Duluth passes budget with plan to draw $3.8 million from reserves

DULUTH – The City Council on Monday passed a 2021 budget that will use $3.8 million in reserves to fill a pandemic-fueled gap in the city's $94 million general fund.

The council unanimously approved a roughly $330 million total budget, which will be funded in part by a 2.98% property tax levy increase — a $1 million hike over 2019. Officials have said the increase will be mostly absorbed by new construction growth and increased property assessments, sparing many home and business owners.

Duluth's financial state is less dire than some leaders expected earlier in the year, when the city announced it was facing a budget shortfall up to $38 million due to COVID-19.

In response, Duluth temporarily laid off employees, asked union workers to take unpaid days off, cut back street projects and delayed a snow emergency initiative. The city has since hired back all furloughed employees and a hiring freeze was lifted, a spokesperson said.

Duluth's tax revenue streams ended up performing better than officials predicted at the pandemic's onset. The city is the only one in Minnesota with a sales tax that feeds its general fund, and officials worried in April that Duluth could lose up to $7 million in collections because of COVID-19. They now expect to end the year down $1.4 million, or 10%, in sales tax revenue.

Council Member Derek Medved on Monday thanked city staff for "the work they did when things looked impossible."

The city has $10 million in general fund reserves, which Mayor Emily Larson has described as crucial to protecting taxpayers from the pandemic's financial impacts.

"I'm pleased to vote for what I consider to be a responsible living increase this year … at a time when a lot of our local residents and local businesses are themselves struggling through hard times," Council Member Joel Sipress said.

Officials anticipate Duluth will bring in about $9 million in tourism tax revenue in both 2020 and 2021, a 25% drop from the levy collected from hotels, bars and restaurants in recent pre-pandemic years. Several local attractions that previously received tourism tax dollars have been told not to expect funding from the city in 2021.

Duluth's $24 million police budget is roughly the same as it was in 2020, despite some calls to remove funding from the force as Minneapolis and St. Paul make cuts to their law enforcement budgets in the wake of the killing of George Floyd.