LEWISTON — With construction slated to begin in early 2023, the developers behind the first phase of the ambitious Choice Neighborhoods redevelopment plan are working to address a $2.5 million funding gap.

During a City Council workshop Tuesday, city staff said higher than expected construction costs have led the development team of Lewiston Housing and Avesta Housing to make some changes to the design and seek other cost saving measures.

The City Council will be asked to support the creation of a tax-increment financing district for the 82-unit development, as well as provide $450,000 in federal HOME funds toward the project.

Misty Parker, economic development manager, said that since 2020, the project has seen a 39% increase in construction costs. She said the cost increases are felt especially in the first phase of construction, which is a lower density project featuring eight buildings on Pine, Bartlett, Walnut and Pierce streets.

The second phase is planned on Pine Street overlooking Kennedy Park. Parker said that a smaller third development site has been axed, with more units being added to each of the first two phases.

The TIF would return 50% of the increased tax revenue from the properties to the developer over the first 16 years, resulting in roughly $1.3 million.

The city received the $30 million Choice Neighborhoods grant last year, making Lewiston the smallest city to ever receive it. According to a memo, 70% of the grant goes to supporting the housing plan, 15% to support services outlined in the plan, and 15% to support neighborhood improvements. Staff has said the federal grant is leveraging an additional $60 to 70 million in investment in the neighborhood.

The first phase of work will consist of 42 units that are considered a “replacement” of distressed public housing, as well as 18 workforce units and 22 market rate units. The development also includes a historic renovation of the Wedgewood house.

Parker said there will be six three-story buildings and two four-story buildings. She told councilors that Avesta Housing has tried to maintain the community goals outlined in the plan — like lower density housing — while addressing some of the development costs. That meant considering building design.

Construction is expected to begin in early 2023, with an 18-month construction timeline, she said.

Mayor Carl Sheline said the council “understands costs have risen,” and said Choice Neighborhoods is an important development, “not just for the neighborhood, but for the entire city.”

Councilor Rick LaChapelle questioned the high costs of the development, calling the price tag “ludicrous.”

Parker said the purpose of the federal grant is to support the construction of housing in a distressed neighborhood that is not currently being offered there, in order “to encourage people to live there.”

“The goal is for every unit to look the same regardless of affordability,” she said, adding that each unit will have its own washer/dryer unit and dishwasher.

“As a developer, I don’t see how you get to those dollar amounts. It’s a lot of money,” LaChapelle said.

City Administrator Heather Hunter said city officials never expected to even qualify for the grant, and should support the opportunity to “really revitalize an area and reframe the thought process on where the stigmas lie in our community and address those head on.”

“I recommend this TIF moving forward. We’ll never have another opportunity like this,” she said.

Hunter added that the Choice Neighborhoods project has received quite a bit of outside attention.

“There’s a lot of people watching this project,” she said.