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Other cities mix funds to fix sewers
Property taxes, service rates pay for maintenance

By Christine MacDonald
Lansing State Journal

A proposal to use a mix of property taxes and sewer rates to pay for Lansing's $176 million sewer separation project may become a trend for Michigan cities looking to rein in swelling sewer rates.

The rates have soared across the state, some by more than 10 percent in one year. Lansing has increased sewer rates 25 percent during the past three years.

Most Michigan cities use sewer and water rates to pay for water main improvements and the federally mandated projects aimed at keeping sewage from overflowing into waterways. Forty-five municipalities in the state are in the midst of combined sewer overflow projects like Lansing's.

These high sewer rates can drive away residents and new businesses, city officials and experts say.

"More cities are looking at a combination of funding so sewer rates don't take the big hit," said Don Stypula, the Michigan Municipal League's manager of environmental affairs.

But some Lansing council members are concerned Mayor David Hollister's plan - which still calls for 4 percent sewer rate increases for each of the next five years - doesn't go far enough to keep rates down. The average residential user pays $27.53 a month.

The City Council will vote on the plan in May as part of the budget process.

The Board of Water and Light controls water rates and the city governs sewer rates. The city bases its charges on the amount of water used and the BWL bills on behalf of the city.

Sewer rates soared so high in Grosse Ile Township that township officials felt raising property taxes was the only way to fix their combined storm and sewer system. Voters approved that millage in November.

"The rates would have been phenomenal," township Finance Director Ann Silver said.

Rain fee history

  • 1995: Lansing institutes rain fee to cover cost of 30-year, $176 million sewer separation project that aims to cut pollution entering the Grand River.
  • March 1996: Lansing resident Alexander Bolt sues the city, saying the fee is illegal. He files just before the first payment is due.
  • April 1997: Lansing City Council votes to do away with rain fee. Lansing Mayor David Hollister vetoes that vote.
  • July 1997: City Council votes to place the rain fee issue on the November ballot. Hollister again vetoes.
  • August 1997: Council adopts another resolution to place matter on ballot. Hollister vetoes.
  • August 1997: Council sues city, asking Ingham County Circuit Judge Carolyn Stell whether a repeal of the fee should be placed on the November ballot. Stell rules Hollister properly used veto power.
  • October 1998: Bolt's lawsuit goes before the Michigan Supreme Court.
  • December 1998: Supreme Court rules the fee is unconstitutional because it's a tax. Court left open the question of whether city owed refunds for fees paid in 1996, 1997 and 1998.
  • July 1999: The city raises sewer rates 15 percent to replace the rain fee funding for the sewer separation.
  • October 1999: Michigan Appeals Court rules the city doesn't have to refund rain fees collected from 1996-1998.
  • October 1999: Bolt files an appeal to Michigan Supreme Court.
  • May 2001: The Michigan Supreme Court upholds the Michigan Court of Appeals decision that the city can keep the $13.8 million it collected from residents in 1996, 1997 and 1998.

The township already had seen a 15 percent sewer rate increase last year, partly to pay for other improvements to the aging system.  The rates would have had to go up about 60 percent to fund the project without a millage, Silver said.

Port Huron has had success using a mix of funding since starting construction on its sewer project in 1997. The city had sewer rate increases of about 20 percent in 1998, which have declined recently to about 3 percent, officials said.

"We've been very creative to identify funding sources to mitigate the impact on high water and sewer rates," said Robert Clegg, the city's director of public works.

The city primarily uses the sewer and water rates for its sewer separation project, which also includes water main and street improvements.

It also uses other sources, though: Community Development Block Grant money, U.S. Environmental Protection Agency grants, road improvement funds and the city's Tax Increment Financing Authority, which captures money from assessment increases in specific areas for special projects.

But using a combination is often a psychological fix, Stypula said. Residents and businesses are still paying regardless of whether the money comes from sewer rates or property taxes.

Hollister said the lower property tax rate and smaller sewer rate increases would have a tangible effect: attracting new residents and businesses.

The rising sewer rates have become a burden for some residents.

Homeowner Ida Baldwin said she's cut out extras like trips to the movies to pay her $120 monthly water, sewer and electric bill.

"I am not saying we shouldn't pay something," said Baldwin, whose family of four survives in part on her monthly Social Security disability check. "But people on a low income or that are renting can't afford this stuff."

The city raised sewer rates to pay for the 30-year sewer project after the state Supreme Court ruled in 1998 that the city's rain fee was an illegal tax. The city instituted the fee in 1995 to cover the project's costs.

Hollister's funding plan has two parts:

  • It would hold sewer rate increases at 4 percent for each of the next five years. The city has raised rates an average of 8.6 percent a year since 1991.

  • It would dedicate 0.5 mill yearly to construction costs. A mill is $1 in tax for every $1,000 in state equalized value of a house, which is about half of what an assessor says a house is worth.

Lansing paid off a $22 million loan this year that voters approved in 1987 for road improvements, which means the city could lower property taxes by 1.03 mills.

The other half would be used for a property tax cut.

The owner of a $70,000 house would save an estimated $18 a year in property taxes. That would nearly be offset the first year by the 4 percent sewer rate increase.

Under certain circumstances, homeowners can deduct property taxes from their income tax, unlike sewer rates.

Without using the millage money for the sewer project, sewer rates were expected to rise by 9.5 percent this summer and would see similar increases for the next four years, city officials said.

But Councilmembers Lou Adado and Carol Wood said they are concerned landlords aren't likely to give renters a rebate if their property taxes are cut.

"A lot of renters have a hard time paying this," Lansing renter Betty Lou Putman said.

Her son and his girlfriend moved in to her and her husband's home in part so they could help them pay their $700 rent and other bills.

On her last Board of Water and Light bill, $55 of the $140 was for sewer charges, Putman said.

Wood and Adado want to consider using the whole 1.03 mills for sewer improvements. In that case, sewer rates would increase only about 2.5 percent, said Doug Rubley, Lansing deputy finance director.

Under that scenario, the state of Michigan, Lansing Community College and other groups would benefit. They pay sewer rates, but not property taxes.

Delhi Township manager John Elsinga said sewer rates are the most equitable way to fund sewer improvements.

Delhi Township will see a 14¬İpercent increase in sewer bills next month. The money will fund improvements to the township sewer plant and collection system.

"The user should pay for the project," Elsinga said.

Dearborn is discussing whether higher sewer rates or a property tax increase would be the best option to fund a retaining tunnel aimed at preventing its sewer and storm water overflows. The city either will build the tunnel itself or with Detroit.

Either way it could cost Dearborn an estimated $250 million.

The top funding options are through sewer rates or a millage approved by voters, said Kurt Giberson, the city's public works director.

A recent study commissioned by the city showed three-quarters of Dearborn residents would benefit more by funding through a millage, mainly because of the option of writing off the property taxes on homeowners' income taxes.

"My expectation is that we will go to the public and ask them to decide," Giberson said.

Contact Christine MacDonald at 377-1286 or cmacdona@lsj.com.

Published 3/24/2002

 


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