LaGRANGE — Another setback is expected to further delay a downtown hotel project as a deadline looms for developers to take advantage of a tax incentive.

Construction on the hotel, which is set to go up on the site of the former Mansour’s department store on Lafayette Square, was supposed to begin by June 30 for developers to make use of a tax allocation district, or TAD. The TAD was established by local governments to spur redevelopment, but a recent environmental study could spell challenges.

The study, dated May 25 and filed with the city, shows contractors discovered a previously unknown gas station existed on the property, according to maps from 1930 and 1950. Environmental engineers are slated to return to the Mansour’s site Thursday to take soil samples, said Bobby Carmichael, executive director of the Downtown LaGrange Development Authority.

Gas stations and their associated underground storage tanks can sometimes leak hazardous chemicals into the ground and cause contamination. Still, Carmichael remains bullish on the prospect of the hotel, adding that under an August 2015 agreement between the city and the developer, the city has agreed to participate in any necessary soil cleanup.

“At the end of the day, the city will stand behind the project,” Carmichael said Tuesday. “The city will have to do remediation, if it comes to that.”

Concerning the June 30 deadline for the TAD benefits, local governments could extend the deadline — something Carmichael said the County Commission, Board of Education and City Council intend to do at their next meetings.

He said the bodies are mulling extending the deadline by 60 or 120 days. City Attorney Jeff Todd said today that deadline would likely err on the side of 120 days. It wouldn’t be the first time an extension has been granted. In late 2015, the TAD was slated to expire on Dec. 31, but local governments extended it by six months to June 30.

The TAD is an important part of the hotel deal, because it provides the developer with capital to build the hotel. Under the agreement, the city will provide the developer between $2.5 and $2.75 million toward construction. The money will be repaid to the city using property taxes collected over a period of no more than 30 years under Georgia law. The capital will also be repaid to the city at a 3.5 percent interest rate, according to an agreement between the city and the developer.

TADs are Georgia’s version of tax increment funding. Tax increment funding, or TIF, is a redevelopment mechanism that reinvests future taxes from real-estate development back into a project as an incentive to attract new private investment into an area, according to the project’s proposal.

TIF was created and first used in California in 1952. Hundreds of TIF districts have helped spur urban redevelopment in cities across the country. Today, all 50 states and the District of Columbia use tax increment financing.

In 1985, the Georgia General Assembly authorized the formation of Georgia’s form of tax increment financing, which the state calls TADs. The purpose of a Georgia TAD is similar to TIF in any other state. It uses the increased property taxes generated by the new development in a designated redevelopment area to finance costs related to the development such as public infrastructure, land acquisition, relocation, demolition, utilities, debt service and planning costs.

Read Thursday’s edition of LaGrange Daily News for more about TADs and their uses in Troup County.