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Duluth tourism grows; hospitality industry beats projections

Duluth's tourism industry continued to grow in 2018, beating the city's budget projections. A recently released year-end report showed Duluth collecting nearly $12.2 million in tourism taxes in 2018 -- 4.7 percent more than last year. Duluth's ho...

Michael Lindau skis onto a rail in Spirit Mountain’s terrain park on Monday afternoon. Duluth's tourism tax proceeds go to help a number of attractions, including Spirit Mountain, which receives $275,000 annually to assist with operating costs, $500,000 toward paying off the bond on the new Grand Avenue chalet and $145,700 toward its adventure park lease. Steve Kuchera / skuchera@duluthnews.com
Michael Lindau skis onto a rail in Spirit Mountain’s terrain park on Monday afternoon. Duluth's tourism tax proceeds go to help a number of attractions, including Spirit Mountain, which receives $275,000 annually to assist with operating costs, $500,000 toward paying off the bond on the new Grand Avenue chalet and $145,700 toward its adventure park lease. Steve Kuchera / skuchera@duluthnews.com
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Duluth's tourism industry continued to grow in 2018, beating the city's budget projections.

A recently released year-end report showed Duluth collecting nearly $12.2 million in tourism taxes in 2018 - 4.7 percent more than last year.

Duluth's hotels and motels led the way, with revenues up 6.5 percent from the previous year, driven in large part by a growing inventory of rooms. This year promises to bring yet another new player to the scene with Tru By Hilton slated to open a 106-room hotel by fall.

Sales of food and beverages grew by a more modest 3 percent in 2018. Duluth collects tourism taxes from local bars, restaurants, hotels and motels.

In all, tourism tax collections exceeded the city's expectations by nearly $650,000, and Mayor Emily Larson said those surplus dollars will be held in a reserve fund. By statute, all tourism tax proceeds must be reinvested in the city's tourism industry.

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"For now, we will hold onto these additional dollars that were unanticipated to see what happens in the next year," Larson said.

"Every once in a while, we'll have a need that arises at one of our tourism organizations or there's a special event that comes up that no one anticipated, so then we have that available," she said. Any expenditure of tourism tax funds must be approved by the Duluth City Council.

As for the 2019 tourism tax collections, Duluth has projected no additional growth beyond what it saw the previous year.

"In the past few years, I've made very realistic commitments to organizations," Larson said.

Under her leadership, Larson said the city now bases each year's tourism tax budget on the basis of past performance.

"That's actually been very intentional," she said, explaining that she wants to avoid any unpleasant surprises like the city has experienced in the past because of overly optimistic tourism tax projections.

"There have been times when the city has been unable to make the financial commitments that we thought we could because we were using projected dollars, and that puts organizations in a terrible spot," Larson said.

When there have been shortfalls in tourism tax collections, the city has found it necessary to reduce its funding allocations accordingly, and that has sometimes left recipient organizations in a bind, Larson explained.

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"They all build their budgets around the commitment that the city makes, and it's really important to me that we are a reliable partner," she said.

More than a dozen organizations receive tourism tax funding, including entities such as Spirit Mountain, the Great Lakes Aquarium, the Lake Superior Zoo and others.

"When and if there are additional dollars we can allocate, we can look at that from a fresh perspective to help support a specific program or a capital need or a special event, like the tall ships or ITV Fest or other things that come up that are clearly tourism-related but were not projects that were in the pipeline last August or September, when we asked people to make a projection of what they'd need," Larson said.

Recently, tourism tax proceeds have been used to help fund a $3 million overhaul of the pedestrian lift bridge at Minnesota Slip and to assist with the temporary relocation of the William A. Irvin

The growth of Duluth's tourism industry continues to impress Larson.

"Duluth is a favorite spot for a lot of people," she said.

"I think part of what we're seeing is people traveling greater distances to vacation and convention here," Larson said.

While most of Duluth's tourism spending comes from the Twin Cities market, Larson said recent additional air service to Chicago and Nashville has continued to expand the city's reach.

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"Duluth is really popping in a highly visible, impactful way that people want to be a part of and experience," she said.

"We're not seeing people's interest in Duluth slowing down," Larson said.

Peter Passi covers city government for the Duluth News Tribune. He joined the paper in April 2000, initially as a business reporter but has worked a number of beats through the years.
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