The Duluth City Council will consider a resolution Monday that could help a developer cope with the higher-than-expected cost of transforming Historic Old Central High School into an apartment building.

The project is now expected to cost in excess of $46 million — $4.3 million more than originally anticipated.

The developer, Saturday Zenith LLC, informed the Duluth Economic Development Authority that it would agree to increase its equity investment in the project by $2.7 million, but that still leaves a financial gap of about $1.5 million.

The authority agreed to fill that gap with an additional $1.5 million in tax-increment financing, bringing its proposed total assistance to $2.94 million. Tax-increment financing is a business subsidy that funnels new property taxes generated by a development back to the developer for a set number of years to cover certain qualified project costs. After the term of the agreement expires, tax revenues begin to flow in full to local government units.

Besides increasing the amount of aid it proposes to offer Saturday Zenith LLC, DEDA also has proposed to extend the term of the agreement from 19 to 26 years.

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Duluth's Historic Old Central High School shot in February 2020. 
Clint Austin / File / Duluth News Tribune
Duluth's Historic Old Central High School shot in February 2020. Clint Austin / File / Duluth News Tribune

But DEDA's largesse must still be approved by the City Council before the subsidy agreement can become official. On Monday, the council will take up a resolution that would authorize the requested amendments to an original smaller tax-increment financing package previously approved.

At large Councilor Zack Filipovich also serves on DEDA and urged fellow councilors to support the resolution, pointing out that DEDA's additional $1.5 million in assistance pales in comparison to the extra $2.7 million in private investment it would trigger.

"So, the city of Duluth is getting nearly a two-to-one bang for our dollars with this increase. And the increase is due to increased construction costs, mainly due to increased material costs for that particular project," he said.

If the additional aid is approved, and the project remains on track, the former school likely will accommodate about 125 apartment units.

Saturday Zenith LLC purchased the downtown building at the corner of Lake Avenue and Second Street from the Duluth Public Schools for $3 million earlier this year.

Opened in 1892, Historic Old Central stopped operating as a full-blown high school in 1971, but it continued to house administrative offices and an Alternative Learning Center for many years. It also served as a meeting place for the Duluth School Board.

The building was placed on the Register of Historic Places in 1972, and the developer aims to make use of historic tax credits to help restore and renovate the brownstone structure.