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Duluth benefits fix bill may expand to other cities

ST. PAUL -- A Minnesota legislative proposal to help Duluth city officials cover a retirement benefits fund deficit could expand into one to help other local governments in similar positions.

"We can use their bill as a vehicle to help us with our statewide problems," Rep. Gene Pelowski, DFL-Winona, said Wednesday after his government operations committee unanimously sent the Duluth measure to another panel.

That's not what Duluth wants. It wants to solve its $309 million deficit soon.

"There ought to be a bigger bill," Rep. Tom Huntley, DFL-Duluth, said. "But the issue is very urgent in Duluth."

A Senate committee also passed the bill Wednesday and it could be up for a vote in the full Senate next week. The House bill could take a longer time, both because it has more committee stops before reaching a House vote, and it could be combined with a bill expected to be written next week to help plug a $4 billion statewide deficit in retirement plans statewide.

A proposal to help Duluth failed at the end of last year's legislative session and supporters want it to pass early this year because, they say, Duluth's retirement benefit deficit increases by thousands of dollars a day.

Duluth Finance Director Genie Stark told senators and representatives legislative action is part of a six-step plan to solve the problem.

"We are not looking for state funding," she testified. "We will fix this problem ourselves if you give us the tools to do so."

The bill committees passed Wednesday would allow the State Board of Investment to handle Duluth health-care retirement benefits. Stark said that would give the city about a 10 percent return on its investments instead of the 5 percent now received. Cities are limited in how they can invest funds, she added, which lowers the rate of return.

That change alone would cut Duluth's deficit to $159 million, Stark said.

The problem arose when the city in 1983 began offering retirees health insurance. However, Huntley said, the city never adequately funded the benefit.

"If you ever wanted Enron accounting, this is it," Huntley said. "Two mayors did absolutely nothing about this."

Some House members were concerned that the state would be on the hook if Duluth did not invest enough money, but Stark and the state's investment experts said Minnesota would not be liable.

Pelowski and others said they did not want each city and school district with a problem to move their own bills through the Legislature.

Discussion about the Duluth proposal came a day after the Office of Legislative Auditor reported cities, counties and school districts around Minnesota have problems similar to Duluth, with a $4 billion deficit. That spurred demands that the state get involved.

Pelowski said a bill will be introduced soon to help other local governments' retirement funds get the better return that the state receives.

"This (Duluth) bill cannot be discussed in isolation anymore," Pelowski said in an interview.

Sen. Yvonne Prettner Solon, DFL-Duluth, said "we will have to talk to him" about the importance of Duluth's plan going on its own.

Senators joined Solon in saying action is needed soon.

Sen. Chris Gerlach, R-Apple Valley, said he could not understand how Duluth could face a $309 million deficit, when its annual budget is $78 million.

"That's staggering," Gerlach said. "That is unbelievable."

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.