DULUTH – Layoffs, pay cuts, federal aid and a surge in summer revenue allowed the city to balance this year's budget, Mayor Emily Larson told the City Council on Thursday.

The outlook is improving for next year, but city officials are still forecasting more budget pain.

Larson said Duluth's previously estimated $25 million budget shortfall has shrunk to roughly $12 million, balanced in part with cuts across many areas. For instance, Duluth is expecting to collect at least $4 million less in tourism taxes, which will not be paid to local attractions that were pledged money at the start of the year.

The mayor's proposed 2021 budget would eat up about half of its $10 million budget reserves, money that would cover continued revenue shortfalls and increased health care and workers' compensation liabilities.

"It's really important to me that we are not balancing this pandemic-related deficit on the backs of taxpayers," Larson said Thursday.

Larson's proposal would increase Duluth's property tax levy by 3%, though new construction growth and assessors' increased estimates of certain properties will absorb much of the hike, sparing most home and business owners.

St. Louis County assessors raised the estimated value of commercial and industrial properties in West Duluth and downtown by a combined $100 million this year. Though officials previously acknowledged the potential hardships this creates for property owners during the COVID-19 pandemic, they said the change was "long overdue" as some parcels had not been reappraised for 10 to 15 years.

The levy increase would be used to fund reconstruction on a portion of the Lakewalk and a streetlight program previously approved by the council to replace a monthly fee.

Larson said the city plans to start bringing back some of its laid-off employees, though most library staff will not be called back yet. The city will not raise wages in 2021 except for step increases outlined in the contracts.

"It has been incredibly painful" to patch the budget holes the city has, Larson said. On Thursday, the mayor only discussed her plans for next year's general fund, which she would increase by 2% to $95 million.

Duluth City Council members will vote on a maximum tax levy at the end of the month and are slated to approve a final budget for 2021 in December.