Milwaukee streetcar plans are set, but how will we pay for it?

MILWAUKEE (WITI) -- When construction begins on the Milwaukee streetcar, nearly half of that money will come from the city itself. The city plans to cover that portion with money generated by 'Tax Incremental Financing' -- or 'TIF'.

The starting point for the downtown streetcar is here, the inter-model station which itself was built with the help of TIF dollars. The ideas is to develop part of a city and once property values rise as a result, use the increased tax revenue to pay the cost of that development.

"I am betting on the future of this city," said Milwaukee Mayor Tom Barrett.

Milwaukee truly is making a bet in the way it plans to pay for the downtown streetcar route. Of the estimated $124 million cost, the city will provide $59 million through three separate TIF districts.

Tax Incremental Financing sets a base for property values within a specific area. The property taxes collected from that area are frozen while property values rise due to new development.

The new tax revenue generated by rising property values is used to pay for the project.

"You're taking new money again, that's why it's called 'Tax Incremental Financing' --- it's the increment that occurs from development," said Rob Henken, director of the public policy forum.

Before the streetcar vote, Milwaukee had 46 TIF districts -- two of them will help fund the streetcar: Cathedral Square and Erie Street which is being extended.

They city will also create a new district on East Michigan Street.

The risk is that property values in the TIF districts might not meet projections.

"Ultimately, if the TIF is not successful and it doesn't generate enough money to pay off the investment, taxpayers are on the hook," said Dale Knapp, with Wisconsin Taxpayers Alliance.

Dale Knapp says that risk is relatively low, based on a study conducted by the Wisconsin taxpayers alliance.

"We looked at 81 TIF districts that closed during 2003-2008 and of those 81, 67 actually generated enough tax revenue to pay the cost -- only 14 did not," said Knapp.

Opponents say the city can grow its tax base without the streetcar. Supporters say it will encourage downtown development.

Henken says each side makes a valid point.

"The use of these dollars for the streetcar for that period of time, those dollars would not be going to those other taxing bodies but an argument could be made those taxing dollars wouldn't be available or there wouldn't be as many dollars available if you did not build the streetcar," said Henken.

Henken says the inter model is an example of a TIF district that did not meet projections. But when that happens, the city can draw from successful TIF districts to fill the gap. He says one such district is Cathedral Square, which is now being used to help pay for the streetcar.