Source: DECC.org, October 9, 2023. Note: The DECC Board of Directors will meet Thursday at 4 p.m. at the DECC Senator Sam Solon Board Room.
The appointed volunteer DECC board of directors has understood and been thoughtfully apprised that the DECC’s revenues and increasing expenses were not sustainable to achieve profitability and ensure sufficient cash flow throughout each calendar year. This concern has been a long-term trend and active conversation at the board level before COVID. The situation was heightened this year due to substantially increased part-time labor costs and years of deferred maintenance resulting in an abundance of necessary capital expenditures in a short time frame. While the DECC has had recent success with increasing revenues, it has not been enough to offset the drastically growing expenses.
We need a new model. There is no easy solution. We need to change, and it is difficult. We can no longer maintain the status quo and do things the way we’ve always done them.
As a board, we support and see the need to make tough decisions to ensure a more sustainable and self-sufficient financial model for this valuable public entity. Outside of AMSOIL Arena debt payments and capital investment, payroll is our biggest expense and unfortunately, the place that administration needs to turn to in order to reduce on-going expenses. These are very difficult decisions that require courageous leadership and have been made with careful consideration.
We are thankful the Duluth City Council recently approved a one-million-dollar line of credit to serve as an emergency cash-flow due to the seasonality of DECC operations. As the DECC’s fiscal agent, the city is our only option for financing. The administration and the board are hoping to never actually utilize that line of credit and are making tough, yet strategic decisions to support that principle.
The DECC is like many other organizations currently experiencing budget, capital, and staffing challenges. We are examining inherited internal structures such as a legacy financial system that needs an overhaul to better analyze costs and forecast revenues. We are exploring the overall structure in comparison to similar convention and entertainment entities throughout the United States, many of which are facing similar challenges. We take this very seriously and are committed to continue working in tandem with the administration to thoughtfully and strategically move the DECC forward.
We have challenges and it is not easy, but we will get through this, and we appreciate the support and passion from the community. We will continue working to ensure long-term financial health so the DECC can continue its role as a beloved and evolving critical economic driver in the Northland.
Are board meetings public?
DECC board meetings have always been open to the public. Meeting notices, agenda, and approved minutes are posted online.
Why wasn’t this brought forward sooner?
We have known about seasonal cash flow issues for years. The cumbersome financial system combined with staffing changes in our finance director position delayed our full understanding of current cash reserves. The Board has questioned the sustainability of the DECC’s business model in the past and is supportive of finding new business models to move the DECC forward. A big reason Dan Hartman was hired is to be more entrepreneurial and explore new business models.
Why are you cutting staff when you received $1 million from the city?
The line of credit from the city is for cash flow and doesn’t solve the annual structural deficit. This line of credit will be used as a safety net during our slower seasons and repaid during our busier seasons. To date, we have not used the line of credit. The structural deficit is primarily around facility costs and higher payroll wages. The layoffs were made in an effort to start addressing the structural deficit.
What are the limitations around DECC financial reporting?
The DECC has a legacy financial system with limited depth of detail. We need to overhaul this in order to more accurately forecast and get detailed expense information. This will take time and require some changes across the organization. We are working with an outside entity to help build a more comprehensive and detailed financial structure. Timing on accounts receivable can vary by each event and external partner. We need a more streamlined way to account for open payables and receivables. Timing is often an issue with cash flow – for example, we receive the annual lease payment from UMD for AMSOIL Arena in November, after we incur many expenses for the hockey season.
Why did we not hear from the board until now?
Members of the board were present at the city council agenda meeting to discuss this topic in detail. The board chair also spoke at that meeting. Last week, the board chair also released a statement to the media when asked, but we do not believe that statement was ever published.
Are board members paid?
No. Board members are unpaid volunteers who apply to the State of Minnesota or City of Duluth for appointment. State appointments are made by the Governor of Minnesota and the City of Duluth appointments are recommended by the Mayor of Duluth and approved by the Duluth City Council.