Cloquet Council fixes deficit, continues PLA talks

Cloquet City Councilors took action Tuesday to correct a large deficit in the fund that is used to pay for street projects, among other things.

Councilors approved the transfer of $435,000 from the city’s General Fund into the Permanent Improvement fund, wiping out a deficit from city street overlay projects in 2017.

The permanent improvement fund pays the city’s share of projects. That includes street projects, but also larger projects such as the Washington Avenue project, which also included water and sewer updates along with street work. For projects like that, the city transfers money into the capital projects improvement fund from the city’s sewer, water and permanent improvement funds.

City administrator Tim Peterson told councilors the transfer would bring the general fund reserves to 46 percent, noting that the target range for the general fund is generally 35-50 percent.

Although the vote was unanimous, Ward 2 councilor Kerry Kolodge had some doubts about the move and said he didn’t remember any transfers this high during his years on the council.

“I’m from the era of having 70-some percent in reserves,” Kolodge said, referring to the days when Brian Fritsinger was city administrator. “It probably was a lot, but I get a little nervous when you get down into the 40s. Can you reassure me?”

Peterson said 50 percent is a justifiable amount for a city to hold in reserve, and the staff report noted that the city’s fund balance policy and state auditor’s office recommend 35-50 percent of revenues be held in reserves.

“Because we get paid twice a year for property taxes and LGA (Local Government Aid) means we can go through six months on our reserves and be just fine,” Peterson said. “Anything over 50 percent, in my mind, begins to creep into ‘we are no longer using our reserves to reinvest into our community.’ While we’re running a city we want to keep property taxes as low as possible while also reinvesting into the community to keep our projects moving forward.”

City finance director Nancy Klassen, who has worked for the city for nearly 18 years, said having 70 percent in reserves provided the city more flexibility, adding that excess funds were transferred into the permanent improvement fund previously. However, she agreed that 50 percent was an adequate amount for reserves.

Klassen told the Pine Knot that the deficit was a combination of spending more on the extensive overlay project than the permanent improvement fund contained, and a change under city administrator Aaron Reeves that stopped transfers into the fund with the exception of street assessments and didn’t want to continue any levy for the permanent improvement fund.

Klassen explained the city had two years of big overlay projects at the time. One was funded by state aid; the other was funded by street assessments for other projects, but not enough had accumulated to cover all the costs.

“We knew it would go over,” Klassen said. “We had a plan to levy and transfer some money — that was my recommendation. But it didn’t happen. Things go a little haywire sometimes when you don’t listen to the finance person.”

The deficit had been declining by $100,000 to $200,000 per year through street assessments, and some of the money that would have whittled down that overage was spent on purchasing and renovating the new city hall, she said. Paying it down sooner is a good thing, Klassen said. She explained that although there was a deficit in the permanent improvement fund, the city wasn’t in the red. “All city money is pooled,” she said. “That fund basically ‘owed’ money to the city as a whole. Now it’s all paid off and we’ll start new.”

Now city administration and elected officials need to figure out how to keep the fund from being depleted again, possibly by implementing a franchise fee to local utility companies, along with street assessments and state aid for certain road projects.

“Then the city could do more road projects and not spend more than we have or have to bond,” Klassen said.

Klassen told the council the city will also be able to use funds provided by the federal American Rescue Plan to offset revenue losses during Covid-19 as well.

PLA debate continues

Also Tuesday, the council continued its discussion of possible changes to the city’s current project labor agreement. The conversation centered around two points: raising the threshold amount of city money that triggers the PLA agreement, and/or adding language that would require prevailing wage to the PLA.

Generally, under the terms of a PLA, construction unions have bargaining rights to determine the wage rates and benefits of all employees working on a project. The terms of the agreement apply to all contractors and subcontractors working on the project, although they do not have to be union companies themselves. PLAs also typically require that employees hired for the project are referred through union hiring halls — in Cloquet’s case, the Duluth Building and Construction Trades Council.

Adopted in May 2017 by then mayor Dave Hallback and council, the Cloquet PLA required public as well as private projects with more than $175,000 in direct city funds to abide by the terms of the PLA. Cloquet was the first city in the Northland to require private contractors to abide by a PLA if they accessed city funds, including loans, grants, tax increment financing (TIF) and abatement.

After some discussion Tuesday of financial trigger points — which ranged from keeping it at $175,000 but tied to inflation, to as much as $1 million — councilors decided the prevailing wage question was more important to tackle.

City administrator Tim Peterson explained that the current PLA language requires fringe benefit contributions and union pension funds for non-union employees who may never see the benefits. If prevailing wage requirements are added, that union language would be removed, but much of the other PLA requirements would remain the same. The city removed requirements that employees join the union this spring.

“Prevailing wage still sets that higher wage rate, but all the benefits would immediately go to those workers and those workers alone,” he said.

Community development director Holly Hansen submitted a list of previous development projects. No private businesses have signed a PLA since it was implemented in 2017, she and Peterson explained; rather, they kept the city financing portion below the $175,000 trigger point.

“In my mind, prevailing wage floats all boats, not just some boats,” said Kolodge. “The PLA only floats some boats. I support labor. I want to see people working. I want to see people get good wage and good benefits, and I think prevailing wage is a better vehicle to get that than this PLA.”

Councilors Lara Wilkinson and Bun Carlson, along with mayor Roger Maki, expressed support for city staff fleshing out the idea of adding the prevailing wage language. Kolodge also pointed out that prevailing wage is determined by region: it’s not one-size-fits-all across the state.

Wilkinson said she appreciated the discussion, and insights from all sides and thinks it will lead to a better solution. The council will continue the PLA discussion at its next meeting.

In other actions Tuesday, the council approved a three-year agreement for the Minnesota Wilderness junior hockey program to continue use and facility rental of Northwoods Credit Union arena at a cost of $35,000 from June 1, 2021, then $36,000 the next year and $37,000 the year after that.