Brian Sharp

@SharpRoc

When construction crews dug into the 44 acres being prepped for Costco and the new CityGate development, they unearthed near century-old foundations and an unexpected network of tunnels.

Those discoveries — along with utilities that were out of place or undersized — added $3.7 million in unplanned construction expenses and opened a big hole in the project budget.

But the fix was even bigger: A projected $11.7 million increase to negotiated tax benefits, sought by the developer, supported by the city, unanimously authorized by a Monroe County development board last week and payable over 20 years.

CityGate is a $177 million development off East Henrietta and Westfall roads along the Brighton-Rochester border, anchored by Costco but also including a hotel, other retail, offices and an apartment complex. Developer Anthony J. Costello & Son could close with Costco this week, according to the city, and construction is expected to take just 90 days to complete.

The project has been years in the making and, in the sheer size of investment, is the largest of several transformative projects underway in Rochester.

Going in, everyone knew of passageway tunnels connecting the nine buildings of the former Iola campus, built between 1911 and 1931 as the Monroe County Tuberculosis Sanitorium. But those buildings and tunnels were built atop the foundations of even older structures and even more tunnels, the latter of which were smaller, likely used for water or sewer but nonetheless had to be remediated and likewise, removed. Then there were unmapped electric lines.

"That all had to come out," Costello said. "I don't think it actually pushed us back, because they were working more hours and using more crew."

What it did was cost money.

Mayor Lovely Warren wrote to the County of Monroe Industrial Development Agency on July 30 seeking to amend the benefits agreement, at Costello's request. The boost is attributed to the added costs and unanticipated demands from the developer's primary mortgage lender. There also was a re-evaluation of the project benefits in context with what is being provided elsewhere — specifically at College Town and Midtown, said Delmonize Smith, the city's neighborhood and business development commissioner.

"When we did that, we were able to really see that CityGate is proposing to create about twice as many construction-related jobs and permanent jobs as College Town," Smith said.

Job estimates for College Town have varied widely but, depending on which is used, CityGate's promise of 1,500 construction jobs and 980 permanent jobs would be at least a third more to easily double, city records show. Projected sales tax revenue is barely comparable, estimated at $2 million for College Town and nearly $29 million for CityGate.

Back in November 2013, COMIDA approved a modified payment in lieu of tax agreement for CityGate that would redirect 55 percent of property tax-related payments to pay off the developer's debt. Over the allotted 20-year period, that translated to roughly $32 million. The revision, which COMIDA approved last week, increased the percentage to 75 percent — a share sought by the lender — for what the city estimated at no more than $43.7 million being redirected back to the project.

College Town has a similar arrangement, authorized in February 2013, and directing just more than 75 percent, or $27 million, of the property tax-related payments over 18 years to pay off a federal loan secured through the city. College Town still should generate $8.4 million in tax revenue to the city and Monroe County over the same time period, records show. The city also put up $3.5 million for Celebration Drive.

COMIDA previously granted Costco $3.5 million in mortgage, sales and property tax breaks over 10 years. Various College Town tenants also have received individual tax breaks.

For Costello representatives, the discussion was about "how we fit," Smith said. That, and how to ensure the project delivers on all that promise.

In the end: "We still feel like this is a good deal for the city," Smith maintained.

He talks about incentives in terms of a throttle. At some point, the city can ease back and let the momentum of the marketplace take over. Pull back too soon, however, and you could stall progress or at least not get the desired outcomes. But he said there is a "clear understanding" at City Hall that it's time to seriously consider whether traditional incentives continue.

"It is my anticipation that the deals going forward, in the future, will be less," Smith said.

BDSHARP@DemocratandChronicle.com

Twitter.com/sharproc