Three unexpected, city budget-bolstering things have happened in Duluth since March — and they happened despite COVID-19 shutting down small businesses, events, tourism, and pretty much everything else.
Duluthians kept paying their property taxes, for one. Despite plummeting unemployment, property tax collections are off only about 5% to 7%, city leaders said in an exclusive interview held virtually last week with the News Tribune Editorial Board. The city had been bracing for property tax receipts to drop by as much as 20% with Duluthians unable to pay.
Duluthians kept spending, too, stocking up on necessities out of a concern over the uncertainty of the virus and buying or fixing up houses to accommodate new stay-at-home offices and scrambled-together study nooks for kids. Sales tax revenues projected in April to drop this year by as much as 50% as a result of the pandemic are off by only about 10% now, Duluth Finance Director Wayne Parson said.
“The financial and economic experts freely admitted they had no idea” in March, said Parson of the advice and guidance the city sought and received, including from the Minnesota Department of Revenue, about COVID-19’s expected shock to the economy.
Finally, the city received $6.7 million from the federal CARES Act to offset a huge chunk of the estimated $10 million in unexpected expenses related to the pandemic, things like overtime for city workers, retooling city offices to allow for more social distancing, telecommuting transitions, and even how the police responds to 911 calls.
With those three developments helping out the city’s bottom line, Mayor Emily Larson this month was able to propose a 2021 city budget that actually holds the line on property taxes and doesn’t dip into city savings this year. It would have seemed unfathomable just a few months ago.
The City Council can support the surprisingly healthy, unsurprisingly responsible budget when it meets today and is expected to set a maximum levy for final budget deliberations. The 2021 spending plan is to be approved in December.
“When we first started to look at numbers coming out of the pandemic, if I had been told that we would be in the position we’re in now, I would have had a hard time believing it,” Duluth Chief Administrative Officer Noah Schuchman said. “We are heading back toward normal … but we need to be realistic about what the city can provide when the city has a budget crisis. This was one of those times when you really saw that impacted directly, and people recognized it.”
The not-as-bad-as-it-could-be city budget situation wasn’t a result without pain and sacrifice. The Lester Park Golf Course and public libraries were closed. City employees were furloughed and laid off. The mayor and others took less pay. Bargaining units made concessions. And city services suffered; anyone in a city park this summer saw grass in need mowing, garbage cans overflowing, and worse.
Not having to dip into savings is a luxury that likely won’t last long. The mayor told councilors on Sept. 10 that she proposes to draw $4.74 million from city reserves next year to cover an anticipated budget shortfall then. However, as she also said, “If we are not going to use our reserves during a global pandemic, we do not need those kinds of reserves. This is exactly why we have them." Even with that withdrawal, the city would still have a healthy $5.5 million in a reserve fund it has been laudably rebuilding since it dropped into the red during the Great Recession/Mayor Donald Ness administration.
In addition to the reserves, the city’s Community Investment Trust fund has a balance of $27 million to $28 million, and is growing with interest, the mayor said. Parson ensured councilors this month the city’s bond rating remains stable, in spite of the challenging times.
This year’s level of holding the line on the city’s portion of property taxes also can’t last forever. Duluth homeowners and business owners can appreciate the city administration’s effort this fall, however, and can call for its embrace by city councilors.
“It was really clear to me this is not a year that our residents, that our businesses, are able to give more (in property taxes). It just isn’t,” Mayor Larson said.
The mayor, finance director, and others in City Hall are already working on the 2022 and even 2023 budgets. They can do so with lessons learned from this unprecedented year: Expect the unexpected and be willing to be flexible among them.