Duluth efforts to patch $25M budget hole might include sale of assets

DULUTH – Mayor Emily Larson said the city faces a $25.4 million budget gap, and she highlighted cuts officials have already made and expressed an urgent need for federal aid tied up at the state level.

Even with those financial patches, Duluth is still searching for ways to reckon with the pandemic-fueled shortfall. Larson said in a presentation to the City Council on Monday that the city will look into the possibility of selling land or other assets, such as the Tiffany stained-glass windows in public buildings.

The new projection is on the lower end of the $20 million to $38 million shortfall range that the mayor had estimated in April. Duluth is expecting a $5.5 million to $7 million hit to its $93 million general fund, which pays for most city services.

Some of the other funds hit the hardest by the pandemic are ones that may not be supplemented this year. Larson said officials expect a 50% drop in tourism tax revenue, which would leave the city with $6 million to cover the debt service obligations of that fund.

Local groups who applied for tourism tax allocations to pay for programs or attractions that draw visitors to Duluth will likely receive little or no money this year.

Larson said the city is now anticipating a $5.3 million decrease in its utility fund as large employers, such as the Verso Corp. paper mill, shut down. That fund is regulated by Duluth's Public Utilities Commission, which does have some reserves, Larson said.

The mayor said this drop surprised officials. "That makes me nervous, especially as we're looking at other big consumers and users who help make the whole system work," she said.

Already, Duluth has laid off 45 temporary and seasonal workers, which will save $1.1 million if layoffs are extended through the end of the year. The city also laid off 49 full-time employees, whom the city intends to hire back, saving $500,000 to date.

A hiring freeze through the end of the year will save an additional $1.5 million, Larson added, and potential agreements with bargaining units are expected to conserve $1.2 million.

The City Council approved a deal with the largest city employee union Monday night that requires members to take 18 unpaid days off over the next year and a half.

Duluth has also closed one of its two public golf courses, delayed a $500,000 overhaul of its snow emergency procedures and postponed about $1 million in street projects.

Larson said Duluth is expecting to get $6.5 million in aid from the federal CARES Act once state officials divvy the $841 million slated for local governments.

"We needed that money yesterday," the mayor said.

She also said the city is willing to use up to $4 million of its $10 million general fund reserves through the end of 2021. Larson will begin to talk about next year's budget with the council in September.

"It's going to be a challenge for us," she said. "It's painful to see what we can't do, and it's painful to not have our entire team fully staffed doing all that they can."

Larson said "there is considerable merit" in exploring the sale of city assets, though she said such a process takes time and would require council approval.

The City Council attempted to sell a Tiffany window in 2008 to help balance Duluth's budget but ended up holding onto the stained-glass artwork depicting a Native American woman after offers to buy it came in well below the $3 million officials had expected.

"There's no secret well of assets that we're holding onto," Larson said Monday. "There's not going to be a lot there."

Katie Galioto • 612-673-4478