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Duluth city reserves grow despite loss of revenue

Although its revenues slipped $1.6 million below budget last year, the city of Duluth nevertheless more than tripled the size of its reserves in 2010.

Although its revenues slipped $1.6 million below budget last year, the city of Duluth nevertheless more than tripled the size of its reserves in 2010.

The city finished last year $5.3 million to the good -- up $3.6 million from 2009.

Lean staffing accounted for a big chunk of savings, with Duluth spending $1.6 million less on salaries and benefits than it had budgeted last year. In a presentation tonight to the Duluth City Council, Chief Financial Officer Adele Hartwick said Duluth didn't lay off anyone but hasn't filled 34 positions.

Chalk up another $2.6 million in savings to a change the city made in the health insurance benefits it provides to retired employees. While switching all retirees to the same universal health care package that current employees receive has eased pressure on the city's finances, the move led to a suit now before the Minnesota Supreme Court.

City Councilor Todd Fedora asked whether the city was holding money in escrow in case the court rules in retirees' favor.

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"We have funds set aside that we're not using for just that kind of eventuality," Chief Administrative Officer Dave Montgomery said, referring to the reserve.

Fedora praised Mayor Don Ness, Montgomery and city staff for the progress Duluth has made since 2008, when he took office. That year, the city closed its books $1.3 million in the red, and Fedora said he still remembers the sense of desperation. He recalled how Duluth briefly considered auctioning off a historic stained glass window to shore up its finances. Fedora also reflected on the council's difficult decisions to sell off some city land on Park Point and to reduce library hours -- two moves that upset many residents.

"The picture looks a heck of a lot better now than it did in 2008," he said.

Montgomery thanked Fedora for the kind words but said proposed drastic cuts to local government aid the city receives from the state could alter Duluth's outlook in a hurry.

"We do see we're not out of the woods yet," he said.

Even though Duluth has budgeted for a $1.5 million cut to its LGA this year, Hartwick pointed out that the Senate proposes still another $2 million reduction. And if the House has its way, Duluth would see an additional $8.8 million in LGA payments taken away.

Councilor Jim Stauber said the reserve fund tells only part of the story and focused on declines in Duluth's Community Investment Trust Fund.

He recalled the fund's balance had approached $60 million before Ness took office. As of the end of 2010, the Community Investment Trust Fund had about $34 million in it.

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"It's almost $25 million down from where we were. Where are we going with that?" Stauber asked.

Montgomery pointed out that the fund receives most of its revenue through a profit-sharing agreement with the Fond-du-Luth Casino, but the Fond du Lac Band of Chippewa has not made its payments since July 2009.

City Attorney Gunnar Johnson expressed confidence a court order compelling the band to repay more than $10 million to the city will be upheld.

Montgomery also said the administration's plan is to lower the balance in the Community Investment Trust Fund to about $25 million, using the remaining proceeds to accelerate local road improvements and to pay down city debt.

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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