Duluth City Council moves to lower tax growth in 2023
The city's transit authority and its overall budget are poised to receive a financial haircut compared with previous tax proposals.
DULUTH — City councilors took steps Monday night to contain property taxes in the coming year by substantially cutting the amount of money likely to be levied for the local mass transit system and by making more modest reductions to the amount of money the city probably will be permitted to spend in support of general operations next year.
The Duluth Transit Authority had proposed to more than double its levy from $1.6 million this year to $3.9 million next year. But the council limited that tax hike to about $500,000.
Meanwhile, councilors decided to pare 1% off a proposed 2023 levy increase of 8.9% proposed by Mayor Emily Larson’s administration earlier this year and subsequently adopted as the maximum permissible levy by a unanimous vote.
Monday’s marathon meeting provided the council 3 1/2 hours to discuss and debate the budget, after a number of constituents reacted negatively to the proposed property tax hike.
Jeremy Laundergen said soaring property valuations, combined with rising taxes, are driving housing costs at rates that are unsustainable.
While he agreed the average market cost of homes has risen substantially, Laundergen said: “However, I do object to the combination of these valuation increases and the 8.9% increase in the city of Duluth’s property tax rate. That results in property taxes for residents that are going up more than 20% year over year. This is 2 1/2 times higher than an 8% inflation rate that is putting the squeeze on everybody and prompting the Federal Reserve to aggressively raise interest rates.”
John Ansell, a pastor who recently moved to Duluth, said the local housing market was so competitive that he had to offer more than the asking price for a home.
“I paid over the price that the property was valued at. And now, all of a sudden, to have that raised, as well as taxes raised, it almost feels like we’re getting hit twice and punished twice, because now not only did we have to overpay, but now we’re going to have to pay more taxes,” he said.
Two competing proposals to trim the city’s 2023 levy were brought forth Monday, with 3rd District Councilor Roz Randorf calling for a 2% cut, and Council Vice President Janet Kennedy advocating for a 1% reduction.
Randorf said the city must get a handle on its medical expenses to rein in spending.
“There’s one expense — we call it the elephant in the room — that showed up on every single department spreadsheet, and that was our employee health care costs,” she said, noting that health care plans are expected to cost the city in excess of $1.3 million more next year than in 2022. But Randorf acknowledged health care costs are a complicated problem with no quick fix.
Kennedy initially proposed a 1% reduction in the levy, with the city drawing $172,450 from its Housing Trust Fund budget and using $210,500 in federal pandemic-relief funds it received from the American Rescue Plan Act. But she amended that to a 1.2% cut by proposing an additional $75,900 be cut from the city’s legislative/executive budget — the equivalent of an unfilled position.
Other councilors raised concerns about the approach, with Randorf saying: “One thing is crystal clear to me. When we’re using one-time funds, we’re only making matters worse.”
She noted that future councils would need to fill the same financial hole and suggested real cuts to spending were the way to go.
Kennedy said the COVID-19 funds were meant to help cities through this challenging time.
“This is what this money is for, and there would still be money left over,” she said, likening the city’s circumstances to her own earlier in life.
“As a young mother, I used every cent I had to pay my bills, she said.
Ultimately the council opted to approve a 1% cut in the levy, reducing it by $382,950, with savings coming from across-the-board cuts that could still be finessed by city administration.
A revised ordinance calling for a 7.9% levy increase next year passed 8-1, with at large Councilor Noah Hobbs dissenting.
The levy still isn’t official, however, as Monday represented the first reading of an ordinance establishing the amount to be raised in property taxes next year. A second reading of the ordinance will be required later this month, before the council can bring it to a final vote for approval.
The cut was not supported by the city’s chief administrative officer, Noah Schuchman, who noted that initiatives approved by the council the previous year had placed the city on a path to increase property taxes by more than 15% in 2023, and staff had worked hard to reduce that by 6%.
He said further reductions will hurt at a time when the city already is short-staffed. “There’s nowhere left to cut, except the people.”
Hobbs questioned the wisdom of further reducing the levy, warning that it will negatively impact city services. “Do we want a lower quality of life?” he asked.
Randorf also brought forward a plan to reduce the Duluth Transit Authority’s levy, noting the organization had received $18.1 million in federal COVID-relief funds and has expended only about half that money.
“I ask my fellow councilors to vote yes on this amendment, asking the DTA to tap into the provided $9.1 million in remaining crisis-relief funding, rather than passing the cost onto the citizens of Duluth that have no reserves to act as their safety net,” she said.
Despite the fact that he worked as a DTA bus driver for 10 months and expressed a deep respect for the organization and the service it provides, 1st District Councilor Gary Anderson said, “I can’t vote to support the original proposition from the DTA for this significant levy increase. I cannot do that in good conscience.”
Anderson pledged to work together with the DTA in the coming year to create a sustainable path forward in the coming year.
The Council voted 7-2 to amend the ordinance setting the DTA levy, cutting the increase from about $2.2 million to $500,000 next year, with Councilors Hobbs and Hannah Alstead voting in the opposition.
The DTA ordinance also will require a second read before it can be approved.