The problem is a combination of Duluth's generous health-care package for retired employees and the ever soaring cost of health care bills.
According to city officials, it's critical to begin building a big enough pile of money now to cover future expenses. And, they say, the money needs to be invested well. That's where new legislation comes in.
"If this for some reason doesn't pass, we're going to be in a lot of trouble," says Duluth Mayor Herb Bergson.
Duluth faces about $300 million of health care troubles over the next 30 years. That's bigger than the city's annual budget.
Bergson says the city can put away several million dollars every year to pay the bills, but even that won't be enough. Like other Minnesota cities, Bergson says, state law limits Duluth to investments that are returning around 3 percent a year. But the state is getting better than 11 percent on its long-term investments. Compound that kind of interest for 30 years and you get a lot closer to paying the bills.
“If this for some reason doesn't pass, we're going to be in a lot of trouble.”Duluth Mayor Herb Bergson
"We need to rely on the more aggressive interest rate to be able to generate enough money to do it." Bergson says.
Duluth is asking the Legislature to create two accounts for Duluth with the State Board of Investments. The board invests state money, but it also handles other public pensions and investments for bodies like the University of Minnesota. A board official sees no problem creating trust funds for Duluth. It just takes the state's permission.
"I just applaud Duluth for trying to take on their issue," says Howard Bicker, executive director of the State Board of Investments. "It's apparently a pretty sizable issue for the city of Duluth, and they're making some efforts to take care of it."
What's planned is an irrevocable trust fund, dedicated to just Duluth's health-care costs. The city also wants a second less restrictive account to invest money it gets from from a Duluth gaming casino. That money goes primarily to street improvements.
This is the second year Duluth officials have lobbied for a dedicated trust fund. A similar measure last year was on track, but Sen. Yvonne Prettner Solon, DFL-Duluth, says it derailed.
"In the last days of the 2006 session, the bill that was to be the vehicle for our Duluth amendment was pulled from the calendar, and so we're having to come back again this year," says Prettner Solon.
Duluth isn't the only Minnesota city hoping to invest better for retiree health care. New public accounting rules are snaring scores of cities, counties, and school districts that have no clear plans to pay for non-pension benefits like health coverage. For those public bodies there's hope in a second bill expected soon.
"It includes all the other entities, the different communities that have other outstanding obligations like the city of Duluth has," Prettner Solon says. "I have asked, however, that they not amend our bill, that they let our bill proceed unimpeded, so that we can get this fix started as quickly as possible, and they've agreed to do that."
One of the second bills supporters is Gary Carlson, a lobbyist with the League of Minnesota Cities.
"About 20 percent of local governments offer some sort of a post-employment benefit, that is in addition to a pension benefit," Carlson says. "So the number of local units of government affected is relatively small, so to speak, but nonetheless, it is important for cities like Duluth and other local governments that do offer the benefits."
Carlson says the more encompassing bill may be offered next week. The Duluth specific measure goes first to the House Governmental Operations, Reform, Technology and Elections Committee. The Senate version goes before the Senate State and Local Government Operations and Oversight Committee.