A state determination on funding eligibility will delay progress on a downtown hotel project.

Acting City Manager Mike Holtz said the city had previously allocated funds to DewBoi Properties, the developer on a project that intends to bring a boutique hotel to Liberty Street.

Those funds were initially allocated to a firm that planned a hotel directly on the riverfront. When that project fell through, the city pivoted to allocate the funds to DewBoi.

The state Office of Budget now says that can’t move forward.

The end result is that the city can only offer a total of $1.4 million in grant funding for the project, down from the hoped-for $1.9 million.

Guidelines for the state Redevelopment Assistance Capital Program, the source of these funds, are set legislatively.

The DewBoi Properties project “wasn’t as close in proximity” to the riverfront as needed, Mayor Dave Wortman said.

Holtz said the city “tried very hard” to lobby the state to approve the change but “the circle from the river was just too far.”

Tom Christeson with DewBoi Properties, said the project has “kind of stalled out the last few months.”

“We’re ready to go,” he stressed, telling council that furniture has been purchased and they are ready to go to bid. “We’re completely done with the architectural drawings. It’s ready to go to bid.”

Christeson said he is “a little gun shy” about whether the state will approve this amended funding.

“We’re still going to do the project,” he stressed, explaining that it might move from 14 to 12 rooms, or a proposed cafe might be cut, in response to the funding shortfall. “Our biggest concern, at what point… do we know that this is a guarantee that we can go ahead and start construction and know that these funds are available? Had we started this six months ago, we would have been pretty deep into it before we found out the money is no longer available.”

Holtz said the city would be able to resubmit the business plan for the project “fairly quickly” but that it would take two or three months to hear back from the state.

The council approved a subgrantee agreement with DewBoi Properties for the $1.4 million in funding.