Norwich — The City Council debated into early Wednesday on a final spending package for $10.2 million of the city’s first-year $14.2 million American Rescue Plan grant, approving one restriction that could jeopardize a planned $8.8 million Main Street development.

The four council Democrats proposed a series of last-minute adjustments to City Manager John Salomone’s ARP spending proposals. While most of Salomone’s package and some changes received unanimous support, two controversial items drew lengthy — and at times heated — debate.

In approving a proposed $2 million grant to the Norwich Community Development Corp. for economic development, aldermen voted 4-3, with the council’s four Democrats in favor, to restrict contributions to $300,000 for any one project.

The limit came after the NCDC board of directors voted on Aug. 26 to approve a conditional $400,000 matching building code correction grant and a $400,000 loan to Norwich Luxury Apartments LLC. The group plans an $8.8 million redevelopment of two mostly vacant buildings at 77-91 Main St. into 42 market-rate apartments and eight street-level commercial spaces.

While the NCDC vote was conditional on City Council approval of the $2 million economic development funding from the ARP, NCDC officials, Republican Mayor Peter Nystrom and council Republicans were surprised by the last-minute restriction. Nystrom, an NCDC board member, argued vehemently against the limit, saying it would kill the type of development the city most needs downtown: one that would lead residents to spend money at restaurants, shops and events.

But Democrats balked at the high price tag of city support for the project, saying it would tie up nearly half of the entire amount for economic development. Along with the $300,000 cap, Democrats earmarked $400,000 of the $2 million for small business, micro-enterprises or home-based businesses with up to 10 employees.

“Is it your intent that this limit would not allow that project to go forward?” Nystrom asked Democrat Derell Wilson. “Because I can tell you the financing of it is contingent on it, and thus that project in essence, would be dead now.”

Wilson responded that many small businesses were unable to apply for previous COVID relief grants, and he could not support $800,000 going toward one project, leaving all other businesses to vie for what’s left of the NCDC funds.

Council President Pro Tempore Mark Bettencourt, an NCDC board member and mayoral candidate challenging Nystrom in November, voted in favor of the Main Street project at the Aug. 26 NCDC meeting. Bettencourt said Wednesday he did express reservations about the project at the time.

“That (project), coming out of this bucket of money would be unfair to other businesses in the area and might not allow them to get any funding,” Bettencourt said during the council debate.

NCDC President Kevin Brown urged the council to drop the new condition, saying the city’s assistance was critical to the project's private financing. Brown said the two-building complex, where a Norwich heritage museum had been proposed decades ago and which now houses a restaurant and one other street-level business, now pays about $28,000 per year in property taxes.

Once the development is completed, he estimated it would pay an estimated $128,000 in annual property taxes.

Brown told the council that the matching grant and loan would not be dispersed to the company until the project were completed.

During Tuesday’s meeting, Bettencourt invited NCDC and representatives from Norwich Luxury Apartments LLC to present plans to the council, possibly to seek direct funding from the city using the remaining $4.2 million ARP funding for this year.

On Wednesday, Brown said he spoke to the project attorney and the group will address the council Sept. 20.

“We have spoken to the development group,” Brown said Wednesday. “We made it clear to them that although this is a delay, we don’t consider it a death nell for the project. We just have to do a better job informing leadership of the council the value of the project.”

Salomone’s proposed $2.1 million to create the Uncas Leap Heritage Park also could get a second look this fall. The council voted 4-3, with the four Democrats in favor, to cut funding for the park to $1 million, with a pledge to consider funding the second half later.

Wilson said the park couldn’t be done in one year, and doing it in phases would free up money for other immediate projects.

On Wednesday, Salomone said the city will advertise soon for an architectural-engineering firm to design the park plan, and he hopes to have final cost estimates by early November. He could request the full park funding later this year from the remaining ARP funds.

c.bessette@theday.com