About 1 percent of Minneapolis' tax capacity will be redirected next year toward a fund intended to one day pay for a streetcar line.
The city's unique method for funding a 3.7-mile Nicollet Avenue streetcar, a project that remains far from certain, is hitting its stride as several new apartment towers have opened. Those buildings now make up $5.4 million in city tax capacity, which will aid the streetcar "value capture" district next year rather than helping absorb the growing cost of city services.
If the district did not exist, the city could theoretically raise tax collections for city services by an additional 1 percent without having an added impact on taxpayers, city finance officials said last week. Or, if tax collections remained as proposed for next year, the burden on existing homeowners would be slightly reduced.
The streetcar district was established in 2013 with the permission of the Legislature to support a line running from approximately Kmart on Nicollet Avenue to Kramarczuk's on E. Hennepin Avenue — largely in mixed traffic. Unlike tax increment financing, which pays for development with new taxes generated by that development, the streetcar district redirected taxes from a number of anticipated buildings toward a potential future project.
Those buildings are now complete in and around downtown: 4Marq, Nic on 5th, LPM Apartments, 222 Hennepin, Red20 and Xcel Energy's new headquarters.
The city's contribution to the district next year will be less than $5.4 million, since only part of the capacity is taxed. But the total amount generated for the district next year may exceed $5.4 million, since it also pulls from the county and school district's tax capacities.
The district is expected to one day pay for about $60 million in debt toward a $200 million streetcar project. When it was approved, city officials said it would likely generate about $5 million a year by 2018. The city has not identified who will pay for the remainder of the project, though federal funding would likely play a role.
The special district has its critics. Former City Council member and budget chairman Paul Ostrow has criticized the project for devoting tax growth to a "pet project."
