Report says Duluth's Spirit Mountain is a major economic driver; will more public funding follow?

DULUTH – The city should keep investing tourism tax dollars to keep troubled Spirit Mountain afloat and growing, a task force says — the economic impact is worth it.

"Every dollar of tourism tax appropriated to Spirit Mountain generates $18.72 in economic impact," says a lengthy report released Monday with recommendations on how to get the public ski hill on better financial footing following several city bailouts.

The Duluth City Council will now have to decide how to pursue one of the report's biggest recommendations — investing another $23 million in Spirit Mountain to update and upgrade its facilities. Since the recreation area was formed in 1973, the city has spent $19.8 million in tourism taxes and issued $19.3 million in bonds to support operations and infrastructure there.

The proposed upgrades would see Spirit "achieving healthy operating margins that would allow it to weather weaker seasons, reinvest in maintenance and service its debt toward being a self-sustaining operation," ski industry consultants SE Group found in a study of the mountain. "The recommended investments include a new lift, upgrades to the beginner terrain and lighting, improvements to summer offerings and significant investment [in] the Skyline Chalet and other aging infrastructure."

The task force did not recommend a specific dollar amount the city should spend beyond saying the tourism tax allocation should be consistent and meet Spirit Mountain's needs. The 16-member group instead offered strengths and weaknesses of different investment levels.

"It's clear there's infrastructure that needs reinvesting, which is not surprising with a business that has struggled with cash flow in the past five to 10 years," said Arik Forsman, Duluth City Council member and co-chair of the Spirit Mountain task force. Fellow council member Janet Kennedy is the other co-chair of the group.

The Spirit Mountain task force was formed last summer following a $235,000 city bailout in December 2019 and a pandemic-induced summer closure that required $300,000 more in tourism tax money to get the mountain open again for the ski season.

Though the mountain is able to sustain itself with existing city subsidies — an average of $1.2 million annually in the past five years, all paid from tourism tax collections — it is unable to catch up on deferred maintenance or capital investments.

"A significant portion of [Spirit's] infrastructure is nearly 50 years old, and investment in maintenance of this aging resource has been sporadic to nonexistent," beyond what's needed for safe operations, the task force report said.

A full year of winter and summer visitors at the recreation area brings $22.4 million to the local economy and supports the equivalent of 300 full-time jobs, according to SE Group.

If capital improvements are made over the next several years and more visitors follow, by 2024 that local impact could rise to nearly $40 million in economic benefit and 500 full-time-equivalent jobs, the report says. SE Group said a high investment level is recommended "based on a strong rate of return and increase in the value of Spirit Mountain over 10 years." Investing less would either not be cost-effective or result in only a "modest increase in value," the consultants found.

Increasing tourism tax payments to Spirit Mountain would likely mean other entities see less or no money; the pandemic has already caused a number of attractions to miss out due to declines in tourism tax collections.

Forsman said public trust needs to be rebuilt if more public money will be sent to the recreation area — which could include requests for state bonding dollars.

"The SE Group was pretty clear with us that over the many years of Spirit's operations, there have been times it has been poorly run," he said, which has at times fallen on the city, the executive director and the mayor-appointed board that oversees Spirit Mountain. "The numbers clearly show [investment] is the right thing to do, but none of it works unless you fix your leadership."

Spirit Mountain interim Executive Director Ann Glumac was appointed last fall after Brandy Ream left the post following a five-year run at the helm. The pandemic-influenced season has been busy, Glumac said Monday, but she was not able to say if the recreation area would end the year in the black.

Beyond public support and leadership, the task force over the past seven months also took a close look at how Spirit Mountain is owned and managed.

The possibility of selling the mountain was quickly taken off the table after the task force found that the federal laws governing how Spirit Mountain was formed would deeply complicate its sale.

The mountain will likely remain city-owned, but how it is operated remains in question. Proposed are the status quo — city owned and operated; bringing in a nonprofit to run the mountain, or offering a long-term lease to a private operator. Again the task force made no recommendation beyond listing strengths and weaknesses of the different options.

"The task force tried to narrow the focus to where the clear decision points are," said Forsman, who said he would back a call for proposals from potential operators.

On Monday night, task force leaders presented the report to City Council members, who asked how proposed investments differ from past projects and whether Spirit Mountain could be come self-sustaining. Council members signaled they may convene another meeting to go over the 243-page report before acting on any proposals.

Whatever the outcome, the city wants guarantees that mountain leadership will "be held accountable for strategic investment" backed by public money, the report said.

"I do support investing in Spirit Mountain to keep it viable," said Duluth Mayor Emily Larson. She declined on Monday to back any specific proposal the task force came up with before the public gets the chance to weigh in but indicated that the decisions in the weeks ahead will be long-lasting.

"I'm not interested in having a fistfight every year just to band-aid Spirit Mountain," she said. "This is a problem we're going to work on until we find a way to fix it."