If you live in Duluth, and the assessed value of your home doesn’t increase next year, your city tax bill should increase by no more than half a percent under Mayor Emily Larson’s budget plan.
The city’s levy is slated to increase by about 7% if Larson has her way, but a growing tax base and other factors are likely to generate most of the funds she seeks.
Larson presented her proposed budget for the coming year to the Duluth City Council Monday night. Councilors will have until the end of September to set the ceiling on what the city can collect in property taxes next year, even though the budget won’t be finalized until December.
If the city’s current budget had been left on autopilot, the levy would have had to grow by about 14% next year to accommodate increased costs, including health care expenses, inflation and staff pay raises, Larson said.
However, Larson said the city should be able to reduce its spending through the use of priority-based budgeting principles — a model it first adopted last year.
“It really means looking at how do we ensure we are paying for high-impact, high-value areas, not low-impact, high-cost services,” she said. “So, that helps us align how we want to use people and priorities to advance our vision and goals — really implementing that and finding efficiencies from within the organization.”
Every city department except for the fire department will see some targeted budget reductions next year under the mayor’s proposal, said Noah Schuchman, chief administrative officer. While some duties may change as a result, he said no layoffs are anticipated.
The average price of a house in Duluth is $180,900, and the owner of such a home could expect to pay $62 per month — or $744 annually — in city property taxes, under the mayor’s plan.
Several factors are expected to bolster Duluth’s finances in 2020, including the approval of a half-percent increase in sales taxes — with the $7.1 million it is expected to generate slated to pay for street repairs. These additional funds should enable the city to tackle about 17 miles of streetwork next year, as opposed to the 2.5 miles of improvements it expects to complete in 2019.
With the new street funding in hand, Larson said her administration aims to phase out street assessments previously made against neighboring property owners.
Duluth also is slated to receive a $578,600 increase in local government aid it receives, returning those state payments to a level last seen in 2002. Larson said she is thankful for the increase but noted that the city would be receiving about $5 million more, if the LGA payments had kept pace with inflation during the intervening years.
The city also expects to reap the benefits of an increased property tax base and growing retail sales.
“We have seen an uptick in property and sales tax collection as part of our overall economic growth and new construction,” Larson said.
“From corner stores to hotels, small-business expansions in neighborhood corridors and increased retail sales, this new growth accounts for about $723,000 of our 2020 budget,” she said.
Larson noted that St. Louis County now is responsible for assessing the value of all property in Duluth, with many of those assessments on the rise.
“We recognize that it has financial impact on our residents. So, we have built a budget that is mindful of that. It takes into account that growth. But we have worked really hard to not exacerbate that, recognizing that many people will see an increase in their valuations,” she said.
Schuchman pointed to the city’s escalating health care costs, which are expected to grow by more than $1.1 million next year, as a worrisome concern that’s been part of a long-term trend.
“What has become very clear is that we are on an unsustainable path with health care as a city in terms of the cost. I believe that by 2030 or 2031, our health care costs would make up the entirety of the general fund budget at the pace (of growth) that we are on now,” he said.
“So, we are working to begin the process of talking with all of our bargaining units about what changes we could make to the health care plan that we have in a way that impacts employees the least but also provides some opportunities for savings for the plan and for kicking that can further down the road to hope for a larger solution to help with resolving a long-term need that we will have,” Schuchman said.
If health care costs next year were to rise merely at the rate of inflation instead of the anticipated 10%, 2nd District City Councilor Joel Sipress asked if his calculations were correct that the city “would be able to cut the proposed levy increase roughly in half?
Interim Chief Financial Officer Jennifer Carlson confirmed that would be correct.
The city’s levy accounts for only a portion of local residents’ annual tax bills — about 28% to be exact. St. Louis County and the Duluth school district make up most of the overall property tax bill.