Mayor's budget doubles down on streets

Duluth, Minn., Mayor Emily Larson knew she had to make some tough decisions heading into next year, with the city facing a $3.2 million budget deficit and residents crying out for better streets.

On Monday night, she delivered to the Duluth City Council a budget proposal that would increase the levy by 4%, trim 20 positions from the city's workforce and boost funding for local street improvements by $1 million.

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For the owner of an average-priced $160,000 home, the proposed levy would increase the tax burden by $21 in 2018.

Larson's plan would elevate general fund spending on city streets from the current level of $2.8 million to $3.8 million next year — a sum that she characterized as "still inadequate."

Some of that money, about $1 million, will go to service the city's street bond debt, leaving the Duluth with $2.8 million for actual work.

In a separate proposal she brought forward last week, Larson also is seeking support for a half-percent increase in Duluth's sales tax — a move that would generate an estimated additional $7 million earmarked exclusively for street improvements.

That sales tax proposal will be put to a local referendum vote and the results will then be considered by the Minnesota State Legislature, which would make any final determination whether to authorize an increase in the sales tax Duluth collects.

The combined effect of Larson's budget and her proposed sales tax would be to generate a street improvement program with a $10.8 million annual budget.

Larson presented her budget proposal to the council Monday — two to three weeks earlier than usual — in order to inform a local discussion about the pending sales tax referendum.

"While tonight my focus is on our budget and not the referendum, the two are inextricably linked. Because I could not, in good conscience, ask our public to support a new sales tax without demonstrating the internal discipline required to prioritize it ourselves."

Larson explained that local government aid the city receives from the state has remained relatively stagnant, while the city's expenses have continued to grow with inflation. The rising costs of health insurance also have taken a toll on the city, with another increase of 10 percent anticipated next year.

"Simply put, to keep steady as an organization, we need to find ways to cut spending each year," she said.

"Because of my commitment to increase street funding using these same stretched and stressed general fund revenues, as a team we needed to address both the $3.2 million deficit and the $1 million I require for streets," Larson said.

Toward that end, she laid out a plan to cut the city's expenses by $2.1 million in 2018.

"Every single director made very difficult decisions, and in this budget, every area is impacted, including public safety," she said.

Larson said her own department and the city attorney's office will take the biggest hit, cutting its staff payroll by more than 9.3 percent.

Citywide, Duluth would cut staff spending by $2.1 million -- or about 2.5 percent -- under Larson's plan. The Duluth fire and police departments would see staff reductions of about 2.4 and 1.6 percent, respectively.

David Montgomery, Duluth's chief administrative officer, expects most of the trimming to occur as people retire or move on to other jobs and by leaving currently vacant jobs unfilled. Some existing staff also may be reassigned to different duties.

"We very well may get to the end of the year and be able to cover all if not close to all of these positions. But there may be a small handful that we would have to do with position eliminations," he said.

Montgomery said the wages of city employees have grown by an annual average of a little less than 2 percent since 2012.

In putting together the budget, Larson said her team took a long-term approach that looked at "how can we cut our costs as an organization in a way that's sustainable."

"So these aren't one-time savings," she said. "This money's not coming back."

In a departure from her cost-cutting message, Larson proposed the city make a one-time investment of $895,000 in a community solar garden, using a portion of the city's $13 million general fund reserve.

Montgomery predicts that investment would pay dividends for years to come.

"We're essentially locking in favorable electric rates out into the future," he said.

In the first year alone, Montgomery estimates Duluth will save $70,000 in electric bills as an investor in Minnesota Power's community solar garden.

"Essentially, you're investing that amount going in, and our rate of return on this is somewhere in the range of 7 percent or so, which is a pretty good rate of return," he said.

Duluth's budget ultimately will be approved by city councilors, who are expected in September to set the maximum levy level allowed.

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