Silver Bay’s City Council meeting on February 2nd started off on a positive note, with praise for the local library’s new start of being open on Saturday from 10-2 as well as the planned Trailhead Center project. The bulk of the meeting, however, dealt with the more grim prospect of the town’s faltering infrastructure: why to tackle it, when to handle it, and most importantly, how to fund it. A nearly hour-long presentation by David Drown covered possible funding for a complete overhaul of Silver Bay’s water, sewers, drainage, and streets. Drown began by noting it would be a challenging project, “both financially and maybe even politically,” but that it was overdue for the town. He noted that most of Silver Bay’s infrastructure is unique in that it was largely built over the course of just two years. “It’s all aging at about the same pace and all falling apart at about the same time.” Adding to the town’s trouble is the spike in construction costs over the past two years, which is as much as double what it would have been a few years ago. When Drown first looked at the project in 2017, the cost to fix Silver Bay’s infrastructure would have been 41 million. By 2023, the cost had grown to 54 million. But in 2025, the cost had grown to over 100 million for what still needs to be done. The project’s current cost per home would be about $80,000. “40 sounded big seven years ago,” Drown noted. “Now it’s 80.” “A daunting number,” Mayor LeBlanc responded. Roughly half of the cost involved is to reconstruct streets and driveways, including excavation, replacing pavement, and ensuring streets are structurally stable. Another 20% would go towards replacing water mains, 15% towards replacing sewer lines, and the last 15% towards replacing drainage.
Silver Bay already has a $6 million grant from the state to rebuild streets, and additional funding may be found through loans. However, the town will need to find a way to generate most of the money from its own sources. Drown’s recommendation to keep it simple? For water costs, pay with revenue from the water fund; for sewer costs, pay with revenue from the sanitary sewer fund; for streets, pay with property tax revenue. Normally, Drown would recommend keeping cash in the tax funds equal to a year’s worth of revenue, but in this case, given the town’s state, six months’ worth is more realistic. Funding for the necessary overhauls will not come easily, but Silver Bay does have some advantages. Despite its current extremely low tax rates, the town’s water and sewer funds generate a good amount of revenue per year, with the water fund generating a profit of about $500k in 2024. Although the current rates wouldn’t come close to funding the entire infrastructure project, it signals good money management and provides a decent way to start the overhauls. The town also already has a levy earmarked for street expenses, which was recently bumped to 350k.
The current low tax rates also offer room to grow while still remaining below or at average rates compared to other cities in the general area. As utility data is not tracked as formally as it used to be in the area, Drown did some digging to compare Silver Bay’s utilities with Duluth, Ely, Babbitt, Grand Marais, Carlton, Two Harbors, and Beaver Bay. Silver Bay’s monthly water charge is $35, lower than any other comparison group. Silver Bay’s sewer tax rate is also the lowest for the region, having remained unchanged since 2016. By raising rates to just be comparable by modern standards, the town would be able to afford much of the necessary infrastructure improvements. Drown pointed out that Silver Bay’s finances were solid enough that they could even delay some of the rate increases, with sewer possibly remaining at the current rate for another seven years before it would need increases. Water would be more challenging, needing a possible immediate increase by as much as 70% to keep on track to cover expenses. The EPA states the average US family uses about 400 gallons a day (expanded out to 12,000 a month in a 31-day month). Because Silver Bay has many small elderly households, water usage is considered below average, ranging between 4,000 – 12,000 a month. Because of this, it makes sense to keep the water tax lower, but with Silver Bay’s current pricing, it could stand a fairly large increase while still keeping its taxes in the low-average range by modern standards. For example, a 70% increase as suggested would raise the monthly water bill from $35 to $61 a month, bringing Silver Bay’s water tax to “about the middle of the pack” by modern standards, according to Drown. If the water rate was increased this year by that amount, another rate increase could wait until around 5-7 years down the road before funding would start to run dry. Property taxes in Silver Bay are also at the low-to-middle end compared to other areas and have a noticeably lower tax rate than towns such as Ely or Babbitt, according to Minnesota’s Department of Revenue. This may be partly due to the fact that, up until recently, Silver Bay had incredibly low real estate values. Within the past few years, however, real estate in the area has shot up to be priced more comparably with the surrounding regions. Property tax, meanwhile, has so far not increased to keep up with current home values. Finally, Drown suggested the town consider adding a drainage utility charge. Updating drainage will take approximately $20 million, including $2 million for surrounding ditch restoration. Although raised property taxes could possibly aid with paying for drainage, those taxes are already carrying a large amount of the burden for the project – he argues it would be better and simpler to charge a drainage fee to pay for the drainage to be restored to modern, working order. For comparison, Two Harbors and Duluth currently charge for drainage. In addition to increasing revenue from water, drainage, and sewer services, as well as property taxes, Drown notes that the Boathouse Bay and the Golf Course Housing projects are key to the long-term success of Silver Bay’s needed updates. New housing would provide new tax revenue crucial for funding new infrastructure. Building more houses would also relieve pressure from raising taxes on existing residents, especially those with lower incomes – so new homes are necessary to “keep taxes from skyrocketing.”
To get an idea of how this infrastructure overhaul could work: break the entire overhaul into 10 projects. Build one project every three years. This will result in the infrastructure overhaul being complete in 30 years. Daunting? Yes. But proper planning and budgeting can make a brighter future for Silver Bay possible. “You gotta do something like this to get a big picture and decide if there’s a prayer of being able to do this or not,” Drown concluded. “I think there’s a prayer.” Rate increases may be a bitter medicine to residents. Commenting on possible rate increases, Council Member Bautch stated, “That’s a big jump.” “On all of us,” City Administrator Fralich replied. But according to Drown: “If we can’t do the streets, then we can’t do the utilities beneath them, and this whole sucker grinds down.” For now, the council is considering not only funding resources but also different possibilities for the scope of the project. For example, the majority of water breaks so far have been on the upper side of town. This is because the upper side of town is built on taconite tailings, which are corrosive and have caused extensive damage to the area’s cast-iron water pipes. Although replacing the water lines would be ideal, another option would be lining instead. But although it would be cheaper, the lifecycle would be shorter, using tech new and untested enough it would be hard to say how long it would last.
The other major business of the session involved City Engineer Brian Golden discussing funding and bidding for the Water Treatment Facility & Booster Station improvements. Several bids came in under the GMP (good manufacturing practice) estimate by around $450,000, which would allow that extra money to be set aside for contingencies for other projects needed at the Facility. Additional funding for the project is also coming from an EPA grant for $1.75 million and a WIF (Water Infrastructure Fund) grant of about $4.7 million through the MN Public Facilities Authority. The WIF grant given by the state is intended to keep water rates affordable for lower-income areas.
The electrical bid package did not get competitive bids, so it will need to be rebid. Bids are expected to come in well under GMP as well, allowing for additional contingency money.
The council approved Magney Construction’s bid package, which will allow work to begin on the Water Treatment Facility.
