Pictured is a rendering of the northwest side of a proposed downtown grocery store at 700 New Hampshire St.

The city may postpone its consideration of economic incentives for a downtown grocery store and apartment project.

At its work session Tuesday, the Lawrence City Commission will discuss some of the issues with the project’s incentives request, including what city officials say is a substantial funding gap. Assistant City Manager Diane Stoddard said the project was not ready for the review process required by city policy and state law.

“The whole project needs to have definition on the revenue and expenditures side before this can really go to the Public Incentives Review Committee,” Stoddard said. “And before the consultants can complete their ‘but for’ analysis and their feasibility analysis.”

At Tuesday’s work session, city staff will be asking the commission for general feedback about the issues with the approximately $26 million redevelopment project.

The project would be located at Seventh and New Hampshire streets on the site of the former Borders bookstore. The plan is to tear down the old bookstore and replace it with a multistory building with an underground parking garage. The ground floor of the building would house a Price Chopper grocery store and a pharmacy, and the upper floors would house apartments. As required by city policy, the building would have to designate 15 percent of the apartments as affordable housing units in order to receive incentives.

A development group led by Lawrence businessman Mike Treanor applied for incentives for the project in August. Developers are requesting a special financing district, bond agreement and a $2.25 million loan from the city to help complete the project.

In addition to incentives from the city, the developers are in the process of seeking federal tax credits through the New Markets Tax Credits program. Because that funding is not determined and other details of the project are in flux, Stoddard said the city can’t estimate what the project’s funding gap is, but did say that figures show a prospective shortfall of millions of dollars.

While the funding gap is the main issue, there are other questions related to the project’s incentives request and parking, according to a city staff memo to the commission.

• Funding gap: Even if the project were to be awarded the federal tax credits and the city incentives, it is still showing a “substantial funding gap,” according to the memo. City consultants note that most of the funding gap is driven by the project’s parking expenses.

• Sales tax: “Nearly all” of the sales tax revenue generated from the new grocery store will be redistributed from local existing grocery store sales, according to the memo. Thus, reimbursement of the sales tax to the developer would result in the city and county giving up existing sales tax revenues.

• Loan request: Providing a loan could be risky for the city, and staff has not identified potential funding for a loan, according to the memo. Such a loan would be uncommon and could provide an unfair advantage, which is against city policy.

• Parking issue: While downtown zoning does not require developers to provide on-site parking, city staff believes the project should cover the needs of the project’s new grocery store and housing units, according to the memo. The city recently received new plans from the developer that would increase the size of the underground parking garage and that proposes a lease-purchase agreement with the city for the garage.

Bill Fleming, a Lawrence attorney representing the development group, said the funding gap is a bit of a chicken and egg scenario. Fleming said having the redevelopment district established would help the project obtain federal tax credits. He said that although he understands the city’s hesitation to move too quickly, he said the developer’s philosophy is to keep both processes moving forward.

“The problem is, the people who make those New Markets Tax Credit allocations want to see a project that’s ready to go and has all the I’s dotted and T’s crossed,” Fleming said. “And that’s difficult to do if the city won’t move forward. The project is not going to be feasible without a Tax Increment Financing district in place to help pay for the parking garage costs.”

Fleming said he thinks downtown parking issues should be solved with collective responses rather than asking one development to do so with a single project. He also said because of the nature of the business, it’s hard to make the numbers work for a grocery store.

“If there’s a community desire and a community goal to have a downtown grocery store, then we’re all going to have to work together to achieve that,” Fleming said. “It’s not something that can be done by one side or the other.”

The City Commission will convene at 5:45 p.m. Tuesday at City Hall, 6 E. Sixth St.