News & Articles

I. Back story
In 2006, the Duluth city council approved a $250,000 revolving line of credit (LOC) for Spirit Mountain, which was intended to see the ski area through its slower, summer months of operation. The measure passed unanimously. Councilors were confident that Spirit Mountain Executive Director Renee Mattson would use the LOC wisely and repay it on schedule.
“It is neither parties’ intent,” stated Resolution 06-279, “to use this line of credit either in total or on a routine basis.”
In 2009, Spirit Mountain prepared to embark on a building spree that continues today. The first element of the plan, an alpine coaster, stirred up great community excitement.
“Bring on the slide,” cheered the Duluth News Tribune on October 9, 2009, expressing the prevailing sentiment. “Not only will the ride push the recreation area closer to becoming a year-around attraction as it has always been envisioned, it’ll generate revenue to pay for other projects that also will help Spirit Mountain succeed.”
But before Spirit Mountain could get to that point, they needed a bit more help with their immediate cash flow requirements. Renee Mattson asked the city council to increase Spirit Mountain’s LOC to $350,000. Councilors did cartwheels of delight and unanimously granted her wish.
“It is neither parties’ intent,” stated Resolution 09-224, “to use this line of credit either in total or on a routine basis.”
After the alpine coaster, things snowballed. Spirit Mountain built a zip line, a tubing hill, a mini golf course, a new chair lift, new mountain bike trails, a new parking lot and a brand-new chalet at the bottom of the hill. Press coverage of the ski hill, and of Renee Mattson, remained relentlessly positive. When Mattson approached the city council in 2012, asking that Spirit Mountain’s LOC be increased to $600,000, just to help them out with a few cash flow issues they were having, councilors tumbled over each other like happy puppies in their eagerness to comply.
“It is neither parties’ intent,” stated Resolution 12-0167, “to use this line of credit either in total or on a routine basis.”
In October of 2013, Mattson returned to the city council and asked them to increase the LOC to $900,000. The previous two winters on the ski hill had been impacted by uncharacteristically poor skiing weather, and Spirit Mountain’s finances needed to recover. Springing into action, councilors unanimously approved the increase.
“It is neither parties’ intent,” stated Resolution 13-0510…oh, wait. My mistake. This particular resolution, for some reason, doesn’t include the part about not using the LOC in full.

II. Present day
 At the city council’s agenda session of June 5, 2014, councilors were surprised and dismayed to see another Spirit Mountain LOC increase on their agenda, which would raise the LOC to $1.2 million. It had only been eight months since the last increase. This time around, Renee Mattson wasn’t there to massage them through it, as her celebrated tenure at Spirit Mountain was drawing to a close. Incoming Executive Director Brandy Ream, from Washington State, was preparing to take the reins, but she was not yet in Duluth.
 “I think Renee Mattson has built a tremendous working group of assets up there, and it’s really set the table for Spirit Mountain to become something truly special in the years ahead,” Chief Administrative Officer Dave Montgomery told councilors. “But we are in this short-term cash crunch here where these last seasons have really been impacted. […] In order to give [the new director] some latitude and flexibility as she comes in, in another week or two, I want to make sure that the first thing she deals with when she gets in is not a cash crisis. I want to give her room to maneuver and do the things she needs to do to get Spirit Mountain on a firm financial footing.”
Just how bad was the cash crisis? “They’ve essentially maxed out on their line of credit, and they’re going to run out of cash if we don’t extend their line of credit,” said Montgomery.
City Finance Officer Peg Spehar added, “John Thomas, their finance person up at Spirit Mountain, has been working with us for the last three weeks, laying out what they need to smooth it over for this year, and we believe that [an additional] $300,000 will cover the year.”
Councilors seemed torn. On the one hand, they had heard nothing but fantastic things about Spirit Mountain for years; on the other, wasn’t the ski hill supposed to be making money?
“So, just to clarify,” said Councilor Howie Hanson, “we basically have rung up a $1.1 million credit card bill that we’re hoping that current operations will increase to the level to pay back that line of credit?”
“Yes,” said Montgomery. “That is correct.”
“Is there any interest in forgiving that line of credit at this point?” asked Councilor Hanson. “Where you’re going to come back before the council and ask us to relieve them of that obligation?”
“I think it’s too early to ask that question,” said Montgomery.
Councilor Jennifer Julsrud was not happy. “The new director should be calling each of the councilors when they’re asking us to approve something this large. Renee Mattson was always very good about giving us a call and giving us the numbers ahead of time. So I think the new director needs to understand that.”
Well, that was a good point, but the new director wasn’t in town, and Renee Mattson’s job wasn’t officially over until June 6—the day after the agenda session. Surely, at some point in the previous three weeks, as she worked with her finance person on the LOC request, Ms. Mattson could have managed to pick up a phone.

III. The bottom line
So how, exactly, does Spirit Mountain’s line of credit affect the city’s bottom line? To answer that question, I spoke with City Auditor Wayne Parson on June 6.
Spirit Mountain’s line of credit is drawn from the city’s cash account, which is essentially a giant checking account that pools all of the city’s cash, for all purposes, in one place. Parson said the balance of the cash account is “usually in excess of $50 million on any given day.”
Spirit Mountain’s line of credit is set up as a loan from the cash account, and the city charges 2.5 percent interest on it. In 2013, Spirit Mountain made four repayments on the LOC, totaling $85,000, which they then withdrew again that same year. In 2014, they made no repayments.
Because the line of credit is a loan, Parson explained, it does not show up on the city’s annual budget. The budget deals with revenues and expenses, and a loan is not considered either.
My biggest question was how the city could take $1.2 million out of its cash fund for Spirit Mountain and not feel the loss somewhere else. I asked the question in three or four different ways, trying to figure it out. Finally Parson said, “If, at some point in the future, we had to forgive the entire loan, then it’s going to have an impact, because we’re going to have to figure out where it’s coming from.”
Where would it come from? Parson suggested the city’s reserve fund as a possibility. That would be bad news, for many reasons. A healthy reserve fund cushions the city against emergencies and helps the city maintain a better bond rating, which in turn gives the city better interest rates on any bonds it issues.
In 2008, the reserve fund was hit with the double whammy of the Great Recession and cuts in local government aid from the state. At  year’s end, for the first time in history, the reserve fund had a negative balance—a negative $1.35 million. Over the ensuing six years, the Ness administration has diligently built the reserve back up. Today, the reserve fund stands at about $7.5 million, which is at the lower end of what is considered healthy for a city of Duluth’s size.
“Or else we could decide to maybe tap the tourism fund balance,” said Parson. “So there are options.”
The problem is that is that there isn’t an extra $1.2 million slopping around in the tourism tax fund. Most of that money is already earmarked for specific initiatives and obligations—payments on DECC expansion bonds, the annual budget of Visit Duluth, bond payments on Spirit Mountain’s new chalet, and many more.
However, new tourism taxes are coming down the line. The mayor is pushing the city to reinstate a half-percent food-and-beverage tax and a half-percent hotel/motel tax to fund future projects in West Duluth. The community is very excited about this, and ideas for how to use that money are flying thick and fast. People want to clean up the St. Louis River, revitalize parks, and build bike trails, among many other things.
Not once has bailing out Spirit Mountain been suggested as a possible use of the money.  But Spirit Mountain knows, and the city knows, that it could happen.
Certainly, it would be nice if Spirit Mountain made some cash at some point and started paying its own bills. But the ski area will stay open regardless, because the city has locked itself into a policy of keeping Spirit Mountain open, whatever the cost. After the millions of dollars of improvements that have been made, the chance that a majority of the city council would ever consider closing Spirit Mountain down is, in my opinion, zero.
And so, the next time the Great Lakes Aquarium comes forward, saying they will have to shut down if they don’t get more money, who will refuse them?
Sorry. My mistake.
And so, the next time Spirit Mountain comes forward, saying they will have to shut down if they don’t get more money, who will refuse them?

IV. A surprise ending
At their regular meeting of June 9, 2014, city councilors unanimously approved the $1.2 million line of credit. The surprise is that a couple of them grumbled.

John Ramos has been observing Duluth politics since 1998.