Howie
Before Duluth raises 2027 taxes, Reinert must account for recurring $4.5 million savings
Is the $4.5 million retiree health care savings included in the projected deficit? How much is being redirected to the West Duluth maintenance facility? Is that commitment legally binding or discretionary? And why should that money not be considered before Duluth asks property owners to pay more?
Howie
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Why should Duluth property owners be asked to pay more when the city has created approximately $4.5 million in recurring annual budget capacity — an amount equal to nearly 82% of its projected $5.5 million deficit?
That is the central question Mayor Roger Reinert must answer when he releases his proposed 2027 city budget next Thursday.
The city’s own budget documents show that Duluth reduced its annual General Fund appropriation for retiree health care to approximately $3.5 million after investment gains and a new funding strategy strengthened the city’s Other Postemployment Benefits trust.
The reduction freed approximately $4.5 million annually beginning in 2025. The savings continued in 2026 and, if maintained, would provide the same financial capacity in 2027 — approximately $13.5 million over three budget years compared with the city’s former contribution level.
The city has planned to redirect that recurring capacity toward a proposed municipal maintenance facility in West Duluth. The project may be necessary, but committing the entire amount to a future building while warning taxpayers of a $5.5 million operating deficit demands a complete public explanation.
Before proposing a higher property tax levy, reductions in city services or both, Reinert’s administration should disclose whether the projected deficit already accounts for the lower retiree health care appropriation. If it does, the city must explain why the resulting $4.5 million was committed to the maintenance facility instead of being considered as one option for reducing immediate General Fund pressure.
If the savings are not included in the deficit calculation, the publicly stated $5.5 million gap overstates the city’s actual financial problem.
Either way, the money cannot be excluded from the budget discussion.
Reinert said he would not disclose specific recommendations before releasing the draft budget.
The City Council is scheduled to receive a formal budget and maximum property tax levy presentation Sept. 10 following its 5:15 p.m. agenda session. Councilors will hold a daylong budget retreat from 9 a.m. to 3 p.m. Sept. 11 at the Duluth Entertainment Convention Center.
The proposal will begin Reinert’s third annual budget process as mayor and his most consequential. He has repeatedly warned that city expenses are growing faster than recurring revenue and that maintaining existing operations is unsustainable.
Reinert told WDIO that Duluth’s recurring revenue is expected to grow by approximately 1% in 2027 while expenses rise approximately 5.5%, producing the projected $5.5 million shortfall.
The city’s underlying forecast shows recurring non-property-tax General Fund revenue increasing from approximately $85.1 million in 2026 to $86.2 million in 2027. That is an increase of approximately $1.1 million, or 1.3%.
The forecast produces greater overall revenue growth only by assuming a substantial increase in property tax collections. The modeled property tax line rises from approximately $28 million in 2026 to $33.1 million in 2027, an increase of more than $5 million.
That is not yet Reinert’s formal levy recommendation. It demonstrates, however, how heavily the preliminary forecast relies on property taxes to close the gap between slow revenue growth and rapidly rising expenses.
The retiree health care savings must be considered in that context.
Duluth established its OPEB fund in 2007 to accumulate money for an irrevocable trust covering future retiree health care costs. The city initially contributed $10 million from its Community Investment Trust Fund and supplemented it with money from enterprise funds and other sources.
The OPEB trust’s market value nearly doubled after 2018 because of investment gains. City officials subsequently worked with the Minnesota State Board of Investment on a strategy to secure future cash flows and take advantage of higher interest rates.
The result was significant. According to the city’s 2026 adopted budget, Duluth reduced its annual appropriated amount for retiree health care to $3.5 million, saving the General Fund approximately $4.5 million annually. The trust held approximately $112 million at the end of 2025.
The reduced appropriation does not mean Duluth’s retiree health care obligations have disappeared. An actuarial report projects benefit payments extending for decades as eligible employees retire and receive coverage. Payments eventually will decline as the remaining eligible participants reach the end of their benefit periods, but the city has not identified a specific year in which the remaining annual contribution will end.
The breakthrough nevertheless created real, recurring financial capacity.
The 2027 budget should identify that capacity on a separate line, explain how it has been treated in the deficit calculation and state precisely how much Reinert proposes to direct toward the West Duluth facility. It also should disclose whether that allocation is legally restricted, formally committed by previous council action or remains a policy choice that the mayor and council may reconsider.
The distinction matters. A legally restricted revenue source may not be available for general operations. An administrative priority can be changed.
A maintenance facility is a long-term capital investment. Police protection, fire response, street maintenance, libraries and other municipal operations are immediate public services. The administration and council must determine how to balance those needs, but taxpayers deserve to see the alternatives before being told another levy increase is unavoidable.
Reinert confronted a projected $7.3 million deficit while building the 2026 budget. He initially recommended an “inflation-only” 2.7% increase in the city’s property tax levy. The council ultimately approved a 3.5% increase.
The final budget addressed the deficit through revised revenue estimates, overtime management, one-time funding, vacant-position reviews and reductions in the city workforce. The 2026 budget book says revenue projections were increased by $1.4 million and expenses were reduced by $4.2 million.
Reinert said after the council’s December vote that the higher levy would make the following year’s budget more difficult, increasing the then-projected 2027 deficit from $5.4 million to $5.8 million. The administration has since publicly discussed a projected gap of approximately $5.5 million.
Reinert reinforced the seriousness of the city’s financial position during his March State of the City address.
“The challenges that Duluth faces are real. The math is real. The decisions we need to make will not be easy,” Reinert said. “We will either pay substantially more for things, or we will do far fewer things. But status quo is not an option. There is simply no property tax levy big enough.”
The math is real. But it must include all the math.
Reinert’s first budget proposal as mayor limited levy growth to new construction and expansion of the tax base. The council unanimously approved a maximum levy increase of 1.85% for 2025, producing no increase in the city tax rate for existing property owners. It was Duluth’s first flat city levy in a decade.
He moved to an inflation-based approach the following year as labor, material and operating costs increased. The city also faces growing personnel expenses under recently negotiated labor agreements. Its largest bargaining unit received a 4.5% wage increase in 2025, followed by a 6.5% increase and applicable step increases in 2026 and another 6% increase scheduled for 2027.
The city estimates the agreements will add approximately $9.9 million in personnel costs over three years. Fire Department overtime and employee medical benefits are creating additional pressure.
Those are legitimate expenses. So is the need to replace or consolidate aging municipal maintenance facilities. But none relieves the administration of explaining how it is using the $4.5 million in recurring capacity created by the retiree health care funding change.
The Sept. 10 presentation will begin the council’s formal consideration of the maximum property tax levy. Once the preliminary levy is certified, councilors may reduce it but cannot increase it. The council will spend the following months reviewing departmental budgets, staffing, revenues and service levels before adopting a final budget and levy in December.
The council, not the mayor, holds final authority over both.
The first test will come Thursday. Reinert’s proposal should clearly answer four questions: Is the $4.5 million retiree health care savings included in the projected deficit? How much is being redirected to the West Duluth maintenance facility? Is that commitment legally binding or discretionary? And why should that money not be considered before Duluth asks property owners to pay more?
Until those questions are answered, any claim that Duluth faces an unavoidable $5.5 million budget gap is incomplete.