The City Council's former budget chair, Paul Ostrow, issued some harsh words this weekend about a plan to divert property taxes to a streetcar line, calling it "irresponsible" and "bizarre."
Ostrow, who retired from the Council in 2009, questioned the value of building a $200 million streetcar line along Nicollet and Central Aves. in an open letter to the council and mayor on Sunday. But he said there is "no reasonable justification" to redirect $5 million a year in property taxes from existing development projects to help fund it.
The Legislature gave the city authority this May to create a "value capture district" of five specific blocks containing some of the most high-profile development already underway in the city (see pictures below). More than 1,200 units are planned for those blocks. Two council panels may vote on that plan Tuesday, after a public hearing.
Ostrow said the plan "makes a mockery" of tax increment financing (TIF), which pays down bonds using the increased tax base generated by a project. TIF, he noted, is usually intended to capture revenues that would not be generated "but for" the public investment.
"It is not property tax increment but property tax diversion. The property tax growth is already going to happen without a streetcar line," Ostrow wrote. "You are making a choice right now for the 2018 City Council and City Councils for several decades on how these essential property tax resources will be used. Starting in 2018, the City will have five million dollars less for police officers, firefighters and street repair."
Peter Wagenius, mayor R.T. Rybak's policy aide, estimates that the value capture district could generate enough revenue to sustain a $60 million bond for the streetcar project. The city is seeking federal funds to help make up the gap.
When asked about the diversion of these property taxes in May, Wagenius said the goal is to spur even more development.
"What we hope to prove by the end of this project is that we will get an increase in value along the corridor beyond that which is projected on these six blocks," Wagenius said.
Ostrow, who is now an assistant Anoka County attorney, said the proposal “fails the most basic standards of good financial policy” and “would set a very dangerous precedent” by committing property tax growth to a “pet project.”
Regarding the project itself, Ostrow said he doubts the streetcar line will reach areas in need of investment or “be of any value” to residents most in need. "Using scarce property tax dollars to fund an amenity when basic needs are not being met is not progressive," he wrote.
Also questioning the plan is independent candidate for mayor Cam Winton, who discussed it at a press conference held on a moving bus several weeks ago.
Here is Ostrow's letter: