Interview with Sault Ste. Marie City Manager Brian Chapman and Marquette County Administrator Scott Erbisch

In this episode, David Haynes sits down with Sault Ste. Marie City Manager Brian Chapman and Marquette County Administrator Scott Erbisch to discuss some of the issues facing not only their own respective cities and counties, but cities and counties throughout the Upper Peninsula.

Transcript

David Haynes:

Good day everyone. Welcome to rural insights video podcast series where we interview policymakers and newsmakers that impact the upper peninsula and are from the upper peninsula. My name is David Haynes and I’m the director of the Institute and editor. This is Brian Chapman. And Brian is the city manager of Sault Ste. Marie, which is a very large city in the UP. Second largest in a very influential County, Chip Moore County on the Eastern end of the UP. We want to hear a lot about Brian and I should also say, since I’m from Northern Michigan university, that Brian is alum of Northern Michigan university has his master’s in public administration from Northern. We’re delighted to see so many alumni be so successful. Welcome, Brian. Glad you’re with us today. Thanks for taking a little time. What’s on everybody’s mind I suppose these days is, so how is COVID impacting Sault Ste. Marie? How is it impacting your budget and the stress, many city managers are telling us the stresses and the need for state and federal aid. I thought I’d turn it over to you and have you tell us about that.

Brian Chapman:

Yeah. The COVID pandemic has been kind of interesting from the local level because it’s brought about this emergency response that local governments have had to do, but it’s not the typical emergency response. It’s a health issue. Its divvied out between the hospitals, the County health departments, and the local units of government. We’ve been fortunate that we weren’t hit real hard with a number of cases. There was a couple of surges throughout the year because I think we’re almost on the one year anniversary of when COVID really started shaking the state of Michigan. We didn’t get hit that hard, but we were affected by a lot of the restrictions coming down from the state government. In terms of our budget, we anticipated a significant drop in our revenues when we made the budget last April and May.

Brian Chapman:

That was at the peak of the COVID restrictions and everything shutting down. We weren’t really sure we were going to be at. We’re not that bad. Our biggest hit really is coming from the revenues that I would consider kind of market driven. Our property tax base, the tax revenue coming in from those have been pretty solid still. If there’s any kind of issues, we’ll see that probably next year or the year after. But we operate several facilities that have a sales revenue that comes in from us. We have an ice arena, ice Hills, different things of that nature.

Brian Chapman:

Those have really taken a hit. And then the loss of state shared revenue, that took a hit for us. And the state tried to replenish some of those funds by offering these cares dollars or COVID funding, but they were very specific in what those funds could be used for. The areas that we are dependent on users and revenues, we weren’t able to supplement those funds with it. The state also started to cut out some of the shared revenue payments from the States to which we couldn’t replace that with the funds. The funds we actually received were reimbursements for some COVID costs, which we weren’t hit really hard.

Brian Chapman:

we didn’t have a lot of those, but then our health and safety enterprises that we have, those were reimbursed. So our police department, fire department, EMT services. We got a little money there, but we’re still kind of seeing what’s going to happen with the tax base. We haven’t heard too many businesses closing doors yet, but that’s still a possibility out there. Businesses don’t start kicking up. Sault Ste. Marie is a very tourist heavy area. Winter time kind of dries up for us but one of our big winner and lifelines is the I-500 event where thousands of people come up. The hotels are all booked up.

Brian Chapman:

The restaurants are full and that was canceled this year to COVID. Are our business is going to be able to make it through the winter time wow that lifeline is not there, on top of them having to plead some of their savings and reserves just to get through this 2020 calendar year? We’ll see what happens there. But if there’s a lot of businesses that do close, that will obviously affect the tax base moving forward. But there are some communities that are lot worse than what we are. We don’t have a sales tax or an income tax, so it’s not bad. But there are a handful of communities downstate that are dependent on sales tax and income taxes. Those funds aren’t there nor have they been replenished by the federal government or state government. That’s certainly an issue with some of our colleagues cities downstate.

David Haynes:

Is there something or somethings in particular that when you think about this right now, the state and federal government could do to help a city the size of a large city, like Sault Ste. Marie at this point?

Brian Chapman:

It’s funding. It’s really ensuring that we have some funding but making it less restrictive. Like I said, when the CARES dollars came down and the funding for COVID expenses came through, they were very restrictive, they were very specific. If you watch some of the cities downstate, there’s a few of them that actually turned the money back into the state because they didn’t feel it was proper to do the shell game where they’re reimbursing themselves for services that they had budgeted for. If any funding was to come down from the state or the federal government, it really needs to be less restrictive in terms of its use so that we can use that to help balance our budget in the areas that we are taking the hit it.

David Haynes:

So while we’re on this, COVID of course, one of the advantages that you have is you have a large hospital War Memorial, David John, is administrator, he’s written for us. That’s a good thing in your community, I assume, the coordination between you and them in the schools and public health and the County.

Brian Chapman:

Yep. Yep. We’ve actually been meeting weekly since the start of the shutdowns and the COVID pandemic. There was a need to start collaborating, really get on the same page with all of our different community stakeholders. We’ve been doing it through Zoom, but we’ve set up weekly conference calls. They started out being about an hour, hour and a half long. Once we got them down and we started realizing who was responsible for what, they kind of got streamlined, the needs did. We had a lot of really good coordination between War and Memorial hospital, Chippewa County health department.

Brian Chapman:

The Sault has a very large federal agency presence in the city so we had the coast guard, border patrol, customs, all our federal partners were on the call. We had, on average was probably about 30 different individuals representing all the different agencies, state, local, tribal, everyone. We had a lot of good coordination. Like I said, we we’re lucky that we never had a big surge or anything that was similar to Detroit or in the larger metropolitan areas. But it was comforting knowing that we were ready. We had those lines of communication open. We reviewed all those plans so that we were prepared in case something was to go a little bit further south on us.

David Haynes:

You’re right on the border with Canada. You have an international bridge to connect the two. I’ve been over it several times. It even got a webcam to tell you when the traffic’s too heavy. How has COVID impacted? And now we have an essential travel block for Canada and the United States, how’s that impacting Sault St. Marie United States and Sault Ste Marie Ontario, Canada. What’s going on with that and in your community?

Brian Chapman:

The biggest thing would probably be the economic loss from having the border closed. Sault Ste. Marie, our local economy, the city only about 13,000 residents, Chippewa County is much larger than that. But our customer base in which of these businesses set up in the Sault Ste. Marie Michigan are much bigger because they actually span across the border. We have a lot of Canadian residents that will actually come over to Michigan Noir city and do their shopping. Whether it be groceries, clothing, supplies, wherever the case may be. With the border closed, they weren’t able to come back over to our city to shop. A lot of our businesses are struggling because that loss of revenue. Even think from the restaurants, our ice arena that we operate has a lot of men’s leagues and we get fees from those. Those all canceled because of the significant portion of their players come from Sault Ste. Marie Ontario.

Brian Chapman:

There’s this real interesting relationship between Sault Michigan and Sault Ontario. it’s permeated in all of these areas within both of our communities. The biggest hit really is the loss of dollars coming in from their city to us. On the flip side of that, the border communities in Canada are probably a little bit more supportive of closing it because all those dollars are staying in their communities that they would normally lose. Tourism, that’s really hurt us in both ways. But one of the interesting things is like our hospital here is staffed with Americans and Canadians, and these are vital positions. Our nurses, physicians, all of them. And when the border first closed, when COVID first was kicking off, they didn’t allow any travel at all. And our hospital on this side was very worried they very concerned because they weren’t sure if their staff was going to be able to get across the border.

Brian Chapman:

That’s kind of where our weekly conference calls came into play. David John with War and Memorial Hospital expressed that concern to which it made it to customs and border patrol. They assured him that those staff members with their proper IDs would be able to get back and forward. But there are a lot of Canadians that come across the Sault Michigan that utilize our stores. LSSU, the restaurants, all that stuff. It’s really put a pinch on everyone not having that population here. It’s been interesting. I know the international bridge authority itself, which is funded 50% by the state of Michigan and 50% by the federal government in Canada, they’re heavily dependent on revenues and the traffic counts going back and forward. While they’re commercial traffic for the most part has been steady. They haven’t seen too much of a decline there.

Brian Chapman:

Throughout 2020 their commuter trips and the small cars, not essential cars going back and forward has dropped 85%, 90%. They’ve had to shift their staff to work in other areas in the state of Michigan so we’re not charging all staff to their line items. But they’re really hurt. They really hurting and then there was always a concern on who was going to pick up that loss of funding for them. I don’t think it’s necessarily a hundred percent clear right now. Both governments are doing what they can, but that’s another one of those items. If there’s any kind of funding that comes down from the federal government or the state government, it needs to be a little bit less restrictive so that they could balance their budget with those revenues to them. It’s the same for all of those agencies. It’s been interesting.

Brian Chapman:

It’s certainly been a challenge. We’ve had pretty good relations with our counterparts in the city of Sault Ste. Marie government. It’s been strained because we’ve been isolated from one another for so long. We’ve always looked for opportunities to work with one another and this has put a setback in a lot of that stuff. One of our bigger ones was the joint economic development marketing plan. Chippewa County is a trade free zone. We were trying to get a lot of businesses to trade back and forth between there has been put on hold. It’s certainly impacted a lot of our own local plans and how we work with our counterparts over the river as well.

David Haynes:

Sault Ste. Marie is really the truly international city and border in the upper peninsula. The other one would be down in Wayne County with Windsor across the bridge and Port Huron. But you are an international city in every way. How has that impacted your culture? I assume it’s been a good thing, but most don’t get that international flavor advantage exchange of culture, exchange of arts, education, business. Could you say a little bit about that?

Brian Chapman:

Yeah. It is interesting. I’ve only been here about a year and with the border being closed all year long because COVID, I myself have not been able to experience it the way we wanted to. But it’s interesting because we are a small, rural, urban community in the UP. Like I said, our population is about 13,000, but when you look at the entire region and you include Sault Ste. Marie Ontario, our living area and the amenities here is one of the larger cities. Sioux St. Marie Ontario is about, 65 to 70,000 residents and the amenities that we don’t necessarily have, they would have.

Brian Chapman:

And then the same this way too. It’s this neat relationship where there’s an international line that separates and distinguishes both cities in both countries, but the way the two cities actually interact, it’s almost like we are one large city. A lot of my counterparts around my organization, a lot of my friends in the community, they have very close ties or even family members that live over in Sault Ontario. Like I said, a lot of them work here. A lot of our residents work over there. It really has made us this big metropolitan almost in this little corner of the UP. But with the border closed, it’s really put a strain on a lot of that.

Brian Chapman:

It’s interesting. It really is being an international community. Like I said, just kind of on the tip of the UP where you wouldn’t think there’s a lot here, but it actually is a big resource to us. When we do recruitment efforts for staff positions downstate. We always make mention of that because there’s such a weird stigma of living in the UP. We want people to know that we actually have this fine asset right across the river and we brag about it because it brings a different culture. It brings different amenities to what we normally wouldn’t get being on the East side of the UP here.

David Haynes:

When you think about it, a lot of communities draw a circle of an hour around it. You do that internationally with Sault Ontario. You really become the largest community in the UP buckling up right next to traverse city. Some of the cities like Lansing and others, you’re beginning to get that large. It has an impact on you because it is part of your daily life is what you’re saying. Let’s go back to tax base. You and I have talked about this dark store issue. In the rest of the state, the property values are much higher than they are on a UP. So when a big box store like Meijer comes in and takes advantage of the dark store exemption under the tax law, it doesn’t have quite the impact. Matter of fact, something that’s quite the opposite with employment. But the UP, the slightest movement in property tax values and tax revenue has an impact. Talk a little bit about dark stores in Sault Ste. Marie

Brian Chapman:

Yeah. The dark stories theory in itself has been a pain in our keester to live with here. Like I said, part of our economy is set up because of the number of the shopping potential that would be in Sault Ontario Michigan coming over here. We have a few bigger boxes that you would not find in a community our size. Walmart, Meyers, Napa auto stores. We have a good number of big box stores within the community. And as you mentioned, our tax base doesn’t really change too much. It’s certainly not going up. We don’t have a lot of new development coming in. We’re pretty much built out within our environment to what we could be. We’re close to capacity. So anything that changes our tax base is usually in the negative. With this dark store loophole, these big box stores are able to take us the tax Strip and argue that we are over assessing them.

Brian Chapman:

And they typically come in way under what they actually are. Our most recent one is with the Meijer’s that opened up a couple of years ago. Just as they do in any other city, once they opened their doors, they filed an appeal with the tax tribunal saying that their value is actually a lot lower than what it is and what their argument is that they put so many restrictions on the property through deeds and contracts, that there is no other use for that building, for that property, except for the big box that is currently in that building. They started looking at their comparables. They pull in a lot of older facilities throughout the state and that just drops what their valuation is. Even though it’s a brand new building, it should be assessed up here. The comparables are a lot older and in different circumstances.

Brian Chapman:

It actually brings them down there. You lose tens of thousands of dollars a year on these buildings, but that’s not the only cost associated with that too because the tax tribunal is this quasi judicial forum. You have to hire attorneys, you have to hire experts. In those cases, the costs rack up. With the Meijer’s case, we spent roughly $800,000 on experts and attorneys. We weren’t even at the point of going to the tax tribunal to try the case. We were just preparing for the case. So you have all these unanticipated costs to prepare for the case and then you actually bite it. So you got the attorney fees there, but typically what we’ve seen in the state of Michigan is that the tax revenue and all his signing of these big box stores and they’re dropping the assessment values. We’ve had several of them go through the city of Sault Ste. Marie the last few years.

Brian Chapman:

We’re talking hundreds of thousands of dollars that we’ve lost and that’s that’s police officers, firefighters, engineers, filling potholes, or filling equipment within our public works. That’s a lot of money. When the state has a municipal finance system set up so that the bottom falls out quick, but it’s slow to recoup and go back up, it hurts, it hurts. And we’re not a normal business to where if we have a loss of revenue, maybe we just close this division or we contrast our services. Our services are meant to be given out to all the residents businesses within Sault Ste. Marie. If our revenues go down, we can’t just contract our geographic area and say, we’ll only serve in this area now. We’re still on the hook for all those services and all those expenses.

Brian Chapman:

There was always an argument in our government that we have an expenditure problem. But at this point at this stage of the game, it’s really a revenue problem. With the dark store theories taking money away from us, the state shared revenue system taking money away from us. Our expenses have stayed pretty much the same except for a little bit of inflation increases, but it’s our revenues that we constantly see bottoming out and that’s what really drives some of the challenges that we have with local government right now.

David Haynes:

Let’s switch back to, in addition to the issues with revenue, dark stores and tax revenue. Big advantages on the other hand for being an international city, you also have one of the largest numbers of federal jobs in the upper peninsula since the airbase has closed around the UP, the other military facilities, and it’s having to do with the Soo Locks, which is a very important issue to international trade that is in your community. Can you talk about the Soo Locks and relationship to the economy that you manage?

Brian Chapman:

Yep. The Soo Locks is this neat little asset within the community and it’s kind of twofold in terms of the benefits that we have. The Soo Locks itself is a large employer. They’re part of the army Corps of engineers so there’s a large, highly trained staff presence within the community that is based around operating and maintaining the Soo Locks system. Outside of that, the Soo Locks is a huge tourist destination, a tourist attraction for the community. There’s people all across the country that will drive and fly or camp here in the city just to see the freighters.

Brian Chapman:

I kind of underestimated how fascinating just the large freighters really are. My office window overlooks the Soo Locks and I know that first week when the freighters were coming in and out, it was pretty distracting because they are really neat. They’re absolutely really neat. I didn’t think a lot of people were really into that, but it’s amazing. They have an engineer’s day one weekend in the summer. They kind of pull back the restrictions. A lot of engineers from different trades come up in the city and they get closer tours and closer access to the different amenities within the Soo Locks. It’s a huge thing for us.

Brian Chapman:

They’re redoing the Soo Locks right now. They’ve got about a 10 year plan in place. It’s billions and billions of dollars that they’ll spend here in the next couple of years. A lot of the larger portions of the project will be contracted out. Those contractors will come from various areas within the country. They’re trying to keep it within Michigan as much as possible, but some services just aren’t offered in Michigan. the first phase here where they’re dredging and deepening the channel system, that particular contractor had to come from Utah, Nevada. There wasn’t a contract like that in Michigan. But this next phase, the actual construction phase, they got a couple of contractors from downstate, Michigan. But there’ll be a local impact as well. The next 10 years are expecting a good thousand to 2000 different types of employers coming in and out of the area. They’ll shop at the local stores, they’ll eat at the restaurants, there’ll be stationed here for that time period. It’s going to be a nice little boost up into our local economy.

Brian Chapman:

It’s a benefit, but on the flip side of that too, it’s going to be a challenge for us because we’re going to have to try to find space and housing for a lot of those staff members. We’re just not quite set up for that stuff. We’ve got a lot of initiatives going on and that we’re trying to find that workforce housing and what is it going to look like? What do they need specifically? Part of it’s going to be making space for them. The first group of contractors that came in, they were mobile in that they brought their own camping trailers up. They set up in one of our campgrounds and they pulled out.

Brian Chapman:

It’s not going to be as big of a transformative process that it probably was when the Locks were first going in, but it will be a long-term very positive impact for us. And just kind of go off that a little bit more like I mentioned before, we do have a very large federal population within the city. The army Corps, the coast guard, border patrol, ice, FBI, all these different agencies. And they bring a lot of employees that live within our community. Having a large federal presence within our community, it has a lot of pluses to it. We certainly look forward to working with them and making sure the Soo Locks carries forward too.

David Haynes:

How many people you think work for the federal government in the region?

Brian Chapman:

I knew this number but I can’t remember what it is off the top of my head. I can’t remember. I can’t remember. I wish I remembered. I just know when you look at our core industries within the region within the city law enforcement is by far the largest segment within. There’s nothing else even close to it. That’s not only local, county, state officers. That’s all those federal law enforcement officers too. It’s our biggest thing within the city.

David Haynes:

As we get to the end here, tell us what you think is the most exciting going on. I know you’ve been in the news lately with becoming the headquarters for the so-called launch, new launch sites that are being talked about in the UP and some others. Spend a couple of minutes just telling us about exciting news, good news in the Sault.

Brian Chapman:

We are the Sault and now we’ve extended out to the Sault region because some of it is our partners, with Chippewa County, this whole area is on the cusp of great things and new development and new industries and new jobs. Like you’ve mentioned, regionally within the County, the Chippewa County international airport was just designated the mission control site or the mission launch initiative that has a vertical rocket launch and Marquette and a horizontal launch down [inaudible 00:27:44] That’s going to be a big thing for us. There’s planned to be, I think a couple of hundred, very highly skilled jobs coming to the County based around that mission control center. There’s going to be some new opportunities that the Soo Locks has spurred some economic development already. Because of that we’ve also been on to tap into a lot of federal grants. Our carbide dock which is a major shipping asset that a lot of boats will pull up and unload their coal, or even the cruise lines that come into the city.

Brian Chapman:

They would unload people there. We got a $20 million grant for that project that includes a lot of reconstruction of our streets. We’ve got another $4 million in grants to redo parking lots and streets in our downtown. They had a lot of nice placemaking elements to it. All in all, we’ve probably got about 40 to $45 million in grants over the next two to three years that we’re currently administering. This place had a lot of really great assets to it and it just needed a little bit of shining and taken off a little bit. We’re starting to get the funding to do all that stuff. A lot of great things happening here. Our downtown is kind of on a resurgence. We got a lot of great private investment going into the buildings and we just need to keep pushing forward.

Brian Chapman:

Some of the challenges moving forward, like I said, workforce housing is going to be an issue. But also just neighborhood revitalization within the city and trying to update some of our housing stock. Like most Michigan communities, our housing stock is not the best. It’s aged. It hasn’t had a lot of upgrades to it. So we got to find some programs as incentives and put them in place to up our capacity and up our quality of housing. I’m a strong believer in the place talents workforce cycle there. And in order for really to keep people coming to the city, we have to have great housing and we have to have great places and that’s all part of it. That’s kind of the challenges we’re looking forward to in the future here. It’s all based on trying to keep all these bigger employers in the area and really trying to take advantage of some of the assets and some of the upcoming projects like the mission control center.

David Haynes:

So a closing comment, the other big institution we haven’t talked about and I’m sure an economic driver is Lake State University, one of our most important and great state universities, a competitor of my university in hockey. Sore topic these days. But talk just two or three minutes about you and Lake Superior State University. You’ve had some enrollment growth when others haven’t in the resurgence too. I just thought we’d close with your say about that.

Brian Chapman:

I’m thrilled to be in a college community town community and be able to work with LSSU. Even though I still fly my Northern flag outside my house there. It gets a little uncomfortable there. But the city has a great relationship with LSSU and they are an anchor institution for us. Not only because they are the ones engaged in training in the workforce or our area for tomorrow, but they’re a huge economic driver for us too. The college kids that come to the town, they live here, they eat here, they shop here. They have a big impact on our community, but the university as an institution, like I said, they supply the workforce around here with a lot of key staff. LSSU has a good nursing program that continuously funnels nurses through the hospital. My police department and my fire department, we have a good working relationship with those departments.

Brian Chapman:

They constantly feed us new and upcoming officers and firefighters and EMT personnel. The biggest thing right now that they’ve got going on that we’re going to see a good impact on within the community is their center for fresh water, education and excellence. The Sea free center. They’re moving their fish biology program off campus. They’re building this great building right on the river, right on our previously brown field. They’re going to revitalize that whole area. We’re partnering with them on a new parks and new walkways and new seawalls. We’re going to have this leading research center for fish biology right here in the community. That’s a top draw for LSSU. That’s one of their bigger programs. There’s not a lot of those in the state of Michigan. LSSU starting to break out a little bit more and they’re really having a big impact on us. It’s fantastic.

David Haynes:

Well, Brian, on behalf of all of us at Rural Insights, thank you for doing this. It’s been great and it’s even better that we’re getting a chance to talk about all this with an NMU alumnus who flies the flag and thank you very much. We look forward to seeing you soon again.

Brian Chapman:

All right. Thank you, sir. Appreciate it.

David Haynes:

Have a good day. Bye-bye.

Brian Chapman:

Bye.