City Water Rates Could Increase 58% to Pay for Road Projects

The regular Lowell City Council meeting for Monday, April 1, was cancelled for lack of a quorum. However, all councilmembers were present for a special meeting held this past Monday to discuss a project on Washington Street that will replace water and sewer lines as well as reconstruct the roadway.

Two Bids Received for Project

The Washington Street project is slated for completion this year, and the city has secured financing through the USDA to pay for the cost upfront. The city will pay 2.875% interest on the bonds sold for the project, and there is a 40-year repayment period. However, there is no pre-payment penalty if the city would like to pay off the debt early.

“You do have the potential 10, 15 years down the road to make some significant principal payments,” said City Manager Mike Burns. In referencing the low interest rate, he added: “It’s almost like you’re getting free money compared to what you’re getting in the free market.”

Two bids were received for the project:

  • Georgetown Construction Co: $3.35 million
  • Dean’s Landscaping and Excavating: $3.61 million

The low bid was 4% below the engineer’s estimate, and everyone seemed to be in agreement that Georgetown Construction would be a capable business to complete the job.

“They did the Grindle and Shepherd project, and I had no problems with them,” Burns said.

Utility Hikes Needed to Pay Off Bonds

While the project will be paid for with USDA financing, councilmembers were told on Monday that water and sewer rates will need to be hiked to ensure the city can make its debt payments. In addition to the $3.35 million needed for the Washington project, the city took on about $3.8 million in debt through the USDA last year for the Monroe project.

Warren Creamer of Municipal Financial Consultants conducted a rate survey and determined that water rates will need to increase 58% by 2030 and sewer rates will need to increase about 42% by 2030 to make necessary debt service payments and pay off future capital improvement projects planned by Burns. Those future expenses are as follows:

  • 2026: $278,428
  • 2027: $150,000
  • 2029: $189,432
  • 2030: $377,500

No details were provided during the meeting as to what those future capital projects entail.

Initially, Creamer used a model that implemented rate hikes based on when they would be needed to cover expected expenses. According to that model, water rates would increase on the following schedule:

  • 2025: 5%
  • 2026: 35.37%
  • 2027: 0%
  • 2028: 0%
  • 2029: 2.2%
  • 2030: 15.44%

“You’re essentially looking at a 58% increase over that five-year period,” Creamer said. “Mike (Burns) said that would be very, very hard to swallow (and asked) so Warren, how about we smooth that out?”

That led Creamer to spread the increase over a six-year period with a 9.66% increase each year to make it “more palatable to the users.” He said, “Optically, we wanted to keep it under double-digits.”

Since the Washington project is wholly in the city, only water customers residing in the city are expected to see their rates increased on this schedule. With annual 9.66% increases, water rates would be as follows for most residential customers:

  • 2024: $26.88 ready-to-serve fee and $2.62 consumption charge
  • 2025: $29.48 RTS and $2.87 consumption
  • 2026: $32.32 RTS and $3.15 consumption
  • 2027: $35.45 RTS $3.45 consumption
  • 2028: $38.87 RTS and $3.79 consumption
  • 2029: $42.63 RTS and $4.15 consumption
  • 2030: $46.74 RTS and $4.56 consumption

The ready-to-serve fee is a monthly charge that all water customers pay regardless of how much water they use. The consumption charge is assessed per 1,000 gallons of water used.

A similar scenario exists with the sewer rates. If rates were increased as needed, they would go up on the following schedule:

  • 2025: 6%
  • 2026: 21.48%
  • 2027: 0%
  • 2028: 0.59%
  • 2029: 3.71%
  • 2030: 7.57%

However, to smooth out those increases, Creamer provided a model that uses four years of 9.66% increases and two years of 4% increases. Under this scenario, sewer rates for most residential customers would be:

  • 2024: $29.11 RTS and $4.80 consumption
  • 2025: $31.92 RTS and $5.26 consumption
  • 2026: $35.01 RTS and $5.77 consumption
  • 2027: $38.39 RTS and $6.33 consumption
  • 2028: $39.92 RTS and $6.58 consumption
  • 2029: $41.52 RTS and $6.85 consumption
  • 2030: $43.18 RTS and $7.12 consumption

For both water and sewer, the rate increases are significantly more than those recommended a few years ago.

In 2021, Lowell City Council passed resolutions for $9.5 million in bonds to complete the work on Monroe and Washington. Those bonds had an expected interest rate of 1.75%, and a rate study indicated water rates would need to increase between 1-3% annually over a five-year period to make debt payments. Sewer rates would increase between 3-7% annually over that same period. It isn’t known why the bonds were not taken out at that time.

Councilmembers Blame Predecessors

City Manager Mike Burns responds to a councilmember’s question.

Burns, who was hired as city manager in 2016, attributed the need for higher rate increases to poor rate management in the past. “For the water for many years, we weren’t following the recommendations,” he said.

Within the meeting packet, Burns provided a history of rate increases in the city dating back to 2005. While some years had significant increases – ready-to-serve sewer rates went up in excess of 20% in both 2006 and 2007, for instance – many years had no rate increase. The ready-to-serve charge for both sewer and water were reduced one year as well.

According to Burns, a Michigan Rural Water study indicated rates should have increased 2% annually between 2011 and 2020. The actual cumulative change in rates was as follows:

  • Water RTS (2010/11 – 2019/20): 1.65% decrease
  • Water consumption: 53.5% increase
  • Sewer RTS: 20.9% increase
  • Sewer consumption: 18.5% increase

Councilmember Jim Salzwedel noted that between the two systems, city ratepayers are looking at an almost 100% increase in their bills over the next five years.

“I recognize the cost, but the system is severely deteriorated,” Burns said.

However, in 2021, when Salzwedel expressed concern about the city spending so much on two streets, Burns noted that the rest of system was in good condition and would only need small repairs.

Councilmember Eric Bartkus was concerned that the wastewater system’s headworks would need to be replaced in the coming years at a cost of approximately $9 million. That expense was not figured into the current calculations.

“I know we’re anxious to get Washington going, everyone is, but is this decision needed to start work on Washington?” Bartkus asked.

“If council decides not to take action (on the rate increases), we can’t move forward with Washington,” Burns replied.

Bartkus noted that the city has a more than a 400-day fund balance and wondered if that money could be used to pay for the Washington project.

Burns noted that there was $1.5 million in the water fund and $1.6 million in the sewer fund but advised against depleting the fund reserves. “You can’t pay cash for Washington,” the city manager said.

Beryl Bartkus, who owns Ability Weavers, approached the podium and noted that her water and sewer bill would double by 2027 under the proposed increases.

“As a business owner, that’s a lot,” she said. “What I’m confused by is that this water bill thing is all being pushed by the fact that we’re doing Washington Street. Are we doing too much too fast?”

“None of this stuff is going to get cheap,” Creamer replied. “At some point, you’ve got to bite the bullet and move forward.”

Burns said the Lowell system was small and the city built “Cadillacs” for its water and wastewater plants.

“Well, we also built Cadillacs and then for 30 years forgot about them,” said Mayor Mike DeVore.

“This is another example of the bullsh*t that this council has had to deal with because our predecessors didn’t take the time to do certain things right so unfortunately some of us are going to be the bearer of bad news,” Salzwedel added.

“Because that’s what’s happened up until this point,” said Councilmember Marty Chambers. “That can has been kicked and kicked and kicked and kicked. Our system’s going to fail and then what?”

It is unclear which predecessors the councilmembers were referring to or what action they felt should have been taken by them. Lowell City Council has been discussing sewer and water upgrades since Lowell’s First Look first began reporting in 2016. Those discussions haven’t mentioned any neglect of the facilities, but largely revolved around the fact that the wastewater system is decades old and at the end of its expected lifespan.

In 2016, the council took out $3.5 million in bonds to replace the main lift station and the Valley Vista lift station as well as install new watermains on and near South Broadway.

The city’s water system has previously been a point of pride for councilmembers as Lowell has won several awards for the quality of its drinking water. There have been concerns about the water system wells being unable to meet growing demand from the township, but again, there hasn’t been any public mention of the system being neglected in the past.

“I need a little time to digest this,” Salzwedel said. He requested that a vote on the matter be delayed until next week’s regular meeting on April 15. That was agreed upon by consensus.

Chambers asked if Monday’s meeting could begin early. Burns said that the council was scheduled for a special meeting at 5:30pm to discuss the city’s master plan, and the regular council meeting could begin as soon as that session was done.

The special meeting of Lowell City Council adjourned at 7:25pm.

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