Chipped chests-of-drawers, dusty bowling trophies and used mattresses are crammed into Marty's Second Hand Store, a rickety institution on a boarded stretch of St. Paul's University Avenue where the Central Corridor light-rail line is taking shape.

Marty's is one of nearly a hundred businesses on University -- mostly small operators -- getting chunks of $4.8 million in public subsidies to survive the disruption of light-rail construction. They include 11 hair salons, a couple of liquor stores, several used furniture and clothing shops, taverns, a hookah parlor and a sex novelty shop.

"It's so critical that we support the businesses that are here," St. Paul Mayor Chris Coleman said in defending the interest-free loans forgiven if the businesses remain after the light rail opens.

But efforts to save them obscure ambitious plans -- costing millions more in public subsidies -- to draw new business and housing to areas that have been plagued by poverty or blight.

"It will transform the neighborhood, capitalize on light-rail transit, energize residents and create a thriving community asset," boasts one proposal for moderate-income apartments, offices and shops on University in St. Paul. Farther west in Minneapolis, a project calls for creating an "arts-centered cultural district."

Competing interests

The dueling subsidies aim to satisfy the competing interests of the $957 million Central Corridor project that is due to open in 2014 between downtown St. Paul and downtown Minneapolis.

Supporters of the light-rail project have long sold it as spurring economic development as well as moving people.

The Metropolitan Council has spent $26 million in property taxes and federal funds during the past decade to stimulate housing and business development along the entire Central Corridor. About $9 million of it was awarded in the past two years on University, mostly to entice private financing for apartment buildings, stores and small offices near the Prospect Park station in Minneapolis and the Fairview, Hamline and Victoria stations in St. Paul.

The two cities have joined the Met Council in trying to shape the neighborhoods along the route. St. Paul has created transit zones along University Avenue to encourage higher and denser developments like apartments and shops on the light-rail line.

Conflicting goals

That strategy is fine with Catherine Reid Day, a neighborhood business consultant hoping to transform part of the St. Paul neighborhood around University and Raymond avenues into a "creative enterprise zone" of small warehouses and storefronts for entrepreneurs and artists.

"This is where the jobs are going to come from," said Day, who has the city's support.

But that vision clashes with developer John Allen's plan to build an office warehouse for high-tech businesses that he says could support up to 200 jobs about a quarter mile from the future Raymond station.

"If you've got light rail moving people around, it might be nice to move them to something other than artists' lofts and maybe to some jobs paying livable wages," Allen said.

At first, local government also supported Allen's idea and the Met Council gave him a $100,000 "livable communities" grant. Then neighbors balked that the warehouse didn't fit the character of the new transit-friendly zone and the St. Paul City Council shot it down.

Allen sued and a judge ruled this month against the city, calling its decision "absurd and unreasonable." The project is poised to resume.

Past lessons

Government officials took a more aggressive approach to planning Central after development around the Hiawatha light-rail line came up short after it opened in 2004.

A comparison of the impact of light rail in Minneapolis, Denver and Charlotte, N.C., found that all three experienced "a tremendous amount of new development" but that Hiawatha had a smaller share of business development than the other lines.

Housing downtown or near downtown Minneapolis makes up the majority of new development along the Hiawatha line, said the study last year by the Center for Transit-Oriented Development. South of downtown, property values improved significantly only on the west side of the line. "On the east side of the line, residential neighborhoods were cut off from the stations by major industrial uses" and busy Hiawatha Avenue, the report noted.

Minneapolis and the Met Council "didn't get out ahead of planning for development along the Hiawatha line," said Nadine Fogarty, author of the study, who recently served as a consultant to nonprofits supporting the Central Corridor. "There's much greater awareness of the need to have plans in place and to get out ahead of transit."

But some government spending to plan Central has nothing to do with development projects. The Met Council gave groups $146,786 last year to foster "community engagement." One group got $60,000 to train low-income residents to "advance a ... vision that allows for the preservation, enhancement, restoration and healing of our community's cultural economy."

"A big theme we heard from the community [was] concerns about gentrification," said Donna Drummond, director of planning for St. Paul, in defense of the grants. "Does this mean that the market is going to change so much that the folks who are there now are going to be priced out or pushed out?"

Propping up businesses

Urban planners face a particularly tough challenge along the two miles of University between Lexington Parkway and the State Capitol, an area that was down-at-the-heels even before the rail construction hurt businesses.

St. Paul and Minneapolis have given out more than half of $4 million in interest-free loans to 137 businesses that don't have to repay them if they remain after the light rail opens. St. Paul also distributed parking aid.

The rules say the businesses must repay some or all of the loans if they close within five years. But St. Paul waived that penalty for the only business it confirmed has closed so far -- Caribe Caribbean Bistro just off University.

"We will be evaluating each request for forgiveness on a case-by-case basis," said Nancy Homans, policy director for Mayor Coleman. "This is taxpayer money and we are obligated to be diligent in its use."

Coleman said preserving existing businesses like used furniture stores doesn't undermine efforts to spur future development.

"I think the beauty of University Avenue, and the reason this corridor is going to be so effective, is there's room for all businesses," he said.

But even with the subsidy, Gilbert Marty, owner of Marty's Second Hand Store, said he'd leave for the right price. Business has been so bad, he said, "I could cut the door down and couldn't get rid of the stuff."

He's contacted a real estate agent and hopes to sell his store on University east of Lexington when the rail line is finished. "It will be a prime prospect then," he said.

Pat Doyle • 612-673-4504