March 11, 2014

Spring Brings Rising Water Rates and Tighter Budgets


Despite all the snow this winter, spring is anticipated with dread by many who own property in New York City. Spring brings the release of the New York City Water Board Proposal for the next fiscal year’s water and sewer rate increase. New York City water and sewer rates have nearly doubled since 2007. And every spring, a number of housing advocates call for a reduction in the proposed increase and a more equitable method of setting rates. Among some of the advocates this spring, there is hope that the new Mayor will be open to amending the rate setting policies of the previous city administrations.

Why does the cost of water matter when we’re talking about affordable housing? In many apartment buildings that house low and moderate income New Yorkers, the cost of water has grown to 20% of the building’s total utility (heating, gas and electric and water) operating costs. And the program that provides relief to buildings that cannot keep their metered water use low enough currently has water charges of $944 per apartment per year.  The cap available to private homes is even higher at $2,142 per year for the first Dwelling Unit and $1,427 for each additional Dwelling Unit.

The higher water rates go, the less money available to do repairs, pay mortgage debt or refinance.  The lower the income of the property or the homeowner, the harsher the impact of higher water and sewer rates.

Why isn’t there more public outcry about water rates? Many low income homeowners and operators of affordable housing await the annual increase proposals with resignation, since they have never seen a proposed rate increase denied by the New York City Water Board.  Most other New Yorkers are not even aware of the rate setting process because they don’t directly feel the impacts of the rate increase either because they are renters or have higher incomes.

Why are the rates so out of control? The New York City Water Board was created in the mid-‘80’s as part of shifting the entire cost of the water system from the regular city budget. The Board is required to set rates to cover the cost of operations, debt service and a rental payment to the City of New York. Soon after the creation of the Board, federal funds for capital construction of water projects disappeared. In the years since, the City has launched a multi-billion dollar construction program, much of it in response to federal and state mandates. The Board has borrowed billions to cover the new construction costs and rate increases have been the only way to cover the additional debt service. Since the rental payment to the City is tied to the amount of debt service, the rising debt results in steady increases in that payment. As a result, rates have risen steadily over the past 25 years, nearly doubling since 2007.

While water use has dropped dramatically, the total costs of the water system have continued to rise, with debt service rising to 40% of the system’s expenses and the rental payment rising to about 6% of the expenses.

Why does the New Administration Raise Hope for Change? The New York City Water Board is entirely appointed by the Mayor and the amount of the rental payment that the City keeps for its general operating budget is also determined by the Mayor’s office. As a result, the new administration can re-visit this flawed rate setting policy and address this highly regressive municipal charge.

What Can the New Administration Do: Short term:  The Administration can change the calculation for the soon to be announced rate increase by returning a significant amount of the Rental Payment made to the City of New York to the Water Board.  (In 2012, the previous administration started a pilot program to return a portion of the rental payment; however, even with that pilot, nearly $200 million collected in the water rates was still paid to the City in last year)

Long term:  City Hall can convene a working group to revise the way in which water rates are set to more fairly pay for the water system in the decades ahead.

If you’re interested in staying informed on this issue as the spring rate setting process begins, please follow our blog postings and twitter account, give us your feedback, and contact City Hall and City Council members.