Minneapolis and Hennepin County may be on the cusp of a tax-sharing agreement that would allow the city to go ahead with new financing for Target Center's debt and citywide neighborhood programs.

Or maybe not.

They've agreed to a deal in principle but have hung up on a clause the county wants: a cap of $180.1 million on the amount from the tax-increment proceeds, much of which would go toward the arena debt and neighborhood revitalization.

A recommendation headed for the City Council on Friday from one of its committees would have the city agree to the deal with the county cap but not agree with the county's right to require it. That prompted a Hennepin County commissioner to say that county lawyers might need to review the deal, with a deadline looming at month's end.

The city got special permission from the 2008 Legislature to form a new tax-increment financing district to divert the increased property taxes from 4,362 properties. Those taxes will finance the arena and neighborhood program, rather than go to the city's general tax base. The county has long been dissatisfied with such districts diverting property taxes that otherwise could go to county programs and lower taxes for other payers.

That's not happening in this case because the special legislation requires that the county not lose property taxes from the tax diversion. But the new district still requires the county to sign off, and some commissioners feel that with the city diverting taxes from some properties for more than 30 years, enough is enough.

The city projects it will divert $163.8 million during the district's 10-year life. But because the city has the authority for the next five years to divert more taxes by adding parcels, the county wants a limit. It conditioned its approval on a clause that the amount diverted can grow no more than 10 percent to $180.1 million, waivable by the County Board.

The city doesn't like that. So it added a clause that says the agreement can go ahead with the condition but it disputes that the county has the right to add a limit, and it reserves the right to challenge any such move in the future.

"I don't know if that constitutes an agreement or not," said County Commissioner Peter McLaughlin, who said the city's clause should be reviewed by county lawyers. "We're not going to leave it open-ended."

The city projects that the tax diversion will yield $53.7 million each for the arena and neighborhoods, with $54.9 million going to the county. The remainder pays administrative costs.

Steve Brandt • 612-673-4438