Minneapolis City Council takes first votes on streetcar funding

Minneapolis' ambitious plan to build streetcars through the heart of the city appears to be leaving the station.

The City Council will take its first votes Tuesday on a plan to possibly redirect about $60 million in taxes from massive new apartment projects to help fund a $200 million streetcar line along Nicollet and Central Avenues. That would revive a mode of transit that disappeared in Minneapolis nearly 60 years ago, although modern streetcars look more akin to light-rail cars than their 20th-century counterparts.

Officials at City Hall view streetcars, which run on tracks in mixed traffic, as crucial to spurring development and accommodating future population growth. Mayor R.T. Rybak mentioned them 13 times in his State of the City speech this April. Nearly every DFL candidate for mayor is also pushing for them.

But some outside City Hall have questioned whether they are worth the high cost of investment over other forms of transit — an analysis of alternatives is expected to be completed this summer. And many questions remain about how the city will secure the federal, state or regional dollars to help cover the funding gap.

The mayor's office estimates that the funding plan could generate about $5 million a year and support $60 million in city borrowing for the project. Council members have been fairly quiet about the proposal, but it has drawn unusual criticism from Paul Ostrow, the council's former budget chairman, who called it "bizarre" and "irresponsible."

Ostrow, who retired in 2009, objects to how to how it would be funded — relying on tax revenue from projects underway in and around downtown. The so-called "value capture district," authorized by the Legislature in May, encompasses six city blocks where developers are pursuing about 1,200 new units of housing — including three high-rise apartment towers. Some or all of the taxes from those properties would go to streetcars rather than to the general fund, depending on how the plan is configured.

The more traditional city funding mechanism, tax-increment financing (TIF), is intended to capture tax revenue from development that occurs because of the subsidy. State law does not allow TIF to be used for transit, however.

The mayor's office said that the city fought for the authority to use TIF but that the Legislature chose this method instead. Peter Wagenius, Rybak's policy aide, said this is distinct from TIF because it funds a public amenity rather than a private development. He added that they would not have pursued the plan if they had expected no further growth in the tax base related to streetcars.

"We're going to get a lot more growth out of this than the amount that is coming from these six properties," Wagenius said. He added: "If the return on investment is far greater than what you put in, most people would say that's worth it."

Council president Barb Johnson said that transportation dollars are not easy to come by and that making downtown more transit-friendly is key to luring residents and jobs.

"I think it has to be weighed in the context of trying to get something done for transportation," she said. "The traditional tax increment doesn't allow you to do that."

There also are questions, largely from people outside City Hall, about whether streetcars are the best mode of transit for investment.

"To build a streetcar line would be an epic mistake," Winton said last month at a news conference held on a bus cruising down Nicollet Mall. He plans to testify Tuesday.

Ostrow, who is now an assistant Anoka County attorney, said he doubts that 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.

City officials remain committed to them, however.

"Our competitor cities — Dallas, Portland, Charlotte, Salt Lake City and Seattle — are well ahead of us, showing that modern streetcars get people out of cars and spur millions in new development," Rybak said in his April speech, adding that he plans to deliver a financing plan by year's end.

A joint meeting of the city's budget and transportation committees will vote on the plan and take public testimony at City Hall on Tuesday. A final vote establishing the district could come at the council's next full meeting next week. If the multiple funding pieces fall into place — which remains uncertain — construction could begin in 2016 or 2017.