City of Duluth seeks new plan to pay for street work - and residents may not like it

Faced with the harsh reality that Duluth's long-term source of funding for street improvements may be gone forever, city leaders are searching for a cure. And their medicine could be tough for residents to swallow.

Possible remedies include higher taxes, steeper street assessments, cuts in city services or a less-ambitious effort to improve and maintain city roadways.

Even if these unpleasant solutions can be avoided in the long run, funding interruptions promise to slow badly needed street improvements in the short run.

Mayor Don Ness said the challenging situation and the slate of unattractive options facing Duluth underscore the importance of fighting to restore the city's prior funding source through the courts.

Casino cashout

The predicament stems from the city's continued inability to collect a share of revenue from the Fond-Du-Luth Casino, as it had in the past.

Under a long-standing agreement with the Fond du Lac Band of Lake Superior Chippewa, Duluth had received 19 percent of the money casino patrons pumped into local electronic gambling machines. That arrangement had yielded Duluth about $6 million annually until 2009, when the band stopped writing checks to the city after concluding the ongoing payments could not be justified.

That casino money had been deposited in Duluth's Community Investment Trust, a fund that has paid for the city's street improvements for many years.

Even after the band halted payments to the city, prompting an ongoing legal battle, Duluth continued to pay for street improvements in recent years by drawing down the trust.

But 2013 will be the final year Duluth can continue the practice without risking harm to its credit rating, said David Montgomery, the city's chief administrative officer. He advised the City council on Monday to authorize an additional payment from the trust fund in 2013 but then to stop, lest the fund balance fall below $20 million -- a level that could trigger concern for credit raters.

Revised expectations

Funding interruptions have prompted Mayor Don Ness to back away from a goal he set in 2009, when he announced plans to complete 100 miles of street improvements by 2013. To reach that objective, Duluth would need to improve more than 22 miles of road next year.

"Obviously, half-way through our plan the variables changed, when the band decided to cease payments. We didn't have a revenue stream any more" Ness said.

"We could still meet our goal of 100 miles by issuing a bunch of debt," Ness said. But he said the city has been working to retire the more than $40 million in street debt he inherited upon taking office in 2008. The city has attacked that debt using money from the Community Investment Trust.

"The economics are quite simple. We're paying 4 to 6 percent on the bonds, and we're earning less than 1 percent on the trust funds," Ness said. "Our strategy to use trust fund dollars to pay down the debt is obviously the right approach."

City Council President Dan Hartman offered qualified praise of Ness' plan to eliminate debt and improve local roads, saying: "We've made progress in the past four years, but we still have a long ways to go."

Ness said his administration directed money to the city's most pressing needs, even when that wasn't perhaps the most politically expedient thing to do.

"If the most important thing was politics, there are decisions we could have made, and we probably wouldn't have done the work we did on Riverside, Glenwood and upper Woodland," he said, noting that instead of tackling some of these more expensive projects, the same money could have been used to mill and overlay well above 100 miles of city streets.

"In weighing the city's needs versus politics, I decided needs should come first, all the while realizing that some may take the opportunity to criticize me for not reaching my goal. Still, I think most people realize that in the middle of our plan, our revenue stream disappeared," Ness said.

Although the city has chosen to hold off on plans for any major new street projects in 2013, Ness said it will fully fund enhanced maintenance efforts to fill potholes and seal cracks.

"Better maintenance is absolutely key to the health of our street system," he said. "Much of the reason for the mess we have now is a result of underinvesting in street maintenance in the past."

To discuss how to pay for future street improvements, Council President Dan Hartman has scheduled two committee-of-the-whole meetings both in council chambers -- one at 5:15 p.m. Monday, Sept. 24, and another at the same time Monday, Oct. 1.

"This is one of the biggest things the council will be tackling this year," he said.

City Councilor Jim Stauber said the discussion is long overdue and should have occurred before the city spent down the Community Investment Trust.

He noted the trust fund has gone from having a balance of $57 million in 2009 to an anticipated $21 million next year.

"It has been 37 months since the casino cut us off, and we still have no street improvement plan," Stauber said. "We should have approved a plan before we authorized spending any more funds from the Community Improvement Trust."

Planning for the worst

While Ness supports City Council efforts to develop a backup plan, he said he remains confident the city will win its case, regaining access to a share of casino money. He said no one should take the upcoming discussion to mean the city has given up.

Montgomery predicts the approaching talks will be sobering.

"It's going to be a difficult conversation by definition, because it will be based on the assumption that we won't prevail (against the casino), even though we believe in our case and continue to fight," he said.

The city's recent track record in the case has been far from auspicious.

Federal authorities from the National Indian Gaming Commission and now the Department of the Interior have both deemed portions of a revenue-sharing agreement between the city and the band invalid, even though Interior officials signed off on the agreement when it was originally written in 1986 and when it was renegotiated in 1994.

Also, in November of last year, a federal judge ruled that the band need make no further payments to the city as of April 2011. However, the same court ordered the band to make good on an estimated $12 million to $14 million in backpayments it withheld between 2009 and March 2011. Both the city and the band have appealed the decision.

Even though the path ahead looks uncertain, Hartman said the council needs to put a plan in place to ensure street improvements continue.

"Street repairs are one of the basic core functions of city government," he said. "Clearly, we've fallen behind in the past, and we need to continue our efforts to catch up."

In essence, Hartman said the council will be developing a worst-case scenario plan to continue street improvements in 2014.

"We need to put all our options on the table," he said.

Stauber said Duluth ought to be able to come up with a plan.

"Look at all the other Minnesota cities that pay for streets, and none of them get any casino funding," he said

"Since the casino opened, we've received $78 million earmarked for public infrastructure. How is it that our streets are in such horrible shape?" Stauber asked.