Construction on Polar Park surrounds 90 Washington St. Friday. One of the biggest drivers of the added cost of creating the park was relocating a tenant in a building at 90 Washington St., which is located in what will be right field of the ballpark. [T&G Staff/Steve Lanava] ▲

WORCESTER — Construction costs for Polar Park have increased by $9.5 million over initial estimates, while costs to acquire the properties needed for the ballpark, relocate businesses and prepare the site for development have run roughly $20 million more than what was anticipated.

That has prompted city officials to negotiate changes to the agreements with the ballclub that will be playing at Polar Park starting in 2021 and for the private development that will be built as part of the overall $240 million redevelopment of the Kelley Square/Canal District area.

Those revisions, which are detailed in an 11-page report to the City Council for its meeting Tuesday night, primarily deal with actions to generate more revenue to cover those additional costs.

It also includes a bigger private development program that will be brought online and generate new tax revenues sooner.

City Manager Edward M. Augustus Jr. emphasized Friday that the ballpark project "will continue to pay for itself" and that no existing taxpayer money will have to be diverted for it.

Instead, the project will continue to be primarily funded through new tax revenues generated from the new private development that will be taking place in the area of the ballpark, as well as through parking revenues from events at what will be a city-owned ballpark.

In addition, the city plans to expand the area of the district in the Kelley Square/Canal District area where the incremental increase in tax revenues generated by private development will be used to cover the debt service on the bonds sold by the city to finance the construction of the ballpark.

The manager said the revised pro forma for the project still depicts that estimated revenues for the Ballpark District are in excess of estimated expenses by nearly $23.5 million over 30 years of the bonds.

"What has not changed is the fundamental principle that no existing city tax revenue will be used to fund the ballpark construction," Augustus said. "The project is larger and more complex but remains financially self-supporting.

"The city will not miss a beat; all our capital projects will continue to move forward as planned," he added. "No money will have to be diverted from any school, street, sidewalk or parks projects. This (ballpark project) will continue to pay for itself."

The manager added that the construction of the ballpark remains on schedule for occupancy in April 2021, when the International League begins its season. The Pawtucket Red Sox, the top minor league team of the Boston Red Sox, will be moving to Worcester that season.

When plans were unveiled for Polar Park in August 2018, its construction costs were estimated at about $90 million. Of that amount, the city was responsible for about $56.1 million of that cost, with the Worcester Red Sox picking up the rest of the tab.

But the cost of building the ballpark has now been pushed up to $99.5 million, in large part because of higher overall construction costs.

Construction costs in the region have risen by about 5% a year in each of the last three years, according to Jacob Sanders, who handles intergovernmental and municipal initiatives in the city manager's office.

Augustus said more extensive architectural solutions were also needed for unique site grade issues that were necessary to make the ballpark more accessible, circumnavigable and intimate.

Using value engineering, the manager said the city, team and their respective consultants worked together to get the cost of the ballpark down as low as possible without compromising the functionality and unique characteristics desired for it.

Under the revised agreement with the Worcester Red Sox, the team will be covering the $9.5 million in additional construction costs. That means the city's share of construction costs will remain at $56.1 million, while the team's share will increase to $43.4 million.

The manager said the team is also obtaining a number of ballpark amenities, such as a Distributed Antenna System, automated teller machines and artificial intelligence software and hardware for retail use, in exchange for sponsorship revenues that would otherwise be paid to the team.

In addition, the team is also acquiring about $2.52 million worth of concession equipment for the ballpark, which is over and above the contributions the team originally committed to making to the project.

Augustus said the team will cover the increase through additional lease payments. To generate additional revenue, a higher "facility fee" will be charged for every ticket sold for events held there.

Under the original Letter of Intent with the ballclub, a 50-cent facility fee was going to be charged for home game tickets and a $1 fee for other events. But with the revised agreement, that fee will increase to $1 for ballgames and $1.25 for other events.

Augustus said that will provide additional borrowing capacity to cover the increase in bonds.

He said the first $200,000 from the facility fee will be deposited into a capital fund that will be used to finance repairs and improvements to the ballpark. The remaining balance raised annually can then be used by the team to cover the annual debt service on the additional $9.4 million.

A per ticket facility fee is something that is commonly assessed at sporting and entertainment venues across the country. A similar fee of up to $4 is assessed on ticketed events at the city-owned DCU Center, including a fee of $2 for Worcester Railers games.

Meanwhile, Augustus said the city will be responsible for covering the roughly $20 million in additional costs and property acquisition and site preparation for the ballpark. That included the cost of acquiring roughly 11 properties, relocation costs for businesses, as well as hazardous materials abatement of both soils and buildings, building demolition, removal of underground structures and general site work.

"Due to a number of unknown factors, particularly related to business relocation costs, and the need for a more complicated retaining wall system resulting from the steep grade of the site, those costs total $20.69 million," Augustus said.

He said one of the biggest drivers behind that added cost was relocating a tenant in a building at 90 Washington St., which in effect is located in what will be right field of the ballpark.

The lower level of the building was leased to Earthlink Carrier LLC, now known as Windstream FiberNet LLC. The company maintained a data switching center at the property with 37,000 data/voice lines flowing through that center.

After the initial City Council action regarding the ballpark funding in February 2019, Augustus said Windstream filed a Chapter 11 bankruptcy case. That complicated efforts to relocate Windstream because the Worcester Redevelopment Authority could not force the company to vacate.

In addition, Augustus said the city was told by Windstream that it would take two years to move the facility, something he said would have been "catastrophic" to the completion of the ballpark for the 2021 season.

The manager said the city subsequently worked with Windstream to develop a plan to have the property vacated by the end of this past December. That work has been completed, but it came at a cost to the city of between $5.7 million and $5.8 million.

"Although we are paying a premium, there was no alternative, for the consequence of not opening the ballpark on time would be far greater," Augustus said.

Of the 11 businesses impacted by the ballpark project, 10 have relocated within Worcester, according to Sanders.

To partly offset the city's additional debt service resulting from that work, the city and ballclub have agreed to a modest increase in the parking fees charged to patrons for home games played at the ballpark.

The original Letter of Intent capped parking fees collected at designated city-owned parking facilities at $5 for "basic" parking locations and $10 for "premium" parking locations. But the city and team have now agreed to increase the parking fees to $8 for "basic" and $12 for "premium" locations.

Augustus said the city has also been active in the search for alternative funding sources to address its share of the increased project costs. To date, he said, the city has obtained a $2 million brownfields grant from MassDevelopment and a $500,000 federal EPA Brownfields grant.

"We are confident that we will be receiving additional grant funding from the federal government, thanks in large part to the advocacy of Congressman McGovern," the manager said.

Meanwhile, there are significant changes to the private Madison WG Holdings LLC project. Augustus said that will also help allow the city to absorb the increased ballpark project costs through a bigger development program.

When the private development project was first announced in August 2018, it was going to be done in two phases, with no specific timeline for the second phase. But that manager said everything is now going to be done in one phase.

The private development will now include:

• A 120,000-square-foot office building behind left field of the ballpark. There will be about 6,230 square feet of retail-restaurant space on the ground level and about 9,500 square feet of restaurant/retail space on the roof deck.

• Two hotels that will be built on the south side of Madison Street. They will share a common lobby space, with one hotel having about 140 traditional rooms and the other about 122 boutique hotel room. Occupancy for both hotels is pegged for May 2022. The hotels will also have about 14,000 square feet of ground-floor restaurant/retail space.

• Construction of one residential building of not fewer than 225 rooms and about 3,000 square feet of retail space ready for occupancy not later than Sept. 1, 2021. The second residential building will have no fewer than 125 rooms with about 20,000 square feet of retail/restaurant space targeted for occupancy by Dec. 31, 2022.

• A mixed-used building consisting of not less than 60,000 square feet of office/laboratory/retail uses. This building will be marketed to the life sciences sector, and the developer has agreed to use a significant portion of the non-office parts of the building for laboratory purposes.

Because of the changes made to the original agreement with Madison Properties, Augustus said the City Council will have to approve revised tax increment financing deals for some of the project.

He said he is recommending a "targeted tax payments" for those deals, adding that they would benefit the city by guaranteeing that certain taxes will be paid each year, without risk to a slip in the construction schedule. He added that it will also incentivize the developer to deliver the building on schedule.

In addition, the city will receive a percentage of revenue from outdoor advertising installed on any portion of the development project owned by Madison properties on the south side of Madison Street.

The developer will also turn over to the city, at no cost, the land for the ballpark that will be built on the north side of Madison Street, and the parking garage and Green Island Boulevard that will both be built on the south side of Madison Street, according to Augustus.

The city will also be looking to generate additional tax revenues for the ballpark project by amending the Canal District Ballpark DIF Development District so it includes more properties and the additional buildings of the private development project.

In such a district, the incremental increase in tax revenues generated by private development – either new construction or improvements made to existing buildings – will be retained in the district and applied to the debt service for the ballpark.

"We have documented six specific projects in the immediate area that are in various stage of development, all of which will benefit the city and the revenue from none of which have been or are planned to be accounted for in the pro-forma," Augustus said.

The City Council will take up the city manager's package Tuesday night, at which time it is expected to refer it to its Economic Development Committee for a hearing.

The manager is specifically asking for a loan authorization of $31.9 million for the construction of the ballpark, site costs and land acquisitions.

In addition, he is asking the council to amend the Canal District Ballpark DIF Development District and to approve three revised tax increment financing deals and a tax increment exemption deal for Madison WG Holdings LLC.