There are at least three things keeping the City of Duluth running: a tourism tax, a sales tax, and a property tax.
But the shutdown of Minnesota’s economy due to the novel coronavirus, and the health risks incurred by it, have put cities like Duluth and county governments across Minnesota in a bind: there is no tourism, there are effectively no sales, and several counties have delayed property taxes.
“We are being financially decimated by the absolute drop in revenues as a result of the impact of COVID on people’s lives,” said Emily Larson, the Mayor of Duluth. Since the outbreak was declared a pandemic, the city has laid off around 100 people. That includes two thirds of the parks department, who keep the city’s trees, public trash cans and bathrooms maintained; and 25 public library technicians, who help people use the library facilities.
The hope from city, state, and county officials like Larson is that Congress will allocate additional assistance. Minnesota received more than $2 billion from the CARES Act, federal legislation passed in response to COVID-19. But only three government bodies qualified for direct aid: the state, Ramsey County, which contains St. Paul; and Hennepin County, which contains Minneapolis. Government bodies that support less than 500,000 people didn’t qualify for funding, meaning even the four largest cities in Minnesota — Minneapolis, St. Paul, Rochester, and Duluth — received nothing.
While Gov. Tim Walz has vowed to distribute some of the state funding from the CARES Act to cities, Minnesota’s elected officials at all levels have acknowledged they have nowhere near enough money to keep services fully running and ready for a post-shutdown world. As of now, a large number of them say the only hope is another round of substantial federal funding, which as of last week, doesn’t seem to be anywhere close to happening.
Rochester loses Mayo business
A few hours south of Duluth down I-35, Rochester is struggling too.
Before COVID-19 changed the city’s every-day, Rochester opened up a warming center to house homeless residents during the colder months. But because of the virus, Rochester Mayor Kim Norton said there was suddenly a situation where a 30 bed shelter with bunk beds and tight quarters was no longer feasible, which meant an immediate need to find another solution and a need for more money to fund it.
“We’re really disappointed in that the response only funded money to counties of 500,000. That sort of left out Olmsted County,” said Norton, who represents a city of just over 100,000 people. Norton also previously represented District 25B, the northern portion of Rochester, as a DFLer in the Legislature. “We’re applying for everything we can, but when the money is coming directly to your state, we need to be able to get our hands on it,” Norton said, adding: “I’m very frustrated.”
Before the state effectively shut down, Rochester was also home to temporary visitors from all around the country receiving medical care from the Mayo Clinic. But when the virus prompted statewide closures and reduced travel, so went the industry that surrounded the Mayo Clinic: the Rochester hotels, the Rochester restaurants, and the Rochester shops. “So all the employees that worked in the hospitality industry really surrounding the Mayo Clinic… suddenly were unemployed,” Norton said.
Because of rapid increase in unemployment, the city established a food program to support those that need it. And last weekend, Norton said, over a thousand people showed up.
“[Congress] need[s] to get a bill that they can all agree to and sent out to cities and counties throughout the state,” Norton said. “They need to do it quickly, because we don’t have the coffers to be able to continue to provide. We’re not providing enough support [as it is]. We’re providing some.”
Aid to counties inadequate
Of over $2 billion sent to Minnesota from the CARES Act, $96 million went to Ramsey County. But even with it, Ramsey County Commissioner Toni Carter described the situation as “pretty dire.”
Carter said she’s grateful that Ramsey County, like Hennepin County, could receive some money directly appropriated by Congress. “We know that the first needs that will come out of the $96 million provided to Ramsey County will go toward assistance to individuals and families who are struggling right now to maintain homes or food on the table,” said Carter.
Carter sees not only a need to address these immediate problems using the money from the federal government, but to be prepared to help stimulate the economy and help rebuild Ramsey County’s infrastructure when it comes time. And that’s going to require more money from Congress.
“Housing problems exist all the time,” she said. “You know, this is nothing new that people are homeless and need assistance. Of course it’s aggravated and it’s gaining attention. But this problem was with us before COVID and it will be with us after as well.”
As a member of the National Association of Counties, Carter is cognizant of the issues that face not just Ramsey County, but counties around the state as well. “Counties above 500,000 have received this initial assistance and they’ll need more,” she said. “Other counties with populations under 500,000 have not received anything to address these needs.”
And even with the initial CARES Act funding, Commissioner Carter is worried about the revenue that keeps services functioning in Ramsey County. The county has been unable to collect on property taxes that were due on the 15th of May and the shortfall is compounded by the fact that while money from the CARES Act can generally be spent on coronavirus-related expenses incurred between March and the end of 2020, it can’t be spent to replace revenue lost from the COVID recession.
“What we anticipate needing through the end of the year is not just the $96 million that we were appropriated directly, but resources far beyond,” Carter said. “I cannot calculate, you know, what will be required to get us through this.”
Minnesota state budget also precarious
When the CARES Act was passed, Congress suggested that 45 percent of states’ shares of the money go to local governments. But it did not require it. Earlier this month, the Legislature tried to pass legislation directing Walz to distribute that percentage — $667 million — to cities and counties. A proposal from the Senate GOP bill would have forced Hennepin and Ramsey to share their money with their cities. And a bill from the House DFL would distribute the money using a per capita formula. Neither bill was signed into law, leaving the Walz administration with all of the power to decide how the money is distriburted.
Walz said he plans to distribute some of the money to cities, but prefers to distribute the funds on a per capita basis and to maintain a reserve fund to target hotspots and emergent needs via grants.
In addition to the state CARES Act funding, various state and local entities — health services, transit, public health, public school and colleges — received another $900 million from the CARES Act. And Minnesota’s tribal governments are currently in the process of determining how much funding they will get, after a lengthy delay.
But even with the CARES Act funding at the state level, Walz said his administration has begun to cut spending.
“We’ve done hiring freezes. My staff and all commissioners took a 10 percent cut when this started,” he said. “But layoffs are counterproductive, at least in the short term, because paying severance and sick time would eat up savings.”
He said the state has asked some employees to take leave and is not hiring for vacancies in non-essential jobs. But he said many departments — revenue, natural resources, economic development and employment security for example — are “as busy as they ever are.”
While Minnesota is facing deficits, it has a rainy day fund sizable enough to cover projected shortfalls, especially if it can shift some recent appropriations to CARES Act money. The state’s Office of Management and Budget said they will have a better understanding of its budget situation when they again update their forecast in August and again in November.
As for what comes next, Walz is not counting on another immediate round of funding from Congress. On a recent call with six other Midwestern governors, Walz discussed what and when future funding from Congress would look like.
He said there was a split in optimism. On one side, five of the governors were hopeful that congress would appropriate more funds quickly. On the other, the only two governors that had previously served in congress: Walz and Gov. Mike DeWine of Ohio.
“The other five seemed a lot more optimistic about this than the two of us,” Walz said. “We’ve been there.”
Holding out for HEROES
On Friday, the U.S. House passed a follow-up to the last major coronavirus response package, the Health and Economic Recovery Omnibus Emergency Solutions (or HEROES) Act. The centerpiece of the $3 trillion dollar bill is more than $1 trillion for state and local governments.
Carter of Ramsey County said that money like that is a “really, really big deal,” because the county needs funds that don’t just respond to COVID-19, but that help replace lost revenue. Larson in Duluth also took notice: “The HEROES Act just recognizes that of the services that cities provide that are funded by these revenue sources that immediately stopped. So that was really hopeful to me.”
But the bill mostly passed along party lines, with all three Republicans in the Minnesota congressional delegation voting against it. “For weeks, I have heard from countless Minnesotans from all walks of life who are struggling in the wake of this pandemic,” Rep. Pete Stauber, who represents Duluth in congress, said in a press release after voting against the bill. “That’s why I find it deeply offensive that Speaker [of the House Nancy] Pelosi has put forward a three trillion-dollar package that has much more to do with partisan politics than COVID-19 relief.”
Similarly, Rep. Jim Hagedorn, who represents Rochester in Congress, called the bill “unserious.” A few days prior to the vote, Hagedorn said that a conservative approach to funding cities might be worth looking at. “As far as what the state is looking for, I’m sure they and a lot of municipalities are looking for the federal government to help,” he said on KEYC. “We want to be fair to everybody, but the federal government’s just expended over $2 trillion, and at some point we have to be mindful.”
House Republicans have presented no alternative proposal for state and local funding. In recent weeks, Republicans have not negotiated with Pelosi to put any new legislation on the floor. “We all have governors regardless of party who would love to have free money,” Senate Majority Leader Mitch McConnell said in late April. “And that’s why I said yesterday we’re going to push the pause button here, because I think this whole business of additional assistance for state and local governments need to be thoroughly evaluated.” In recent weeks, McConnell’s office has also called additional money to states “Blue State Bailouts.”
On Tuesday, Rep. Angie Craig said McConnell clearly has not been talking to people on the ground.
“I don’t know what planet Mitch McConnell is living on if he’s not talking to mayors and county commissioners who are describing the additional cost and reduced revenue as a result of COVID-19,” Craig said. In early May, the Second District Congresswoman sent a letter to leadership in the House and Senate asking for COVID-19 relief for small and mid-sized towns, cities, and counties. 47 mayors and county commissioners in her district signed on. “We urge you to look to H.R.6467, the Coronavirus Community Relief Act, as a guide as you consider aid to local governments,” they wrote. “This bipartisan bill provides $250 billion in targeted aid for communities with populations under 500,000.”
That change was included in the HEROES Act, which is currently on McConnell’s desk awaiting a vote it will likely not receive.
While she did follow the HEROES Act, Larson, the Mayor of Duluth, said she can’t risk getting caught up in the politics of Congress. All she can do is advocate for her city, lay out the problems clearly and honestly, and make it hard for people to say no.
But considering the circumstances, she isn’t hopeful. “I can’t hold out hope that we’re going to be getting money,” Larson said. “It’s been months now and we’re not getting any financial support.”
Peter Callaghan contributed reporting.