On May 18, 2008, the New York City Water Board approved a14.5% water and sewer rate increase, the second year of double-digit increases and the highest increase since 1992. But there is some hope that next year’s rate increase, projected to be at the same level at this year’s increase, may be moderated as a result of the uproar generated by the Water Board’s actions this year.
Since DEP announced the proposed 14.5% increase, the annual rental payment to the City by the Water Board has become a major point of contention. A united City Council, under the leadership of Speaker Christine Quinn, Environmental Chairman Jim Gennaro and Finance Chairman David Weprin, as well as advocates, such as RSA, have urged the elimination or reduction of the annual rental payment that was intended to pay for water bonds issued by the City prior to 1984. The rental payment now produces excess revenue that is then diverted into the City’s general operating budget. If pressure from the City Council and lobbying by the RSA and other advocates is successful in eliminating this “back-door-tax,” another double-digit increase next year could be avoided.
Three factors have contributed to the need for such a high rate hike this year: operations and maintenance (O&M) costs are increasing; Federal and State environmental mandates require high-cost, large-scale capital improvements; and revenue collections are lower than expected.
Steven Lawitts, the Department of Environmental Protection’s (DEP) first deputy commissioner, noted that the projected $126 million increase in O&M costs is largely due to higher-than-expected increases in non-discretionary costs like higher medical, labor and insurance costs. And like all property owners, DEP must also pay for the increased cost of electricity, oil, chemicals and other operating cost increases.
Federal and State environmental mandates under the Clean Water and Safe Drinking Water Acts account for 60% of the system’s FY 2008-2009 capital investment need. The expected cost over the next decade for implementing these measures is approximately $19.7 billion, of which $13.1 billion is needed in the first five years. The debt service incurred on bonds issued to finance these investments is the single most important factor driving the need for rate increases.
The failure of DEP’s two programs aimed at increasing revenue collection are also major factors in the rate increase. Despite the lien sale agreement reached between the City Council and the Administration last December, which gave DEP the authority to sell stand-alone water and sewer liens for multiple-family residential properties, and a Payment Incentive Program (PIP) to encourage delinquent costumers to settle their bills, collections were still 5% lower than expected. One aspect of the PIP program allows for payment plans that only require 10% down with the remaining balance to be paid in installments while interest accrues on the balance. RSA has proposed to the Water Board and the Council that a self-amortizing installment payment plan is necessary to avoid revenue shortfalls in the future, when property owners inevitably default on the current payment agreements.
The Water Board expressed it’s frustration at the apparent lack of substantive negotiation between the Board and the Administration regarding the rental payment and other issues that affect the ballooning rates. However, an extensive study of DEP’s budget will commence in the next six months. The Water Board approved the 14.5% increase in “good faith” that this study will allow a much more transparent process and allow continued discussion on the rental payments between the Board and the Administration.
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