Tunnel is far from the only way of solving that problem. Make a pair of 1 lane, 1 way roads. I think northbound could go a block to the east (there is even another rail underpass). Adding a slight detour for cars is not at all a problem.
For clarity, put the LRT on the east side of Main between Wellington and Church, widen the sidewalks and reduce Main to 1 lane southbound only, with some sidewalk cut-outs for loading zones. Maybe pedestrianize this stretch altogether and eliminate curbs. For northbound traffic, direct it east on Wellington, and north on Chapel St. Rebuild Theatre Ln & Union St T-intersection to give priority to northbound traffic. Northbound lanes resume on Main north of Church St.
Yellow = southbound 1 lane general traffic
Green = LRT (buses can also use these lanes)
Red = northbound detour
View attachment 303298
A tunnel here is ludicrous. Replace the on-street parking with an underground garage if needed.