Ironwood looks at water system grant options

IRONWOOD — An Ironwood City Commission workshop on Monday revealed the benefits and consequences that come from choosing which grants to apply for in order to build a proposed water treatment and filtration system with a new pump station.

Jeff Sjoquist of Coleman Engineering, said his firm is taking the lead on Michigan grant applications as the subcontractor to Short Elliott Hendrickson Inc. SEH is the construction engineering firm that recommended a $9.7 million concrete, gravity filtered water treatment plant that would address manganese and other water quality issues in the city’s water system.

Coleman submitted a grant application for the Drinking Water Revolving Fund of the Michigan Department of Environment, Great Lakes and Energy (EGLE). The city qualifies as an economically disadvantaged community and would qualify for $875,160.

A second grant application was submitted to the U.S. Department of Agriculture’s office of Rural Development. The Michigan office said the project would qualify for up to $4.2 million or 43.6% of the total project cost.

The caveat, according to Sjoquist, was that accepting either grant would negate the other. If Ironwood accepted the EGLE grant it would lose the Rural Development grant and vice versa, he said.

“They are two very separate funding programs and it is not easy to try and combine funds,” Sjoquist said.

The discussion favored the Rural Development grant but Sjoquist said there were matters related to those grants as well. The state office said the grant application would be stronger if it were a $3 million (31%) request rather than a $4 million request. There was also the slight risk that Rural Development could change its funding formula from 1.5% of median household income to 1.75%, which would result in losing much of the funding, he said.

Sjoquist said information from the state Rural Development office recommended that the city ask for $3 million now so that it could be approved and processed prior to any change to the income rule. The state office said it would also work on the city’s behalf to pursue unused Rural Development project funds from other projects that did not move forward after the grant cycle is completed.

This could add more funds for the project, Sjoquist said.

But Sjoquist recommended the city commission wait for approximately three months on its decision in order to pursue a new Rural Development opportunity that the state office said had yet not been utilized in Michigan. The Strategic Economic Community Development is “a Farm Bill provision that allows USDA to give priority for projects that support the implementation of regional economic development plans,” according to the program description. The funds come through Rural Development water and waste disposal; community facilities; business and industry, and rural business development grants and loan programs.

Sjoquist said his staff are putting together the information for the state office to apply for the program.

“They think it’s worth waiting a month or two before making this decision,” Sjoquist said. “I think we should do that.”

If the project were fully-funded there would be no need to issue a water rate increase to customers. If the city were to choose the EGLE revolving fund of $875,160, the city would need to fund the remainder of the project rate with a $7.30 increase, Sjoquist said.

If the project goes forward with the $3 million grant from Rural Development the remaining costs would require an estimated $4.49 water rate increase for Ironwood residents. A $4.2 million grant would require an average $3.79 per month.

Any additional funds from other sources would reduce the impact on water rate increases, due to construction costs. The rate increases are based on water plant project costs alone, while the city may have other rate increase needs based on inflation, maintenance or operations costs, he said.

The city of Hurley is a bulk rate water customer of Ironwood that provides about 9% of Ironwood water revenue. Hurley has its own distribution rate and any rate increase to Hurley has not yet been configured into the project costs.

A discussion any water rate increase to help pay for the project will come when the project financing picture is more clear, said city manager Scott Erickson.

Mayor Annette Burchell asked if inflation was built into the project cost estimates. The project will be a year old when it’s time to decide on going forward and could be over two years old when construction starts.

There is contingency for inflationary increases and other potential cost increases built into the project estimate, Sjoquist said. At the same time there are always unknowns with construction and materials costs, but at the same time the estimate is also based on a much higher percentage rate for Rural Development loans when they have dropped to 1.25% at present.

Sjoquist concluded that multiple processes are ongoing simultaneously to find other sources of federal funding for the project, he said. Sometime in 2021 the city will decide to move forward and if so construction could start sometime in 2022.

The city commission tabled the decision on selecting a grant option during the regular meeting that followed. The commissioners wanted to wait until Sjoquist has a response from the Strategic Economic Community Development grant and loan application and other financing efforts.