Finance staff: Duluth has strengthened its financial position but faces deferred maintenance and outside‑funding dependence

Budget managers Missy Harold and Josh Bailey presented a Strong Towns “finance decoder” to the finance committee, saying the analysis — drawn from Duluth’s audited annual comprehensive financial reports for 2009–2024 — shows the city has made progress strengthening its overall financial position while facing key structural trade‑offs.

“Financial solvency is not a one‑time achievement, but an ongoing process of making informed decisions that balance today’s needs with long‑term sustainability,” Harold said as she opened the presentation. The pair walked the committee through multiple decoder graphs showing net financial position, asset‑to‑liability ratios, the years‑to‑repay debt metric and the share of the budget committed to past borrowing.

Josh Bailey emphasized that part of a mid‑decade dip in several metrics reflects accounting changes required by GASB 68 (pension reporting) and GASB 75 (OPEB), not a sudden cash‑flow shortfall. “For the 2015 audit, we had to implement GASB 68 … we had to book a multimillion dollar liability for the city share of their pension shortfall,” Bailey said, noting market returns and other policy changes later improved those lines.

The presenters said Duluth’s years‑to‑repay measure was low on 2024 data — a headline figure the staff described as showing recent improvement — but cautioned that reducing debt to improve that measure can create deferred maintenance pressures. “The trade‑off is deferred maintenance,” Harold said, adding that aging capital assets and replacement needs remain important budget considerations.

Staff also pointed to increased volatility in the city’s reliance on intergovernmental revenues after large, one‑time capital grants and federal COVID relief spending. Harold cited a roughly $4.27 million state bonding award for the Lakewood Water Treatment Plant and earlier American Rescue Plan funding as drivers of recent spikes, and warned that dependence on outside funding increases vulnerability to changing state and federal priorities.

Councilors asked when 2025–26 data would be added; Bailey said it will be incorporated after the city’s auditors finish their review and that some near‑term projects and grants could shift short‑term results. He also recommended splitting enterprise funds (utilities, parking) from governmental funds in some charts to provide clearer decision support.

The presentation concluded with staff saying the decoder is intended as a framework for tracking trends and informing future budget decisions — with more detailed revenue and payroll analysis to follow in upcoming sessions.

Next steps: staff said the next finance meeting will focus on revenues and later sessions will examine payroll and other major cost drivers as the city prepares a 2027 budget and sets the maximum property tax levy.