Mayor Emily Larson told the Duluth City Council that she believes the city can avoid dipping into its general fund reserves this year, but she proposes to draw $4.74 million from the reserves next year to cover an anticipated budget shortfall.

"We can't go back to the public and tax them during a time of pandemic," she said during a budget presentation Thursday night.

Larson credited city workers for agreeing to make wage concessions and accept furloughs, saying those sacrifices have helped the city find its way through trying financial times. Her proposed budget next year calls for most furloughed workers to return to work but provides for no raises in pay, aside from step increases. She acknowledged that some library workers will remain sidelined by the pandemic, however.

Larson pointed out that 83% of the city's general fund costs are related to people.

"We are in a people industry," she said. "We are people who show up every day and work hard for our community, and that really is the biggest part of the budget. And that is why you will see that when we do have a budget impact, it will impact people. There is no other way for us to really get by."

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Despite efforts to contain expenses, the mayor projects the city's costs will continue to grow next year, driven in large part by higher health care costs and worker's compensation.

Larson said she feels comfortable tapping the city's general fund reserves and defended the idea, saying: "If we are not going to use our reserves during a global pandemic, we do not need those kind of reserves. This is exactly why we have them."

If Larson's plan is adopted, it would leave the city with $5.5 million left in the reserve fund by the end of next year.

Council President Gary Anderson asked whether that could put the city's credit rating at risk.

However, Wayne Parson, Duluth's finance director, expressed confidence the city's credit rating would remain stable, pointing to about $28 million in the Community Investment Trust that he said should solidify its financial standing.

Larson said that raising taxes to cover next year's anticipated $4.74 million shortfall would be completely impractical, noting that every 1% increase in the levy would generate only $330,000, and a double-digit increase would be out of the question.

Instead she proposes to essentially hold the line on taxes. In fact, Larson said: "We propose that 40% of our residential properties and 68% of commercial property owners will see a decrease in their city property tax."

Assuming no increase in assessed value, homeowners could see a property tax decline of $21 for a $100,000 residence, $44 for a $175,000 residence or $59 for a $225,000 residence.

For owners of commercial property with no increased valuation, the plan would translate into savings of $118 for a $250,000 property; $256 for a $500,000 property; or $395 for a $700,000 property.

The Duluth City Council will have until the end of this month to consider the mayor's budget proposal before it sets the maximum amount the city could levy by property taxes next year. The final budget won't be adopted until December.