Duluth’s city property tax levy has increased by 61.09% — or $13.2 million — since 2016. That may sound like a whopping sum, but it helps to dig a little deeper to fully grasp what’s behind those numbers.
Moving funds from fees to taxes
More than one-third of the increase, $4.6 million, is actually due to a shifting of monthly fees to the property tax rolls. Where residents once paid monthly fees to support the upkeep of streets and streetlights, those charges are now supported by property taxes.
“I think it is an admirable transition that has been made to make those things not so regressive. It’s a more equitable way of spreading those costs out,” said Noah Schuchman, Duluth’s chief administrative officer.
“A flat fee is the same for everyone, no matter what your income or wealth level is. But when it is tied to property value, it’s paid as a percentage of the value of your property,” he said.
Growing tax base
The growing value of property in Duluth accounts for another healthy chunk of the city's swelling tax revenues. The value of Duluth’s property tax base has grown by 29% since 2016, according to Jennifer Carlson, the city’s finance director.
But the rate of taxation has climbed as well over the past five years — by 10.73%, to be exact.
Duluth Mayor Emily Larson has proposed a 6% increase in the levy next year, with about 5% of that amount again to be covered by the city’s growing property tax base.
Additional proposals by the Duluth City Council could lead to a bigger ask, however. The council set a maximum levy that would tack an additional 5% onto the mayor’s initial proposal in September, resulting in up to an 11% increase.
Councilors won’t finalize the city budget until November, but have opened the door for the larger levy to support more spending on public safety, as well as ongoing funding for a Housing Trust Fund that would be used to help increase the city’s inventory of affordable housing.
Under the mayor’s initial proposal, the owner of a home valued at $175,000 would stand to pay an additional $3 in taxes next year. But the enhanced budget proposed by the City Council would yield a $30 tax hike for the same property.
What's driving up taxes?
Property taxes have been driven in large part by relatively stagnant payments of Local Government Aid the city receives from the state that have not kept pace with inflation, Carlson said.
Escalating health expenses also have presented a challenge.
“Health care is one of the larger costs that we don’t have a lot of control over,” Schuchman said. “Because it increases year over year, it just is a runaway train at this point that we would like to get a handle on.
“The only way to change the health care costs for the city is to redesign the plan,” he said, acknowledging that any substantial modifications would need to be worked out with the respective bargaining units that represent city employees.
“Before 2021, when we changed providers, we had four years in a row of 10% growth," Carlson said. "So, for taxpayers, that’s $1 million every year, just in the growth of medical expenses."
For 2021 and 2022, Carlson said the city should be able to hold the line on medical costs. But in 2023, those costs are projected to jump another 25%, she said. And after that, the city anticipates an annual growth rate of 10%-16%.