PROVIDENCE, R.I. (WPRI) – Providence would borrow nearly $58 million to pay for the upfront costs of its proposed 1.6-mile streetcar line, with the goal of paying that money back over the next 25 years, under a proposal set to be considered by the City Council.
Council President Luis Aponte will introduce an ordinance at Thursday’s council meeting that would allow the city to use tax increment financing (TIF) to cover its share of the $100.2-million project, with the rest of the funds expected to come from the state and federal government.
“This clarifies the local investment in the proposal,” Aponte told WPRI.com. The matter will likely be referred to the Finance Committee.
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TIF revenue bonds are a commonly used economic development tool that allows cities to borrow money for large projects and then pay it back using earmarked tax dollars from a designated area that would benefit from the plan. In the case of the streetcar line, the TIF district would include about 980 acres of land in College Hill, downtown, the Jewelry District and Upper South Providence.
Here’s how it works: Once the ordinance is approved, the city’s tax assessor will assign a baseline value to all taxable property within the TIF district. All tax revenue from the baseline value of the district would go to the city’s general fund, just like property taxes in all other parts of the city. Any revenue beyond the baseline would go toward paying the debt service on the $57.7 million the city wants borrow over the next 25 years. Any leftover funds would also go to the general fund.
In other words, Providence would secure the funding by pledging anticipated tax dollars from the increased economic development it expects to occur if the streetcar line is built. The risk, of course, is that once the city borrows the funds, it will be required to pay off the debt no matter what.
Both Aponte and Mayor Jorge Elorza say that’s a bet worth taking.
“The streetcar is an opportunity to bring a proven economic development tool to Providence while expanding and enhancing public transportation,” Elorza told WPRI.com. “I am excited that we continue to make progress on the project and I look forward to seeing the streetcar benefit the city.”
A 2014 study released by the city estimated that the district could see a $734 million increase in value of taxable property over the next 20 years if the line is built. Using current city tax rates, the study predicted that the incremental tax revenues in the district could top $17 million by 2034. (That study assumed a 30-year TIF district; Aponte’s proposal is for a 25-year district.)
City planning department officials say a proposed route change would not alter the proposed TIF district, which would encompass all parcels that fall within a quarter mile of the streetcar line.
That change has reduced to estimated price tag from $117.8 million to $100.2 million, in part because the city is no longer planning stops on College Hill in the first phase of its plan. Future extensions of the line would include the East Side and Dudley Street in South Providence.
The first phase of the streetcar line includes nine stops in each direction that would begin at the Providence train station and continue down Washington Street before turning onto Empire Street in downtown. The line would continue to Chestnut Street in the Jewelry District before making its way to Rhode Island Hospital
The new route still needs to be approved by the federal government, which has committed $13 million to the project.
The combination of the TIF bonds and a federal grant still leaves a hole of about $29 million needed to fund the rest of the project. The original plan also included about $31 million in state funds, although city officials say they plan to pursue additional federal funding.
Earlier this month, the city announced it was seeking proposals for “planning and engineering services” that would include a preliminary design of the streetcar line. City officials say that study will give a better idea of the exact cost of the project.
At $2 per ride, the city has projected its daily ridership will be 2,896. It hopes to begin service in 2019.(Correction: The original version of this report incorrectly stated the TIF ordinance would be referred to the Ordinance Committee. It will be referred to the Finance Committee.)