A week later, Duluth ups budget shortfall by 50 percent, could stretch to $38 million

DULUTH – Mayor Emily Larson said Monday that the COVID-19 pandemic could create a budget shortfall up to $38 million, $13 million higher than what city leaders described last week as a financial worst-case scenario.

In a presentation to Duluth's City Council, Larson laid out updated projections that contained potential coronavirus-related expenses not included in the city's budget, such as exposure for $3.8 million in workers' compensation claims and $3.5 million in sick or family leave.

The total anticipated impact, estimated Monday to range from $20 million to $38 million, means the city will have to alter its plans laid out in the 2020 budget approved by the council in December.

And officials warned that revenue streams for tourism-focused Duluth — the only city in Minnesota with a sales tax feeding its general fund — will be affected at least through the end of 2021.

"While I would give anything to not be in this position as a mayor — I would give anything to not be in this position as an organization — this is the position we are in," Larson said. "I'm trying to be very realistic about the scope of work ahead of us."

Council members emphasized their hopes that the administration identify projects that can be delayed and contracts that can be deferred ahead of making other cuts.

Officials said they received many e-mails Monday critical of the decision announced last week to lay off 25 library technicians and 24 other full-time employees — a measure that will leave those individuals without benefits after May, despite city leaders' stated intent to rehire staff in the coming months.

"I think that we need to do everything possible to prioritize city services and prioritize minimizing job losses," Council Member Joel Sipress said.

Noah Schuchman, Duluth's chief administrative officer, said he is working with the city's six bargaining units to discuss the possibility of retirement incentives, required days off or wage freezes. Duluth's current contract with the labor unions does not give the city the option to furlough employees.

The city has also implemented a hiring freeze, laid off 45 temporary workers, closed a public golf course, postponed street projects and put off the opening of other amenities until doing so can be deemed safe and financially viable.

Duluth has $10 million in general fund reserves, which Larson said the city is dipping into as leaders start to figure out how to make up for the unexpected blows to this year's budget dealt by the pandemic.

But officials are wary of depleting that fund, saying Monday that the local economy will almost certainly take longer than a year to recover.

"We have a couple of tough years ahead of us," Larson said.

Katie Galioto • 612-673-4478