Updated at 5:07 p.m.

One provision in the state tax bill could have a significant impact on Mayor R.T. Rybak's dreams of building a streetcar in Minneapolis.

The bill allows the city to dedicate tax revenues from several specific parcels around Minneapolis to help pay for a new streetcar line. The city pushed for the new funding method because, unlike regional transit like light rail, streetcars would be a localized project requiring more municipal investment.

Federal funding is still key to the deal. The city won federal funding to perform an alternatives analysis for a line along Nicollet and Central Aves. -- which is almost complete -- and city staff are preparing to apply for a TIGER grant to help fund the line itself.

The "value capture district" designated by the state for funding streetcars is similar to tax increment financing. It uses revenues from parcels near the transit line to pay off bonds issued to build it. 

The money could be used to pay for planning and constructing the streetcar line, including transit stations, as well as acquiring or improving public space, according to the legislation.

Mayoral aide Peter Wagenius said they expect the parcels identified in the tax bill could generate about $5 million a year and support a $50 million bond issuance.

Minneapolis had pushed to give cities a broad authority to use tax increment for transit development, but walked away with a “pilot project” focused solely on the Nicollet-Central streetcar.

“This is a big victory," Wagenius said. "In a session where nothing happened for transit, we found a way to keep moving forward on transit. And we’re really proud of that.”

So which parcels will generate the money for the streetcars? They include the future location of two high-rise apartment buildings and several other sites where developments are already in the works.

That could set up some interesting discussions at the City Council, since property taxes from those properties would be directed into the streetcar rather than the general fund. Hundreds of new residents -- the apartment buildings are 36 and 26 stories tall -- will simultaneously need city services, which puts more pressures on the city budget.

"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.

Wagenius noted that a another key difference between this and tax increment is that it benefits a public amenity rather than a single developer.

Here are the parcels:

View Streetcar TIF in a larger map