The Cloquet City Council voted to spend the vast majority of funding the city received from the COVID-19 economic stimulus package on salary expenses related to the COVID-19 pandemic.

The unanimous decision approved spending all but $2,367 of the nearly $1.2 million the city received on salary expenses for those unable to work, Cloquet Police Department salaries and salary expenses related to the coronavirus response.

The salaries and benefits for CPD during Gov. Tim Walz’s “Safer at Home” order from March 27 to May 17 made up approximately $734,000 of the total funding.

In addition, the city used just more than $200,000 to continue paying city employees unable to work during the shutdown — essentially creating the city’s own Paycheck Protection Program, according to city finance director Nancy Klassen.

“It's our economic stimulus program so that all the employees didn't have issues with unemployment ... or loss of health insurance and all those items,” Klassen said. “So we protected the employees that were not able to work — that was a big one.”

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In addition, the city used nearly $227,000 to pay the salaries and benefits of staff whose work focused primarily on planning or implementing COVID-19-related policies — like City Administrator Tim Peterson or Community Development Director Holly Hansen.

The moves, Peterson said, are intended to mitigate any pandemic-related revenue shortfalls or cuts to local government aid (LGA) from the state of Minnesota, though the state’s preliminary budget showed no immediate reductions in LGA.

“The state also hasn't figured out quite yet how this has fully impacted their budget and how it will impact their budgets moving forward,” Peterson said. “So what we're doing is we're planning against the potential for LGA cuts ... We would put any of those funds that are over our annual budget into reserves to protect against any future losses.”

City’s preliminary budget projects $1.5 million deficit

Peterson also presented the city’s preliminary budget and levy proposal to the council.

The budget projects a levy increase of $117,050, or about 3.85%, over the 2020 levy and a revenue shortfall of approximately $1.5 million.

The city’s expected revenue to be approximately $18 million in 2021 and revenues will be nearly $19.5 million. Peterson said the budget includes one-time expenses for police training and employees planning to retire in 2021. Other things causing expenditures to increase include scheduled pay increases for city employees and an expected 10% increase in health insurance costs.

While the deficit is striking, it isn't necessarily reflective of a budget problem but the timing of revenue and expenditures on capital projects, according to Peterson.

"A great deal of that comes from sales tax projects, where we have collected the money ahead of these projects so now we are spending it down," he said.

Instead of a $1.5 million deficit, Peterson said the city projects a net loss of just $37,500.

Many of the CPD 2020 trainings were canceled due to the pandemic and the city is budgeting for more required training in 2021. In addition, the budget allows for some overlap for retiring employees to help train their replacements.

Peterson also noted some good news with the budget. The net tax capacity of properties in Cloquet increased more than 5.1% for 2021, meaning some homeowners could actually see their taxes decrease if the value of their home is unchanged, according to Peterson.

Net tax capacity measures the taxable market value of homes and businesses in a community.

“If we were to raise the levy that exact same percentage — that 5.12% — as our tax rate, what we are charging will just remain the same,” Peterson said. “So somebody’s taxes might still go up, but that would be due to the value of their home.”

This story was updated at 8:37 a.m. on Sept. 9 with and updated estimated levy increase and details on the deficit provided to the Pine Journal. It was originally posted at 5:36 p.m. on Sept. 8.