The uncut Budgeteer interview with Duluth Mayor Don Ness

It’s been a little more than a year since the Budgeteer last sat down with Duluth Mayor Don Ness for a heart-to-heart about the state of the city. In that year, Ness seems to have truly grown into his job and, at the same time, retained the easy charm of a Budgeteer carrier raised in the Central Hillside neighborhood.

He talked openly about the challenges facing the city during these still-dark economic times, but there’s a lot more progress to report this year than last.

But don’t take our word for it; get the scoop straight from Ness, in a two-part series running this week and next in the Budgeteer.

Budgeteer: You got high marks from community leaders in Ralph Doty’s Dec. 13 Budgeteer column — with one exception. Any thoughts on the marks they gave you?

Ness: They were very kind and generous with their assessment. It’s been a challenging time and I think folks recognize that we’re tackling those challenges head on. Because of that, I think folks probably tend to be generous in their assessments.

How about your poor mark, a “D,” from Alan Netland, president of the Duluth AFL-CIO Central Labor Body?

There’s no question that, because we’re taking on these challenges, there are folks who have been impacted. Al’s doing his job in giving that grade and wanting things to improve for his membership. We hope that things get better too, and we can work to improve the city’s relationship with AFSCME and the public employees union.

You came into office almost two years ago with the city facing a multi-million dollar deficit and slashed the city budget — what’s the city’s financial outlook for next year?

I should say that when I came in, I came in with the understanding that we had a balanced budget in 2008. The first undertaking in office is trying to take assessment of where we actually stand and what are the challenges. In the course of that assessment, we found out that a lot of assumptions that we had about the budget, both on the revenue and expense side, were not realistic. It was June when we found out that we had a remaining $6 million deficit and only six months to fill that gap. So it was the equivalent of a $12 million deficit, in terms of impact, and because of that, we had to take very drastic steps to achieve cost savings in a relatively short period of time. Obviously it resulted in layoffs and unpaid leave, and the elimination of important programming. We were able to accomplish our goal of balancing the budget, only to have the Governor [Tim Pawlenty], with a week left in the year, to cut us $1.7 million and we ended with a negative balance in our General Fund. With one week to go, we simply couldn’t recover $1.7 million.

To continue the story, we’ve also seen now significant (Local Government Aid) cuts in aid from the state in 2009. All told, between 2008, 2009 and promised unallotments in 2010, we’ve taken a $14.2 million cut in state aid in just over two years.

That’s counting next year?

That’s the cuts in 2008 that we’ve realized in 2009 and the unallotment that the gov has promised for 2010.

That’s a huge hit for the city. Add on top of that, the impact of the recession on revenues that we collect locally, sales tax revenue, building permits, other revenues that are directly affected by less economic activity in the area and so the problem has grown in its scope.

To give an idea of the results of those cuts in revenue, we’ve had to shrink the size of city government. The budget that Mayor Bergson brought forward at the end of 2007 was $81.5 million. The budget that we’ve presented to the City Council for 2010 is $75.5 million. So, we’re $6 million less than a budget two years ago. Included in that decline is a contractual salary increase -- based on the previous contract -- of 3 percent, which equates to a $1.5 million cost increase, so it’s $6 million less, plus we’ve had additional increases in the cost of our operations.

… So, looking ahead to next year, we’ve budgeted in a $3.5 million unallotment that the Governor has made.

He did that this summer, right?

Well, he announced it this summer. So we’ve had a $1.75 million unallotment from the governor at the end of 2008; we realized a $1.5 million unallotment in June and then he’s already indicated that he will cut another $3.5 million of unallotments for 2010.

On top of that, we’ve had severe cuts in our amoratization aid program — it’s related to pensions — we’ve realized over $7 million in that program as well over the past two years.

Did you do a lot of math in college?

I was an Econ major. (He laughs)

That helps. … OK, so are you ready, are you balanced for 2010?

We’re balanced for the $3.5 million unallotment. Unfortunately, the state has a $1.6 billion deficit remaining in their biennium. It has yet to be seen how they’re going to address that, so there very well could be the possibility of us taking an even larger cut in aid from the state next year. We’ll have to — based on our balanced budget that’s been presented — start working immediately in January on a contingency plan achieving cost savings within that budget. Achieving those cost savings starting in January, because we won’t know what the potential cuts may be until well into the spring or even the summer. What we want to avoid is what happened in 2008, where we operate under a full budget for the first six months, only to find ourselves in a crisis situation in the later half of the year.

I know people get upset about increased property taxes. Can you explain how much of the city’s budget do property taxes actually pay versus how much LGA (local government aid) pay for, because I think people get confused about those two things.

The city of Duluth collects approximately $17 million in local, city property taxes. Local Government Aid is approximately $30 million, so it is much larger. To put into context, that $17 million collected for property taxes is actually less than the police department’s budget. So, the property taxes collected locally don’t even cover the police department, which is, I think, in most people’s minds, the core service of city government.

You look like you have less gray hair than when we talked a year ago.

[Chuckles] I don’t know about that; they’re comin’ in.

Have you kind of settled in? You do seem more relaxed. I suppose coming into office and finding out what a mess it was....

We went through about 18 months of almost constant crisis.

One piece of bad news after another: another huge cut from the state or uncovering an issue that had been long neglected by city government that had to be addressed head on.

While going through that, we also had turnover in staff, which put a lot more pressure on existing staff and on me to engage at a policy level and address these things.

I would say that within the past three months we now have a solid team in place. I think we’ve addressed the most pressing issues and we now have a plan in place.

Now it’s just a matter of carrying out that plan. And I think we’ve gotten ahead of some of these issues and are not allowing them to get to that crisis point.

The way that we addressed this year’s budget deficit is a good indication of that: We started in January, so we were able to achieve a full year’s worth of cost savings, so, when the cuts came in June, we had already achieved the cost savings that allowed us to address that without getting to the point where we had to lay off workers or ask for unpaid leave or further cut important programs.

Can we run through some of the big issues and you evaluate the progress you’ve made on each and what you’re hoping for in the near future?

• Retiree health care:

This is certainly the most substantial progress we’ve made this year and, I think, probably in the last decade. It’s the most significant action and resulting impact that we’ve seen.

Last year at this time, we were laying the groundwork. We were engaging in a legal strategy and many were questioning the commitment that we had to this issue — because they couldn’t see this very outward activity — but we were working diligently on developing that strategy.

What we were able to do, through the court case that the retirees initiated, was both make it a class action suit as well as ask the court to make a ruling on the very-clear contract language that’s been in place since 1983.

It says retirees are eligible for the benefit offered to active employees, and it had been, in my opinion, misinterpreted since 1983 to mean that they have the benefit that’s in place at the moment they retire. The end result has been we are administering 100 different variations of retiree health care and have some very inefficient provisions within those plans that don’t reflect today’s healthcare realities, including 50-cent copays on brand-name prescription drugs.

Since the court agreed with our position on this, it now allows us to narrow to a single plan, which will have tremendous administrative cost savings because we’ll just be administering one plan. And it is a plan that has higher copays and deductibles, which will result in immediate cost savings to the city.

In addition to that, most significantly, we are hopeful that retirees with higher copays and deductibles will approach their health care consumption as a consumer, making consumer-type decisions, so hopefully that will help curb some costs.

If the court allows us to proceed, it is our plan to implement this new plan on Jan. 1. We anticipate we’ll see a minimum of $1 million cost savings the first year and potentially $50 million or more over the life of the benefit.

But I will point out that, while it is a benefit that has higher copays and deductibles, it is still a more generous benefit at less expense to the person receiving the benefit than 99 percent of what people have in the private sector … and most retirees will have no premiums under this plan.

I hope that most retirees will understand they’re getting a good benefit and this action is absolutely critical to insure the long-term sustainability of that benefit. We have been on a path that’s clearly unsustainable. ... Just to give an idea: When I first ran for City Council in 1999, our retiree health care expense was about $2.5 million. Our budget for retiree health care in 2010 is in excess of $10 million. Of that $75.5 million general fund budget, $10 million is going to retiree health care. That’s a 400 percent increase over the course of a decade.

If you apply those same percentages over the next decade, that’s a $40 million problem in 2020. This is a vital step to help us control those costs.

Lake Superior Zoo:

Since we talked last, we went through the transition to the Lake Superior Zoological Society: they’ve taken over operations. I think it’s been a tremendous success. They have tapped into community volunteers. We have seen a tremendous outpouring of support from the community to support the zoo. They are undertaking master-planning process that will put them on the path to regain accreditation (from the Association of Zoos and Aquariums). And their finances have stabilized.

From the city’s perspective, it’s allowed us to focus our energies on core services, while putting the zoo in the hands of a group that will give them a much better chance for long-term success. ... It’s been a real community success story.

Great Lakes Aquarium:

The aquarium, also after many years of turmoil, has found some stability under the leadership of Jack LaVoy. Even though they saw a $100,000 decrease in city support in 2009, they have continued to operate, using what little resources they have to the greatest extent possible.

I can’t say enough about Jack and about the employees who are down there, who are passionate about education on fresh-water issues and providing a good experience for visitors.

I’m hopeful Duluthians will give the aquarium their support and a second chance. Because one of the biggest challenges down there is they’ve been burdened by this 10-year history of politics and personalities. They are operating as a startup, on a shoestring, and they deserve our community support.

City bureaucracy — last time we talked to you, you’d reorganized the building office:

We’re still moving forward. Within the Building Safety Office, we saw a 30 percent reduction in the time it takes to process a building permit.

We’re now taking it to the next level, which is having the construction-permitting side of things combined with the planning department and having the engineering department engaged as well.

The other part that we want to integrate and have as a key component to that operation, is our [Geographic Information System], which is the digital mapping of the entire city. ... Every parcel in the city is now integrated into our GIS system and there is tremendous efficiency with that. ... We’re going to create a one-stop shop for all building and permitting services and provide an online option. So, instead of a contractor having to come down to City Hall during business hours and submit their paper plan. Those paper plans have to go from department to department, desk to desk, and can’t be reviewed concurrently. Now they’ll be able to — from their office — submit their plans online and they’ll be given a tracking number. Those plans will be able to be reviewed concurrently, and they’ll see exactly which approvals they’ve gotten and they’ll have the name of the person who’s responsible for those approvals that have yet to be achieved and they can contact that person, to see if there’s information they need to help move the process along.

So, we want to improve the service; we want to improve the accountability. We want to give modern tools not only to our staff to help them do their work better, but, more importantly, to our customers, so we’re meeting the expectations of those who are looking to invest in Duluth.

Editor's note: This is where Part 1 of the interview ended and Part II - as published in the newspaper - began. However, the online version has not been edited to fit into the limited space of a print edition.

Sewage water flowing into Lake Superior?

We have finalized the consent decree. The EPA, the MPCA and the Department of Justice all had a role in that.

We have a plan of action in place right now that will eliminate sewer overflows into Lake Superior and the St. Louis River by 2016.

It is a daunting challenge and there is great public expense in doing so, but it is achievable and we are well on our way to achieving that goal. We’ve also been very successful in working with the State of Minnesota and with the Federal government in securing financial support to help us with infrastructure improvements, including the holding tanks.

That was one of the issues that required a tremendous amount of time and energy on the policy side in the formation of the plan and in moving a very complex proposal through the City Council.

Now the plan is in place, and it’s simply a matter of implementing it on the operational side.

I’m also very proud of the fact that we’ve developed a system that is supporting homeowners with the requirement that private infrastructure also needs to be improved because of the mandate by the EPA. We developed a system that will give $4,000 in support to homeowners and additional support to low-income homeowners through CDBG grants.

So anyone can get the $4,000 if their bill was high enough?

What it is, we reimburse 80 percent of the cost up to $5,000. Most of the (lead or line???) programs are at least $5,000 so they get a $4,000 benefit.

Condition of city streets?

I think this is the accomplishment I have been most proud of during my first two years. Creating a new street strategy that will result in 100 miles of city streets being improved over the first five years of this program. It is balanced approach, which uses our enhanced maintenance program, which we call a “capping program.” This takes the worst of our residential streets, fills the potholes and adds an inch or two of blacktop to kind of “cap it,” to hold everything in place. It’s not a permanent improvement, but it is better approach than going to that same street several times during a year and filling the same pothole. We were able to do 10 miles of street capping in the neighborhoods, some of the worst streets. Not only does that improve those streets, but it will also make our maintenance efforts much more efficient, because now our pothole crew won’t have to go back to those same streets. They can focus their energies on other streets that have not been improved.

We also increased the amount of contract work done in the city. We did approximately seven miles of street improvements, on some of the more heavily traveled streets in Duluth: West Superior Street, Kenwood Avenue, Woodland Avenue, Cody Street and Second Street downtown.

[There was] tremendous improvement in the condition of those streets. They weren’t maintenance caps; some of them were full mill and overlays. For example, West Superior Street and Kenwood Avenue, we take the top 3-4 inches of blacktop, mill that off, then come in and lay a fresh layer of new blacktop. It’s more substantial work and that work will last much longer than our maintenance cap.

Just in general terms, our maintenance cap program, for most streets, is like a 5-year fix. The mill and overlay program extends the life of a road and those are fixes that should be adequate for the next 10 to 15 years.

Woodland Avenue is an example of a full reconstruction. As long as you have regular maintenance and do a mill and overlay when the time comes, those should last 30 or more years.

The tastiness of food cooked on a car manifold? (Referring to the Cooking on the Car dinner served to Mayor Ness and his wife, Laura the day after Thanksgiving at Beaner's Central.)

That was fun. I have a tremendous amount of respect for Jason Wussow. He’s made Beaner’s an institution in West Duluth. He supports the local music, local artists. He himself is a great musician.

Now he’s found this fun project where he’s figured out how to cook really great food on his car. We had a stir-fry rice dish, with beets, carrots, ginger and it was really fantastic.

Did you see the video yet?

I’ve seen parts of it, yes. You know, Duluth is full of creative and fun people and they’ll take an idea and just run with it. It’s fun to support those sort of efforts, it’s light hearted and of course, it’s also supporting those with that entrepreneurial spirit in Duluth, like Jason has. It may not be directly tied to his business but it’s an outgrowth of that spirit, that “why not put this out there?”

Are there any other issues facing the city that I left off that list?

Well, the other big issue that will be more prominent in the coming year is our negotiations with the Fond du Lac Band. 41:35 That, along with retiree healthcare, is an issue that will define our community’s finances for a generation.

They have taken the action of eliminating the payments due to the city, coming from our agreement with the Band from 1994.

So, now we’ve taken our disagreement to the Federal Court they’ll be ruling on that.

2011 also represents the midpoint of a 50-year agreement with the Band on the operation of the casino in downtown Duluth. The payments made to the city have been mischaracterized, as a tax or a fee-for-service, and it’s neither. This is a joint venture between the City and the Band. Both parties have benefitted from this agreement over the years: the Band has operated a casino in the heart of our downtown Waterfront (District) and benefits from the hundreds of thousands of visitors that we bring to Duluth every year. While the City has benefitted financially, and we have dedicated those revenues to our street improvement program, the Band has also clearly benefitted from operating the casino in our downtown.

There’s no reason this agreement that’s been beneficial to both parties should not continue to for the next 25 years. In fact, the contract lasts for another 25 years. What we will be doing over the course of the next year is to negotiate the terms that will be in place for the next 25 years.

It’s important that community leaders not give away rights in our position in this matter --which some have been too quick to do -- given the contract that’s in place, that’s been approved by the Secretary of the Interior, the Federal Courts and signed by both parties. We have every expectation that this agreement will be in place for the next 25 years to the common benefit of both the Band and the City.

Were you surprised when they announced that?

Yes and no. Looking ahead, we certainly saw the next year of negotiations as the time in which the fundamentals of the agreement would be discussed, debated and challenged. I was surprised, and disappointed, that they took such a radical step of discontinuing payments and seeking repayment of funds paid to the city over the course of the last 15 years. Now we’ll make our case to the Federal courts and that will determine the city’s standing and the legitimacy of this contract. Once that is completed, we can focus our attention on the constructive negotiations for the terms that will be in place.

How often do you renegotiate terms?

The original agreement was negotiated in 1986. There were changes in federal law that resulted in challenges that took many years to resolve. That resulted in a new agreement in 1994. We’ve been operating under the 1994 agreement for the last 15 years. [That agreement] set 2011 as the midpoint and as an opportunity to review the assumptions made in 1994 in terms of how the monies are apportioned. It’s a time to see if those assumptions still holding true moving forward or do they need to be adjusted.

Is there a timeline for the court’s decision?

Right now they’re withholding payments that are due under the ‘94 agreement and we’re hopeful the courts will issue a summary judgment of what the contract requires of both parties and very quickly make a ruling on their obligation to make these payments.

Then, as a separate issue, we have these negotiations that take place at the midpoint of the 50-year agreement. There is actually a process set forth in the agreement in which there is six months of negotiations, followed by three months of mediation.

If those aren’t successful, then in the fall of 2010 we go to binding arbitration. This is a binding arbitration that will be conducted by federal arbitrators. We’ll both make our case, based upon the contract that is in place, and then that process will determine what the agreement will be from this point forward.

I think there’s some misperception that we need to convince the Band of our position in order to see revenue coming forward. The reality is, there is a process in place that protects our interests in this agreement and if we are unable to reach agreement with the Band, then the federal arbitrators will make that decision.

Under any circumstance would the casino be closed?

It’s my expectation that this process will be successful, and that both the interests of the Band and the City will be upheld. Once that has been established, then we’re committed to their operation in Duluth and hope that they’re successful. I think that once we’re beyond the contract issues, which, by its nature is divisive, we can then set our focus to rebuilding that partnership and finding new and creative ways to breathe new life into their operation: better connect the casino with the new arts and nightlife scene happening in old downtown. There are a lot of opportunities, but we need to get beyond the confrontation that’s been introduced through the legal process.

OK, let’s talk about a really important issue: Bentleyville. I heard you called Nathan Bentley last November and asked then if he’d move to Bayfront. Have you been surprised by all the negative comments or do you think a highly critical attitude is a birthright in Duluth?

Let’s focus on the positive first. This came out of creative thinking about how the city can address its challenges. For many years, the city had put up a very small light display down at Bayfront Festival Park. We were in the midst of a financial crisis. With the layoffs and unpaid leave, we couldn’t make the commitment to the staff time necessary to put up the display. At the same time, Nathan had decided to take a year off at his home.

So, I initiated the meeting – he came here – and I asked if he’d consider bringing Bentleyville to Bayfront Park. Not only did he agree, but he has exceeded all expectations. The light displays featuring local landmarks are fantastic. Already 86,000* people have gone through and it’s a great family event for people of all ages and income. And it’s made a positive difference for our downtown and the waterfront and the local businesses that operate here.

I couldn’t be more pleased with the partnership and I think it’s indicative of the public-private partnerships that I really believe in.

I’ve been bewildered by the negativity that has bubbled up to the surface.

In some ways, it serves the purpose of demonstrating to the community that — even with an initiative as positive and generous as Bentleyville — there is a segment of our population and some community leaders that will manufacture dissent and negativity. In some ways, I think it is serving to discredit that knee-jerk negativity that is too prevalent in our community: If they find a way to be critical of Bentleyville, it puts into context the criticism they have of other initiatives in the city.

Do you have any idea how much the city’s made in parking revenues from Bentleyville?

I don’t. Seriously, I think there’s been too much emphasis on economics. First and foremost this is about providing a great, family-friendly event in downtown Duluth. If there is ancillary benefit, in the form of more folks shopping downtown or going to eat or parking revenues at the Bayfront, that’s all secondary. Finding something all families can take part in during this tough economic time, that’s the most important gift that’s been given.

* After last weekend, just over 138,000 people had visited Bentleyville.

Looking ahead, what are your priorities for 2010?

I think our business development efforts will be a top priority in 2010.

The implementation of some really important tools for encouraging economic development in Duluth. We already talked about the improved permit system in the department we’re calling Planning and Construction Services.

We’ve also reinvigorated DEDA (write out here): brought private-sector leadership onto that board. We’ll be setting forth a new mission and focus for DEDA. Also bringing on a new director, a postion that’s been held open for the past six months.

We’re developing a much stronger coalition of economic development partners. On a monthly basis, I’ve been calling together key leaders to talk about different projects and a longer-term strategy for economic development and that’s been very fruitful.

We’ll also be bringing to the council the first unified development code in the city’s history, and the first new zoning code in 50 years. The zoning code will meet the modern needs of developers while encouraging mixed-use development and it will help create a reputation for Duluth as a good place to do business.

I’m very optimistic about the opportunities there. Over the past year we’ve been working on a number of business development prospects that I think have a very good likelyhood of being great success stories for Duluth.

We’re also continuing our efforts to set a new culture and expectations within city government. We’ve adopted an informal theme for city government: “Own it, solve it, take pride in it.” We want every employee, when faced with an issue, to take ownership of that issue. So whether it’s a set of plans on a desk or a constituent calling with a complaint, we want the employee faced with that issue to take ownership of it and to be creative and inventive in finding a solution. Whether that’s putting the person in contact with the right resources or developing a new process or policy to address a more systemic issue, we want to empower our city employees to look for that solution.

Finally to take pride: in your day-to-day work, but also to take pride in what the city of Duluth does for our constituents. We need to do a better job of talking about the value we bring to Duluthians in our operations and to promote the good work being done by city employees every day. Too often there’s such focus and emphasis on the challenges, that we don’t even put effort into talking about the really creative innovative and value-added efforts made by city staff.

On your Mayor’s night, are you ever confronted with problems that you’ve never heard of?

Mayor’s Night has been a great tool for us, because I hear from folks I otherwise wouldn’t hear from. I hear about issues that I wouldn’t otherwise hear about. I hear across the entire spectrum: Some people want to talk big-picture policy items; others want to discuss a very specific issue in their neighborhood.

I really look forward to Mayor’s Night. I really enjoy the opportunity to be in the mindset of “let’s talk this through, understand what the issue is and then explore the options to find resolution or a solution.

Sometimes folks just want to get something off their chest: they have a complaint or they’re frustrated with a situation. There may not be anything I can do, but they feel good leaving the office because the mayor has heard them out. We can talk about some of the other factors at play. We may come to a final solution every time, but people like to know that they have access to this office.

How’s Duluth’s first family? How old are your kids now?

Very soon they will be 5 and 3 years old. They’re doing great. Eleanor will be 5; she’s in preschool now. Actually, she’s in an Ojibwe immersion program up at UMD; she loves it. James is a handful. He’s a very spirited little boy, loves to wrestle, just has boundless energy. He also has a very sweet way about him. We’re having a great time.

And you manage to balance?

Yes. You know, I say ‘no’ to most after-hours events — dinners or cocktail parties, things like that — and people have been very understanding. They know how hard I work during the day on policy issues and budget issues. I think there’s an understanding that that’s my focus as mayor. I’m not going to be a mayor does ribbon cuttings or who shows up at every event. Especially, given the times, I think we need a mayor who is engaged in city operations and that’s what I bring.

So, what I’m saying is that people have been very understanding when I’ve told them I’m not going to go to an evening or weekend event because I’m spending time with my family.

I always draw parallels in my mind between you and our President. You’re both pretty young for your leadership position, both entered office with a big mess to clean up, both emphasize public service by everyone, not just a chosen few.

Do you think you’re part of a new way of thinking in politics, a paradigm shift, or not?

I was immediately drawn to Barack Obama’s message the first time I heard it in the summer of 2004. It was the first time I’d heard a politician on a national stage talking about what I believe about public service. I think it is a different way of looking at politics and at government.

The president is challenging the ugliness in American politics and that’s taking a huge toll on him and his administration. Not only do they have an aggressive policy agenda, but they’re also, at the same time, challenging the way business is done in Washington. It’s kind of fighting a war on two fronts, because those who have became adept at manipulating the current system feel threatened by this new approach.

I’m proud of this president and what he’s trying to accomplish.

And, while what I’m dealing with here in Duluth in no way compares to the scope and importance of the issues [he’s dealing with], I can certainly relate to entering office when there are significant negative factors completely out of your control that are defining the context. Add to that, a lot of issues that were neglected for a long time that now require a resolution because the stakes are so high.

Do you ever wish you could be a ribbon-cutting mayor?

I think I’d be really bored.

So, on the one hand, I’m really grateful to serve at a time when the issues are so important and a time when the challenges are so great that bold initiatives and bold changes are probably more readily accepted than they might be when times are good. We’ve tried to take full advantage of that.

Tags: budge collections, budgeteer, q-and-a, ness, duluth, retirees, streets, budget, casino, city