The Streets of Lowell – USDA Loans, Revenue Sharing, and Marijuana Taxes

 Originally published in The Lowell Ledger 7.12.23

The Streets of Lowell – USDA Loans, Revenue Sharing, and Marijuana Taxes

It is safe to assume that everyone reading this will agree that the streets in Lowell, and most other communities in Michigan, are a mess. Our recent unscientific, purely speculative, hunch based opinion would award Washington street as the most pot-holed stretch of pavement in the City. (My bet is that some other ones might be coming to your mind.) For the sake of this article, how about we pretend that Washington is the worst. Then why the heck is Monroe getting a total make-over before Washington?

The USDA provided funding for the Monroe Project.

Here are some other questions we can examine today: Why is Lowell borrowing millions of dollars to fix our roads? Does the USDA fund road repairs? What happened to all the money from marijuana sales in Lowell? What is the difference between a storm sewer and a sanitary sewer? And the one that seems to never go away on social media: Why did Lowell spend 3.2 million dollars on the new Showboat when the roads are in such bad shape?

When taking a test, I like to hit the easy questions first. It gets them out of the way and makes me feel smarter when facing the tough ones. Here we go: The City of Lowell did not spend any local tax dollars, meant for roads or anything else, on the big, beautiful Showboat. Please repeat that sentence to yourself and anyone holding on to that fantasy as often as needed to eradicate it from existence. Hey, a guy can dream, can’t he?

Now, how about we move on to the more difficult questions. Before we do, a bit of funding education is in order thanks to our friends at the Michigan Municipal League (MML). Back in the good old days prior to the year 2000, the State of Michigan used to return tax monies they collected to local municipalities through revenue sharing. According to the MML, “Revenue sharing was promised to local communities in the Michigan Constitutionto help pay for core government services such as police protection, fire services, roads, water, sewer and garbage collection services.” 

In a nutshell, once we made it firmly into the 21^st century, Lansing decided to ignore the Constitution and keep most of the money it collects. (Which allowed a pork barrel project like the Lowell Showboat to happen, but that is a story for another day.) In fact, revenue sharing was created in order to “help keep communities alive and well, spic and span, and with nice roads, safe water, and police and fire protection”. Revenue sharing was instituted in the 1920’s to “eliminate the need for local taxes and streamline the process”, according to the MML.

Fast forward 100 years and the majority of communities in our state face the same challenges we do in Lowell. Our roads are a mess. Our water delivery and sewer systems are falling apart and need replacement. Funding for adequate police and fire protection can be a headache. Many cities and towns now collect local income taxes in an effort to deal with the lack of revenue sharing from Lansing. We put a local income tax on the ballot in Lowell and it failed. It took three attempts to get it passed in East Lansing, where it went into effect for 12 years starting in 2019. The monies collected there are all dedicated to the areas that used to be funded by revenue sharing. Grand Rapids has had a City income tax in place for decades to help them stay on top of infrastructure demands. 24 municipalities in Michigan levy and income tax as of 2022.

Enough history, time to answer the other questions. Sanitary sewers carry the waste water from our homes and businesses to the water treatment plant to be cleaned up before returning it to the Grand River. Storm sewers are built to take rain water directly to the river and by pass the water treatment process which takes time and money. Monroe street is being done first because examination of sewer lines there by robotic cameras showed an immense amount of storm water was infiltrating the sewer lines thereby putting an unneeded burden on the water treatment plant. In addition, all of the water and sewer lines are past their service life and need replacement.

Big Equipment for a big project.

Mike Burns, Lowell City Manager, explained it in more detail, “If you look at Monroe and Washington Street one could argue Washington is worse than Monroe. However, the underground is where the major issues are. The major sewer infiltration is on Monroe and in fact was the worst infiltration point when the City completed the Stormwater Asset Management Grant Program conducted between 2016 and 2019. The underground situation on Washington was bad but we believed the underground situation on Monroe was much worse so it was done first.”

Next up, the USDA and repairing our roads. The 2023 Monroe Street Improvements project will be done because of a loan to the City of Lowell from the United States Department of Agriculture (USDA) Rural Development fund to cover the estimated cost of 3.9 million dollars. Lowell had to borrow the money. The USDA program is a winner on more than one front. The interest rate on the loan is very low and locked in for the duration of the pay back. Better yet, there is no prepayment penalty, so if the City continues to budget as effectively as it has over the last few years it could conceivably pay off the loan early. We asked Mike Burns to better explain the benefits of funding the project with USDA money.

“Most infrastructure bonds are 25 to 30 year notes. Right now those interest rates are around 5 or 6%. Since we are a rural community, we qualify for the USDA Loan Program. The interest rate for Monroe Street is 2% with a 40 year payoff,” Burns commented. “While water and sewer rates have to be raised to complete these projects [Monroe and Washington] it is not nearly as much as if we had a 25 year bond with 5 or 6% interest. The City of Lowell will save over $1.1 million over the life of the loan financing through the USDA Loan program.”

The Monroe project is projected to be done by the end of construction season this year. As of today, thanks in part to the abnormally dry weather, the contractors are ahead of schedule. It is important to remember that in addition to completely new paving, Monroe will have all new water, sewer, and storm sewer lines installed. Along the way, water hook-ups to houses and businesses will be checked for lead piping and any of those will be replaced. The same scope of work is planned for Washington next year. The estimated cost of the Washington project is 4.1 million dollars. USDA funding will be used for that as well.

NOTE: The financing for the Washington project was approved on 7.27.23 so it will be worked on in 2024.

The last issue to examine is how the taxes on adult use marijuana in Lowell relate to our streets. The City Council, with the full support of Manager Burns, has made a commitment that all such tax dollars received will go to our streets. According to Burns the City received $28,000 in 2021. In 2022, the City received $282,267 and $362,888 in 2023. He is projecting $250,000 for the current fiscal year but anticipates it will be higher. It is worth noting that Burns takes a conservative approach to budgeting. He has consistently planned ahead counting on lower amounts of pot tax revenue than were realized. We asked him what has been done with all that money.

“Every dollar the City has received has been placed into the Local Street Fund and is being used to pave streets,” Burns replied. “At the end of this construction season we will have paved 18 streets since the summer of 2020. By the end of next year’s construction season (could even be Spring of 2025), we are planning to work on 14 additional streets. The City could not do anything near this amount without the Marijuana Excise Tax.”

Burns also wanted to mention that the City of Lowell has a seven year plan for the streets in place. The plan is subject to change if something drastic should happen, but there have been significant strides taken since the plan was adopted.

“The City is working on year two of our seven year street plan. We have used very conservative funding model to develop our street plan,” Burns reported. “I believe the funding model in place will allow us to address all of the streets we placed in our original seven year plan. We have been able to add more streets each year due to higher than budgeted funding.”

The seven year street plan is updated every year as projects are completed and funding arrives. You can see the current version of it on the City of Lowell website: www.LowellMi.gov and click on “streets” from the drop down menu labeled “Departments”. If you want to learn more about revenue sharing in the State of Michigan take a look around the MML website: www.MML.org Search for “Revenue Sharing” and you will better understand how Lansing has changed the rules and greatly impacted municipalities all over Michigan.

In spite of the various hurdles, the streets in Lowell are getting better every year along with our water and sewer infrastructure.