DULUTH – The Duluth Entertainment Convention Center (DECC) is asking the state to pay up to $6 million in debt payments on Amsoil Arena over the next two years after the pandemic ravaged the venue's finances.
"We have survived. We will move forward. But how long it takes us to recover is completely dependent on additional financial help," said Roger Reinert, who was appointed interim executive director of the DECC in August.
The proposed bailout comes months after leaders of the publicly funded convention center alerted city officials of mounting financial problems as they plowed through their own reserve funds in late spring, according to e-mails obtained through a public records request.
In May, former DECC Executive Director Chelly Townsend sent an e-mail asking a city official what would happen if the convention center went bankrupt.
"I just need to understand how the DECC would ever open again," Townsend wrote former Duluth Finance Director Wayne Parson on May 26, expressing fears that the center would run out of money by March 2021.
The 800,000-square-foot facility is a regional tourism hub with a symphony hall, ballrooms and meeting spaces, and two arenas — one of which is Amsoil, the 6,600-seat home of the University of Minnesota Duluth's hockey teams.
As large venues across the state faced similar struggles, the DECC's revenue dropped $5.8 million in 2020 after COVID-19 forced cancellations of in-person events. The convention center also depends on a cut of Duluth's tourism tax collections, which were off about one-third in 2020.
Members of the DECC board were more optimistic at their December and January meetings, after they learned the convention center was eligible for $500,000 in COVID-19 relief from the state and may get additional assistance from the federal Save Our Stages effort. The venue had not previously received state or federal COVID aid because of its status as a quasi-government authority.
Reinert calls the convention center "a modern-day armory," ready to serve whatever civic needs emerge. Last week the state opened one of its three mass vaccination sites at the DECC. The facility also houses a COVID-19 saliva testing site. And county officials toured it in March as a possible morgue facility when it was unclear what the virus' toll would be, public records show.
The revenue earned from leasing out space for those purposes has been crucial to the DECC's financial survival, Reinert said.
The space is slowly starting to bustle again as visitors arrive for sold-out hockey games and orchestra concerts, though the state limits attendance at events to 250 people.
Fully reopening remains a daunting task, Reinert said. The DECC laid off 400 employees over the course of the pandemic, and some parts of the large facility will likely require maintenance after being mostly closed for months. Already the DECC has lost some bookings for 2021 as organizers move events to states that have fewer restrictions on gatherings or a more definitive timeline for when larger events will be allowed.
"Given our current financial circumstances, it's difficult to plan for any significant unexpected capital expense," said Reinert, noting that the convention center will require major improvements to its aging transformer, boiler and icemaker in the near future.
Absorbing the hit
In 1963, the Legislature created the DECC Board, which does not have taxing authority. The convention center's operations are funded mainly by customer revenue, while capital improvements have largely been covered by the state and the city of Duluth.
State taxpayers covered half of the almost $80 million Amsoil Arena, which opened in 2010. The city's largest bond issue in Duluth's history, scheduled to be paid off by 2034, covered the remaining $40 million.
In 2019, the DECC's annual debt payment for the arena was $2.7 million. A lodging tax covered $1 million of that, and the remaining $1.7 million came from a food and beverage tax.
The DECC received $800,000 in additional lodging tax revenue that year to help cover operations. The University of Minnesota Duluth also paid the convention center an annual leasing fee of $576,565.
In 2020, the pandemic threw the debt financing plan for the Amsoil Arena into crisis.
The DECC raided a special reserve fund for the bond payments, and it won't receive any additional tourism tax revenue — paid each February to settle for the previous year — to put toward operations at a time when the dollars are sorely needed.
During the summer and fall, when it was unclear whether UMD would have a 2020-21 hockey season, some DECC leaders also worried they would be on the hook for the university's lease payment too. UMD paid its annual rent in December, though because only 250 fans are allowed at games, the college has not yet paid the roughly $200,000 fee that usually covers advertising at the facility.
Noah Schuchman, Duluth's chief administrative officer, said the city is supporting the DECC's request for aid given the "crucial role it plays in bringing people to the city and region."
The city is ultimately responsible for making sure the arena bond payments are made, but Schuchman said "it never got to the point where we had to have serious conversations about worst-case scenarios."
The city currently has $2.2 million in a special fund that can be used only to pay the DECC's debt.
The 11-person DECC board — whose members are appointed by either the governor or the Duluth mayor — is also lobbying the Legislature for additional financial assistance.
Sen. Jen McEwen and Reps. Liz Olson and Jennifer Schultz, DFLers who represent Duluth in the Legislature, have already introduced a measure that would reimburse the DECC for unemployment benefits paid to staff laid off during the pandemic. The bailout request comes as the Legislature is dealing with the uncertainty of crafting a two-year budget during a pandemic.
"This was a hard moment, but our outlook is not bleak," said Pat Mullen, chairman of the DECC Board.
Local legislators plan to introduce another measure soon to address the upcoming bond payments. Minneapolis officials have made a similar request that the state help relieve the city of its U.S. Bank Stadium debt.
Katie Galioto • 612-673-4478
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