City of Duluth, hospitals faced financial woes due to pandemic

By Andee Erickson aerickson@duluthnews.com

Early in the pandemic the financial outlook for the Duluth-based health care systems and the city did not look bright.

In March, the largest employer in Duluth, Essentia Health, laid off 500 non-medical employees. Then in May, the health care system announced it was laying off another 900 employees, or 6% of its workforce, to continue making up for revenue lost during a decline in patient volume last spring.

Under Gov. Tim Walz’s executive order restricting elective surgeries so hospitals could reserve resources, hospitals all over the state faced major revenue declines, making Essentia Health far from alone during the early pandemic battle.

The Duluth hospitals received millions in federal Coronavirus Aid, Relief and Economic Security Act dollars in the spring. Still, their leaders said it wasn’t enough to make up for all the lost revenue.

St. Luke’s hospital in Duluth received more than $9.9 million, Essentia Health’s St. Mary’s Medical Center in Duluth took in over $9.9 million and Essentia Health’s SMDC Medical Center in Duluth received more than $8.6 million,

The governor lifted that order in May, but Northland doctors and health care systems continued to remind patients through the summer and into the fall that they should seek the care they need and not fear going to a hospital.

Around that time, the city of Duluth was originally anticipating a $25 million revenue shortfall in the city’s 2020 general budget of $92.9 million. In April the city laid off 45 temporary and largely seasonal employees. That followed with another layoff round of 49 employees, 25 of which were library technicians.

Mayor Emily Larson, City Council President Gary Anderson and Councilor Arik Forsman all took voluntary pay cuts. To further help heal the budget holes, Larson proposed auctioning off a pair of historic, stained-glass Tiffany windows. The council ultimately ended that proposal by unanimously voting to designate the windows as a local heritage preservation landmark. The windows could have sold for upward of $3 million.

Since spring Larson has said the budget shortfall caused by pandemic will won’t be as bleak as what was projected. The city has avoided dipping into its reserve funds in 2020.

In September, Larson proposed drawing on $4 million in reserves next year to avoid raising property taxes during a pandemic. That would leave more than half of the reserves untouched.

Nearing the end of 2020, the city’s finance director, Wayne Parson, projected the city would save about $3.5 million as a result of a hiring freeze, temporary layoffs, suspending hiring temporary and seasonal workers, freezing travel and purchasing as well as closing facilities.

Additionally the city received $6.5 million from the CARES Act.

However, the city still anticipates a decent amount of lost revenue in anticipated tourism tax collections. Early on, the city forecast that revenue would be off by 50%. That’s since changed to about 30%. To combat the revenue shortfall, the city will reduce allocations to tourist attractions and organizations appropriately. u