Weatherly Borough Manager Harold Pudliner updated borough council on the status of the borough-owned Mrs. C.M. Schwab School.

The borough will be applying for a $500,000 statewide gaming grant to tear down the adjacent school annex building this week, he said.

The borough already has a $250,000 grant to go toward the demolition, but recent engineer and contractor estimates put the costs between $900,000 and $1 million, Pudliner said.

Earlier estimates had put the demolition at $750,000, and the increased costs are due to the asbestos contamination, he said.

The borough has been working with the Lehigh Valley-based nonprofit, the Alliance for Building Communities, on a project to transform the original school building which dominates the borough’s skyline into apartments.

ABC announced the $11.3 million housing project for the historic Schwab School nearly a year and a half ago using a mixture of private investments and donations along with $2 million in county and state funding and tax credits.

The nonprofit also sought a 10-year tax break through the Local Economic Revitalization Tax Assistance program, or LERTA, to show a positive cash flow moving forward.

The borough approved LERTA, designating the area of Spring Street near the school as blighted, and plans to donate the building, valued at $105,000, to advance the project for the community.

However, the Weatherly Area School District refused to grant the LERTA tax break for the nonprofit.

Afterward, ABC said the project was on hold while it sought additional funding. Pudliner said the nonprofit also sought to extend the tax credits.

“They’re still working with the Pennsylvania Housing Finance Agency on moving tax credits forward to next year,” he said Monday. “The delay in the budget probably didn’t help.

“We expect that you would hear something within the next month or two, as to how their end of it is going,” Pudliner said.

The project calls for converting the main school building into 12 two-bedroom apartments, and razing the annex to make way for a 16,000-square-foot addition with 18 one-bedroom apartments.