Mayor paints grim financial picture for Duluth due to pandemic

Mayor Emily Larson predicts the city will need to dip into its reserves to make it through 2020 and 2021.

Mayor Larson
Duluth Mayor Emily Larson speaks during a press conference. (2019 file / News Tribune)

Mayor Emily Larson shared some unsettling projections with the Duluth City Council Monday night, including the expectation that the city will finish the year with its revenues $25.4 million under budget due to the economic recession brought on by the COVID-19 pandemic.

The downturn will hit a number of accounts, including the city's general fund, which is expected to experience a 6% to 8% decline in revenues or a shortfall of $5.6 million to $7.4 million.

Tourism tax collections are expected to be hit even harder, with that targeted sales tax generating only about half of the $12 million initially anticipated. Larson said many organizations that had anticipated receiving tourism tax support will see that funding cut quite short. She noted that most of the tourism tax dollars will need to be used to cover existing debt commitments.

Larson said utilities income is expected to be off, as well, with usage down about 6% or $5.3 million, partly because of COVID-19 slowdowns and shutdowns, including the Verso paper plant and AAR airplane repair facility .

The city has already made a number of adjustments, including enacting a hiring freeze that will save it about $1.5 million, temporary and seasonal layoffs that will cut costs by $1.1 million, full-time layoffs to trim $500,000 and potential bargaining unit concessions that could save $1.2 million.


Larson said the city also is eligible to receive reimbursement for about $6.5 million in COVID-19 expenses it will incur, but those federal and state funds have yet to be released by the Minnesota Legislature. She expressed confidence that the support will be made available, as any federal dollars not disbursed by the end of the year will need to be returned.

"That's not going to happen. But that said, we need the money yesterday," she said.

Larson said the city is looking into the possible sale of some of its assets, including realty and items of value, such as a pair of Tiffany stained windows in its possession.

Even so, she predicts the city will need to dip into its reserves to make it through 2020 and 2021.

The city has about $13 million in reserves, but some of that is in the form of lines of credit that have been extended to Spirit Mountain, the Lake Superior Zoo and the municipal golf courses. In reality, Larson said, the city has access to $10.1 million, and shared her thought that $4 million of that sum could be used to shore up budget shortfalls.

Larson shared her opinion with city councilors Monday night that: "There's no way we meet this budget gap without going into our reserves."

Wayne Parson, Duluth's chief financial officer, said drawing down the city's reserves by $4 million should have no adverse impact on the city's bond rating.

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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