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Like many of our household budgets, things were looking good for the city of Duluth at the beginning of the year. Now the fourth largest city in Minnesota is bracing for a major budget shortfall.

The most recent projection shows Duluth could face up to a $38 million deficit, much of it due to COVID-19 expenses and a downturn in tax revenues. 

“Our general fund is around $93 million a year, so a $38 million impact is absolutely catastrophic,” Mayor Emily Larson said.

She spoke with MPR News host Tom Crann Wednesday. Hear their conversation using the audio player above or read a transcript below. It has been lightly edited for clarity and length.

What will that mean immediately for the city?

Some of that budget gap is money that we support our tourism industry with. That doesn't hit us directly, but it does hit us on the side. 

In the short term, we've laid off 100 staff, which is really very painful. These are dedicated public servants who commit themselves to a greatest good. And and we've held a number of other positions open, so we're down about 120 staff. We have closed facilities. We have closed one of our golf courses for the year. 

And that's just the start of some very difficult decisions ahead. I do not expect our budget to recover until the fourth quarter of next year, based on our market analysis. 

There was some criticism over laying off library workers. How are you making these decisions?

Personally, laying off librarians is just horrifying. And yet we have a new service of delivery that we will be expected to adapt to with changing times; facilities are not open physically, but doing virtual programs and curbside delivery. 

In that same layoff schedule where [also] parks maintenance staff, people who we rely on to make sure that parks are mowed and kept clean and all the things that people want in their parks system. 

It's not the position I want to be in, but it is the position we are in.

What is the biggest threat that is still looming? 

We are getting budget costs related to COVID-19 reimbursed. What we're not getting is the gaps that come in from sales tax, parking revenues, property taxes, utility costs, all of the other things that people are unable to pay. And so that creates real gaps in our budget. 

The biggest thing that's missing is support from the federal government to maintain healthy, strong cities. 

The CARES Act paid attention to the needs of business and the needs of workers, and I think that's important. It is now time to focus that attention to local levels of government that are truly on the front lines and on the ground meeting the daily needs of residents.

Where do you stand on reopening? Obviously, reopening some businesses would bring back some of the sales tax revenue.

You know, it's important to me that we protect the health of Minnesotans and so we [will] reopen very slowly. And while I understand the economic hurt that is causing, I understand even more that rushing through it puts us all at a greater risk, both financially and from the health perspective.

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The city’s coronavirus response and an expected drop in tax revenue could put the city $38 million in the red. That represents about 40 percent of its general fund.

The city’s coronavirus response and an expected drop in tax revenue could put the city $38 million in the red. That’s about 40 percent of its general operating budget.

Duluth projecting 'catastrophic' budget shortfall

Derek Montgomery for MPR News

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Duluth projecting 'absolutely catastrophic' budget shortfall

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