By John Ramos
In the past decade, the tourism industry in Duluth has seen construction of the Great Lakes Aquarium, construction of Bayfront Park and two DECC expansions. All of these attractions, plus the Spirit Mountain ski area, are supported by the tourism tax. The money to market them also comes from the tourism tax, which funds the budget of Visit Duluth, the city’s tourism bureau.
When times are good, perhaps, it is possible to view the parade of large tourism projects as being a sign of the underlying health of the city. When times turn bad, however, the paths of the city and the tourism industry diverge sharply.
In the past year, as everyone is well aware, the city has taken a nosedive financially. The city’s workforce has been cut, and cut again. Libraries have cut their hours. Community centers have closed their doors. City assets have been put on the auction block. Parking meter rates have gone up. The zoo has been turned over to private hands. Scarcely a day goes by, it seems, that some new financial difficulty does not appear in the headlines.
During the same period, the DECC has begun an $80 million expansion, Spirit Mountain has approved a master plan whose near-term elements are expected to cost more than $19 million and Visit Duluth has seen its budget increase to $1.5 million per year.
Large tourism projects in Duluth forge ahead steadily not only because they are subsidized by the tourism tax, but also because the city takes on debt for the benefit of large tourism projects. Whenever the city issues bonds for a project, the city assumes responsibility for the debt. Although tourism-related bond issues are often meant to be repaid from dedicated sources—for example, the latest DECC expansion is being financed with a 0.75 percent food-and-beverage tax—if those sources dry up or fall short, the city remains accountable.
Clearly, this arrangement is of enormous benefit to the tourism industry, in that it allows the industry to expand without risk. If any problems should arise—as happened, for instance, when the Great Lakes Aquarium failed—the city steps in to take responsibility.
On August 25, 2008, the city council unanimously approved Spirit Mountain’s master plan. The plan’s first order of business is the construction of a pipeline from the St. Louis River to the ski hill to pump water for snowmaking. (Currently, Spirit Mountain uses treated city water for snowmaking.) The pipeline project, with a price tag of $4.2 million, was given an unexpected boost when Mayor Ness invited Spirit Mountain to include it in the city’s recent request for economic stimulus funding from the federal government.
John Powers, a consultant working on the project, advised the Spirit Mountain board on January 22, 2009 that they should refer to the pipeline as a “water infrastructure project,” because water infrastructure sounded better than snowmaking. Spirit Mountain has asked for $6 million. At this time, no federal funding has been secured.
In addition to the pipeline, Spirit Mountain plans to build a new maintenance building, a new chalet, a new tubing hill, a new chairlift and a new parking lot. Money to help with these elements of the plan is being sought wherever it might be found—that is to say, from various levels and agencies of the government. Talks are being held with the Department of Natural Resources for a collaborative project involving runoff control on the hill. The new state sales tax approved by Minnesota voters and earmarked for conservation and the arts is also being looked at as a possible source of funding.
The tourism tax fund looms large in the minds of everyone involved. Currently, Spirit Mountain receives $225,000 a year from the tourism tax, which it uses to repay bonds for past improvements. This debt will be retired in 2012. Phil Strom, chair of the Finance Subcommittee for the current project, warned the Spirit Mountain board that if 2012 rolled around and they didn’t have any new plans for the money, it would “go away.”
Rather than waiting for that to happen, Strom wanted the city to double Spirit Mountain’s share of tourism tax now, to $450,000 a year. He urged the board to begin lobbying the city council for the increase at once. “This [ski hill] is a resource of the city, and there is an implied obligation to support the viability, from a capital perspective, of this resource, like any other resource that the city maintains,” Strom said. “The tourism tax request … is a real important aspect of implementing this immediate package.”
If the increase is granted, Spirit Mountain would use it to leverage $5 million of debt to help pay for the new chalet and parking lot. The loan would be serviced on an interest-only basis until 2012, and on a fifteen-year repayment schedule thereafter.
To put it another way: Spirit Mountain wants to double their tourism tax allocation for eighteen years and add $5 million of new debt to the city’s overloaded balance sheet. I predict that city leaders will eagerly tumble over each other, wagging their tails, to grant this wish.
The paradox of tourism in Duluth is that it is wildly successful, generating hundreds of millions of dollars in economic impact each year, but requires an endless supply of public money to function.