FFM Bulletin 8/27/08

FOR SALE: City of Duluth

Facing a $6.5 million budget deficit, the City of Duluth has found a novel way to raise revenue: a fire sale.

If all goes as planned, the city will soon be selling a Tiffany stained glass window, a historic lighthouse, some land near Park Point Recreation Area, and just about anything else of value, all to the highest bidder. The city council voted early Tuesday morning to authorize the sale of the stained glass, which is expected to sell at auction for one to three million dollars.

While the prospect of wiping out nearly half of the budget deficit with the sale of a single window may be good news for the city's short-term financial situation, there's little else to be hopeful about for Duluth taxpayers. The city managed to run up the $6.5 million deficit this year with a total general fund budget of just over $80 million. And 2009 looks even worse, with a projected $8.5 million deficit.

Clearly, Duluth's financial mess is not a short-term problem, and it won't be solved with a bake sale and raffle. There are serious systemic problems at the city, which has a shrinking population, a massive pension liability for retired city employees, spending that has ballooned out of control, and too many questionable funding decisions to mention.

Duluth's spending (excluding debt service, interest, and capital outlay) increased from $74.2 million in 2004 to $94.4 million in 2007, a 27-percent jump. During that same time period, spending on "culture and recreation" increased by 70 percent. And only now are Duluth city leaders reconsidering the wisdom of their massive annual subsidies for the city's aquarium and dog sled race. Meanwhile, city residents are hit with massive tax increases nearly every year. The city raised its tax levy by 6.5 percent in 2007 and another 10.9 percent in 2008; if not for a state-imposed levy cap, there would likely have been an even bigger double-digit tax increase for 2009.

And with a rapidly aging population, time is not on Duluth's side. The Minnesota Office of Geographic and Demographic Analysis projects the following changes by 2030:

  • 20- to 24-year-old population will decline 17.6 percent
  • 25- to 29-year-old population will decline by 11.2 percent
  • 20- to 39-year-old population will decline 3.2 percent

In other words, if city leaders intend to continue their fiscal recklessness, they'll need a lot more than a stained glass window to bankroll it. Raising taxes and increasing spending while your population ages and shrinks isn't merely irresponsible, it's completely unsustainable. In the end, that may be the only good news for Duluth taxpayers.

Plymouth's Dial-A-Ride transit program costs taxpayers $17 per ride

The City of Plymouth is looking to reform its Dial-A-Ride program to save some money. Dial-A-Ride is a curb-to-curb transit service that shuttles Plymouth residents anywhere in the city as well as locations in Minnetonka, Wayzata, Golden Valley, and New Hope. The service is available to all Plymouth residents and their guests.

Dial-A-Ride users are charged a one-way $2 fare, regardless of the trip length. Unfortunately, in 2007 it cost the city approximately $17 per trip to operate the Dial-A-Ride program. The $15 difference was covered by the city's portion of Motor Vehicle Sales Tax (MVST) revenues. With a total of approximately 65,000 total rides last year, the total taxpayer subsidy for Plymouth's Dial-A-Ride program was nearly $1 million.

And it gets worse. By June of this year, the subsidy-per-passenger had climbed to $16.87. In other words, the "farebox recovery" (or the portion covered by passenger fares) is now just over 10% of the total cost, with the taxpayer subsidy approaching 90%. The combination of rising fuel costs, declining MVST revenues, and comparatively low fares have taken an already heavily subsidized program and made it virtually unsustainable. Plymouth is just one of many Twin Cities communities to offer the Dial-A-Ride service, and according to the Met Council, the fare for most of these services is under $3. Riders are also given the added benefit of free transfers to any Metro Transit bus.

Plymouth is considering raising fares and reducing service, while some city leaders have recommended eliminating the program altogether. The most popular options on the table - raising fares to $3.50 and eliminating Saturday service - would merely staunch the bleeding, not solve the problem. Eliminating Saturday service would save less than $50,000 each year and raising fares would, in the words of one city council member, be "like taking a spoonful of water out of the Pacific Ocean."

Minnesota By The Numbers on the way

Thanks to everyone who requested a copy of Minnesota By The Numbers. We are processing all of the requests and will have the books in the mail shortly. If you have not yet requested your free copy of Minnesota By The Numbers, e-mail Jonathan Blake with your mailing address.

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