This is What We Do: Research & Action-Seminar on Rising Water Rates & The Threat to Affordable Housing
On Thursday, May 27th UNHP hosted a Seminar looking at the ongoing rise of water and sewer costs and their impact on affordable housing. UNHP, a longtime advocate for water and sewer rate reform shared a brief history of the changes that brought about the never-ending increases and a call for involvement about proposed rate increases, a new metered billing rate, and a study of the rate structure. The Seminar had over 40 participants primarily, affordable housing owners, managers, and lenders. UNHP Board Member, VaNessa LaNier provided the seminar welcome and an introduction to UNHP’s “This Is What We Do Series: UNHP & Mission.” Click here for the presentation slides with graphs of UNHP research and recent rate increases.
UNHP has a history of addressing issues of concern in all these different areas that affect Bronx neighborhoods and affordable housing. And as we thought about our traditional fall fundraiser, we recognized that we did not feel ready to reconvene our annual beer hall event. We are doing a virtual fundraiser again this year and we are going to do a rolling set of This Is What We Do seminars on issues affecting our neighborhoods and affordable housing. We are doing this first seminar on Water and its impact on affordable housing. The “This Is What We Do: UNHP and Mission” series is both our work and our effort to raise funds for that work.
VaNessa also shared the question - why is an affordable housing group so concerned about water and sewer? UNHP’s Executive Director proceeded to answer that questions with a look back at our involvement in this issue for over 30 years. Jim Buckley started us off by sharing a history of UNHP’s long-term involvement with the issue, starting with a complete mismatch of water and sewer costs in the 1980’s proforma projections for renovation of affordable housing projects. It was this mismatch- and the lack of operating funds due to higher than projected water and sewer costs - that drew UNHP into this issue.
The New York City Water Board was created in 1984 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. The City 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 and significantly over the past 35 years.
While water use has dropped dramatically, the total costs of the water system have continued to rise, due to debt service, and the rental payment.
In 1988, UNHP discovered that the NYC Department of Environmental Protection (DEP) was not looking at the cost impact on consumers and affordability in housing. UNHP started to look at projected costs and realized that things were going to get progressively worse for ratepayers. Why? Capital work needed to be done, a lot by federal mandate, without federal support. In recent years, the City started rebating a substantial part of the rental payment back to the water system. This year, the Water Board is anticipating that they will not have to pay any money to the City and will be able to keep the money in the system. The reason why UNHP is so active in advocating for lower rates and water and sewer rate reform is that these rising costs disproportionately affect older affordable multifamily buildings like the ones that UNHP works with. Household sizes tend to be larger in low-income neighborhoods and water usage is generally higher. Uncontrolled rising costs limit the operating money that can be used to keep the buildings in good repair and maintain affordable rents. UNHP has written about these issues and was instrumental in getting The Water Board to create a credit for affordable housing, known as the Multifamily Water Assistance Program. Our reports are linked here; 2015 Rising Water Rates blog, 2015 Affordable Water for Affordable Housing, 2017 Cost of Water, and The UNHP Cost of Water Forum.
Brendan Mitchell, UNHP Director of Real Estate and Finance Supervisor walked us through an analysis of water costs across 17 buildings in the UNHP Portfolio from 2017 through 2020. He highlighted the importance of both the Multifamily Conservation Program and the Multi-Family Water Assistance program for affordable housing providers like UNHP. The benefits of the Mult-Family Water program for Bronx buildings are shared in this blog post.
Metered costs have continued to increase throughout the portfolio, but fortunately, UNHP’s buildings have and continue to qualify for Multifamily Conservation Program. Buildings within this program pay a flat rate per unit, shown by the red bar in the graph above, which has been key to keeping water costs stable despite the significant uptick in consumption that occurred in 2020.
There will be an increase of $2 million dollars to the Multi-family Water Assistance Program to a total budget of $12 million. However, it remains unclear where the distribution of these credits falls across New York City and if city-owned properties like NYCHA are benefiting from the credit.
DEP is proposing an increase to the metered rate of 2.76%. UNHP opposes any increase in metered water cost, but especially at a time when many affordable buildings are hurting financially due to the pandemic. Brendan Mitchell has shared some of those struggles in these blogs from 2020 and 2021.
Importantly, DEP is also proposing a large increase in the interest rate applied to delinquent charges for large residential buildings with taxable assessed values of more than 250k from 5% to 18%. It is unclear to us why such a drastic increase is necessary and how a homeowner or building operator is ever going to catch up on a delinquent account when penalties begin to accrue. We hope that if the delinquency penalty must be increased, it is increased by a more reasonable percentage like 3%.
UNHP Data Analyst, Caroline Kirk took us through an analysis of water data using UNHP’s Building Indicator Project (BIP) which tracks both physical and financial distress in multifamily buildings throughout the city by looking at both violation and overdue taxes and charges data to find early signs of deferred maintenance or an owner cutting corners on their financial obligations.
We include water charge delinquency data that we receive from DEP when determining whether or not a building may be distressed. DEP shares the amount that buildings within the BIP database owe. We receive this data quarterly.
When owners are faced with cash flow issues and/or drops in building income, they may choose to forgo paying their water bill as the penalties are lower than they may be for foregoing other payments such as their debt service. For this reason, we think of unpaid water charges as an early sign of distress.
Here we have a graph showing both the number of buildings in BIP that were delinquent each quarter as well as the average delinquency amount from 2017_q3 (ending in September) to the present.
The data is somewhat seasonal, with upticks in both the number of delinquencies and the average amount in the second quarter of the year. However, the uptick in both is significantly higher in 2020. Just over 26,000 buildings were delinquent in 2020_q2 with an average delinquency amount of just under $20,300. That is an almost 20% increase in the number of delinquencies and a 61% increase in average delinquency amounts from 2019 to 2020.
Notably, while the average delinquency amount has dropped since the second quarter of 2020, the number of buildings delinquent has remained high. Over 20,400 were delinquent in 2021_q1 - this is important to keep in mind when considering the proposed increase in the interest rate applied to larger buildings as many BIP buildings fall into that category.
We also attempted to look at buildings with long-standing delinquencies using BIP. We identified buildings that had unpaid water charges for a year in 2020 and 2021. While it is troubling if a building is unable to pay its water bill right when it is due, it is especially troubling and a sign of continued distress if they leave the charge unpaid for an extended amount of time.
We found that there was a roughly 7% increase in the number of BIP buildings delinquent for a year from 2020 to 2021 - from under 16,000 to just over 17,000. The average amount delinquent for these buildings increased by just over 13% - from about $11,700 to roughly $13,500.
This matches what the Water Board themselves have shared in the meeting materials they release. In their March meeting, they included a financial and water usage update that had data on accounts delinquent for more than 180 days. They compared March 2020 and March 2021. They broke out large residential buildings with 4 or more units. Notably, that is the same criteria we use to determine the buildings included in the BIP database.
There was a 42.2% increase in the number of accounts delinquent - from under 10,000 to just over 14,000. There was a 32.8% increase in the total delinquent amount. Interestingly, these increases, in both the number of accounts delinquent and the total delinquent amount, coincide with a decrease in water usage. Consumption jumped in 2020 as people stayed home; however, in 2021 there have been perhaps surprisingly low rates of water usage with a 1.8% decrease in usage by metered large residential buildings through February 28th.
Overall there seems to be an increase in both the number of buildings with delinquent water charges and the average amount that buildings owe. In other words, not only have more buildings than normal chosen not to or been unable to pay their water bill, but they also on average had higher delinquencies than normal.
Additionally, It is especially concerning that the number of buildings with long-standing delinquencies is increasing as that may be a sign that a growing number of buildings are experiencing continued financial distress. It is worrying that the dollar amount of unpaid water charges continues to rise significantly during a time when the actual consumption in buildings has dropped.
As we continue to look for the distress caused by the pandemic in multifamily housing, the increased number of buildings that are leaving their water bill not just unpaid, but unpaid for a significant amount of time, may be one of the first signs.
Jim closed with a call to fight the proposed water and sewer rate increase by calling and/or submitting testimony to the Water Board meeting on June 1st and 2nd. The Water Board and DEP are proposing a 2.76% beginning July 1, 2021; the proposal also includes an increase in the Multifamily Water Assistance Program by 20% raising the total amount to $12 million. Prior to this rate proposal, DEP contracted with a firm to make recommendations on reforming NYC’s water rate structure in upcoming years.
The Water Board is proposing a 2.76% water and sewer rate increase to take effect on July 1, 2021; as required, the Water Board is holding public hearings. They are scheduled remotely on
Tuesday, June 1, 2021, Hearing Starts at 12:00 p.m. Phone number: (347) 921-5612 Access code: 107 181 687 #
Wednesday, June 2, 2021, Hearing Starts at 6:00 p.m.Phone number: (347) 921-5612 Access code: 875 205 402 #
More DEP Water Hearing Information can be found here.
The full proposal is available at the following link: https://www1.nyc.gov/assets/nycwaterboard/downloads/pdf/minutes_and_resolutions/wb-meeting-materials-05-10-21.pdf ; the 2021-22 rate proposal begins on Page 38 of the minutes of the May 10th meeting.
The Water Board is also accepting written testimony through their email: nycwaterboard@dep.nyc.gov ; the proposals will be considered at the next Water Board meeting which has not yet been scheduled. UNHP is happy to discuss Water and Sewer rates with other affordable housing developers and those interested in rate reform and water conservation. Contact Jim at jim@unhp.org Below are our recommendations for short and longer-term work for rate reform.
Water Rate Advocacy - Next Steps
Immediate Term Advocacy
● Attend the public hearings about the rate increase, held remotely on Tuesday, June 1, at 12:00pm, and Wednesday, June 2nd, at 6:00 pm. Details here.
● Submit written testimony to the Water Board through their email: nycwaterboard@dep.nyc.gov
● What UNHP will be saying at the hearings:
○ We oppose the requested 2.76% increase;
○ We support the increase in Customer Affordability Programs;
○ We are concerned about the impact of the 18% penalty rate and urge the Water Board to monitor the impact of this change, especially among long-delinquent properties;
○ We want to inquire about whether any of the federal aid that is coming to New York could be used to reduce the amount of capital work that needs to be financed.
Long Term Advocacy
● Urge that NYC leave the ‘rental payment’ owed by DEP annually in the hands of the Water Board in order to keep rates down;
● Urge that changes to water rate structures include analysis of the impact on affordable housing and homeownership.
○ Including greater participation from CBOs in the Sustainable Rate Structure Analysis Working Group