred about $12 million on project expenditures, according to town documents.
Since construction on the LG facility has not started, the town does not have the funds to meet the cash flow needs for the project payments, according to one staff report. A town spokesperson told The Arizona Republic, it does not have a date for the commencement of construction. The project is anticipated to break ground this year, with completion anticipated in 2025.
The town will clearing the site for phase 1 in early September, according to the town's website. Staff are also reevaluating the timelines set in the development agreement based on the increase in capital investment from LG.
Internal loan
The interfund loan would be paid with capital improvements funding for a total of $23.4 million. That is estimated to be repaid by Oct. 31 with “external financing.” The four-month loan would come with a 5% rate, for an estimated cost of $265,000 in interest.
To not use general taxes nor water nor wastewater fees for the construction of the required improvements, this is the only option town can use, staff wrote in a report to the council.
The short-term loan is meant to hold over the town until it can close a bigger and longer-term external loan.
$50 million external loan
In order for the town to request its first reimbursement from the state's public infrastructure improvements reimbursement program, LG has to spend at least 10% or $280 million of the initial $2.8 billion investment. That is to ensure the state has "collected at least some construction sales tax from which the Town can be reimbursed."
That leaves the town with the need to find an external funding source to finance all the project expenses until it receives state reimbursements.
By the time the town begin receiving construction sales tax revenues in June 2024, staff estimate it will have spent about $50 million.
If the council approves the request, the town will issue a request for funding from banks and “qualified financial institutions.”
The town expected to close on the external financing by Oct. 25.
The total of incurred debt from the loan is not yet known, but staff expect the interest rate to be between 5% and 10% of the external financing. The town must pay off the loan no later than June 1, 2028 but are aiming to pay it off by June 30, 2025.
It the town meets the earlier deadline, the “estimated interest costs are about $4 million,” according to staff reports. "The interest will be paid from the construction sales tax received from the LGES facility," according to a town spokesperson.
What are the improvements?
The town will build new roadways, widen roads and make water sewer improvements.
LG Energy Solutions purchased more than 600 acres of land at an Arizona State Land Department auction in 2022. The site is along Ironwood Road, south of Pecos Road and north of Germann Road. The town will widen Ironwood and Germann roads. It will also extend Pecos Road east of Ironwood Road. Kenworth Road north of Germann Road will also be built up.