fedgazette

Wing and a prayer?

Minnesota State Roundup

Published November 1, 2005  |  November 2005 issue

The city of Duluth has found itself in something of a damned-if-you-do, damned-if-you-don't scenario regarding economic development incentives—in this case, specifically for airlines.

Back in 1995, Northwest Airlines received $48 million in state-issued bonds in return for a promise to build an airplane maintenance facility in Duluth that would employ 350 people. It took years for employment to reach promised levels, and then it bounced around amid heavy losses by the airline in recent years. Then in August, 230 mechanics at the Duluth facility (among a full staff reportedly less than 300) joined a companywide mechanics' strike. About a month later, the airline itself filed for bankruptcy.

Depending on the airline's solvency and the outcome of the strike, the city might be stuck not once, or even twice, but thrice: Even if Northwest makes it out of bankruptcy, it's a good possibility that only a fraction of mechanics will remain at its Duluth facility. Northwest might also be able to jettison a $580,000 annual payment to the city that went toward a $1.5 million payment for bond debt—a payment that would likely have to be picked up by the city's general fund (though some of the bond debt is reportedly secured by capital equipment), according to reports by the Duluth News Tribune. The final salt-rub for Duluth's wound: If Northwest goes belly up, it's anyone's guess as to the impact on the city's airport, where Northwest is the lone scheduled carrier.

In the backdrop of this dilemma—literally days after the mechanics' strike started—the city approved a $2 million incentive package (most of it a forgivable loan) to Cirrus Design Corp., a maker of single-engine planes. The incentives were approved to help the company expand its current operations in Duluth (which the city has also had a financial hand in) to meet rising demand. The company has promised to employ an additional 220 workers on top of the 800 it currently employs.

Duluth was likely prodded in part by the fact that the state of North Dakota and the city of Grand Forks granted much larger incentives—more than $10 million combined, along with five years of tax abatement—for a simultaneous expansion of a Cirrus parts plant there.

Ronald A. Wirtz

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