Budget woes looming in Duluth as city health costs balloon

DULUTH – Health insurance costs for city employees are expected to drastically increase in coming years, potentially putting pressure on taxpayers and city operations.

Unless Local Government Aid from the state increases or insurance costs can be tempered, some combination of layoffs and substantial tax increases will likely be needed to balance the budget starting in 2023 — options city leaders want to avoid.

Duluth Mayor Emily Larson told the City Council on Monday that having taxpayers shoulder the increase is unthinkable.

"These are gaps we will not be able to close with property taxes," she said. "It won't be fair, it won't be equitable. We're going to have to do something structural about medical care, there is no way around it."

Staffing is already stretched thin, so any layoffs would be "very painful," said Duluth Chief Administrative Officer Noah Schuchman.

Insurance costs will remain flat in 2022 due to the switch to a new provider in 2020, but they start increasing by 17% each year thereafter. That will cause a roughly $5 million projected general fund budget deficit in 2023 and nearly $20 million by 2026.

"This really is scary," said Council Member Gary Anderson.

Larson said that she wants to avoid reducing benefits for employees but "we do need to go back to the marketplace to see what other options are there."

Larson's proposed 2022 budget increases the property tax levy 6% but adds no new major spending and maintains staffing levels.

If approved, the levy increase would be offset by growth in the tax base and equate to a $3 yearly increase in the city property tax bill for a home valued at $175,000 and a $30 annual increase for a $500,000 commercial property.

The Duluth City Council will take a closer look at the levy later this month.

Brooks Johnson • 218-491-6496