Water Watch NYC

Everything you need to know about water in NYC.

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Another 14% Rate Increase… and That’s Not All!

On Friday (April 3, 2009) the Water Board held its once-yearly meeting to discuss the upcoming year’s rate schedule. Here are the highlights:

  1. The DEP asked for a 14% rate increase, which would take the cost of water and sewer combined to nearly $7 per hundred cubic feet. Remember, this comes after last year’s 14.5% percent increase and 2007’s 11.5% increase, when we were assured by the DEP that 11.5% would be sufficient for the next two years (2008 and 2009). Clearly, that didn’t happen.
  2. Frontage was not discussed at all. You may remember that the Water Board initially told us that this year would be the last year for frontage. Then they extended it for one year only. By not mentioning it this year, they’ve essentially kept the extension in place another year. A source close to the situation tells me that they plan on extending it at least another two years after that.
  3. They finally put a number on their proposal to penalize New Yorkers who do not allow access to their meters. If this plan makes it into next year’s rate schedule, building owners who don’t allow DEP inspectors to read their meters will be charged, depending on the size of the water main, anywhere from $3,198 to $1,598,930 per year. And that is not a typo.
  4. One nice thing that was mentioned at the meeting was that they are attributing a 6% reduction in consumption over the last year to the efforts of conservationists. Of course, they also use this statistic to justify the magnitude of the rate increase.

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Have We Avoided the Rate Hike?

The New York Times is reporting that Mayor Bloomberg and City Council Speaker Christine Quinn have reached an agreement that could halt the proposed 18% water rate increase.

The exact details of the agreement are not totally clear, but what is clear is that the agreement will put a bill before City Council that would allow the DEP to sell stand-alone water bill liens on properties that don’t pay their water bills. What isn’t clear is whether or not City Council would demand anything in return from the DEP.

More details on what is known about the agreement can be found at this New York Times article and at this article from NY1.

The DEP has been requesting the right to sell stand-alone liens for some time now and City Council has been denying them that right due to their inefficient operation and lack of oversight in the past. Hopefully, this bill requires the DEP to enact some sort of process that satisfies City Council’s requests.

The Water Board will continue to go through with their plans to raise rates, at least until the new bill before City Council passes.

The problem we face now comes with the realization that the proposed rate increase may not have even been necessary in the first place. At City Council hearings and Water Board meetings, when anyone from the DEP or Water Board was asked to justify the proposal for a rate increase of 18%, the response was always something along the line of, “Well, we’re not sure…. Maybe we need 11%, maybe 28%…. It’s not totally clear at this point, so we’re settling on 18%.”

We have always been under the impression that city agencies are meant to operate as efficiently as possible. They calculate how much money they need and then work out a way to obtain that particular amount. In this case it is becoming more and more clear that the DEP never calculated the 18% rate increase to make up for lost revenue. They may never have needed a rate increase at all. Eighteen percent was just a number that they pulled out of the air that they thought would be enough to pressure City Council into granting them stand-alone water bill liens sales.

This calls into question all rate increases requested by city agencies. For example, does the MTA really need to raise the subway rate, or is talk of a rate increase just a threat so that the MTA can get what it wants from us, the taxpayers?

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Great Minds Think Alike

Yesterday’s New York Times featured a great editorial (read it here) about where we, the residents of New York, stand in terms of the impending rate hike. The editorial touches on quite a few issues already discussed by Water Watch NYC, like the rate hike as a tactic to obtain lien sale rights as well as the DEP’s historical ineptitude and lack of oversight.

Clearly the editors over at the Times really know what they’re talking about. Either that or they’ve been reading this blog.

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Notice is Hereby Given

The DEP website recently posted information about the public hearings that the Water Board will be having concerning their proposed midyear rate hike. There will be one meeting in each of the five boroughs on either December 13 or 14. To find out the exact time and location of the meeting in your borough, click here.

These are the meetings that will determine the magnitude of the rate hike so all are encouraged to attend and voice their opinion. For those that wish to testify at the hearing, there is applicable information at the bottom of the page linked to above.

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The Water Board’s Political Gamble

While the Water Board usually only meets five times a year, there is a second meeting scheduled for November 21, 2007, making it two meetings this month alone. In addition to the one upcoming meeting they also have five meetings tentatively scheduled for the second or third week in December and one meeting tentatively scheduled for early January. Why the sudden flurry of activity?

In order to raise water rates, the Water Board must meet once to determine the magnitude of the rate hike (which is what the November 21 meeting is for), then wait three weeks while word is spread regarding the rate hike, then have a public meeting in each of the five boroughs and finally meet once more to make the final decision to approve the rate hike or not.

The DEP wants City Council to approve water lien sales privileges, but the Council is reluctant to allow the DEP to sell a person’s home out from under them until the DEP enacts a third party review process. The DEP contends that a third party review process exists in the form of the Water Board. The problem is that the Water Board has never actually reviewed a water bill. After the DEP’s Deputy Commissioner Steve Lawitts reviews a bill, if it’s still in contention he sends it to the water board at which point it goes to their Executive Director for review. The problem is that their Executive Director is the same Steve Lawitts. In short there is no third party oversight and therefore the DEP and the Water Board just continue to raise rates until the City Council has no choice but to grant them what they want, namely, water lien sales privileges.

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Soaked by the 11.5% DEP Rate Hike?

Real estate professionals and homeowners in New York City are abuzz over the 11.5% increase in DEP water and sewage rates officially confirmed on May 14, 2007 and scheduled to go into effect on July 1, 2007. The increase – NYC’s highest since the whopping 18.4% hike of 1992 – applies to both metered and frontage-based charges. With Mayor Bloomberg’s full support, additional 11.5% DEP rate hikes are also planned for 2008 and 2009.

At this cadence the compounded three-year increase will be a stratospheric 38%, an upward trajectory that dwarfs the 800% rise in DEP rates since 1980; in fact, annual rate hikes of 11.5% over another 27-year stretch would result in a compounded rate increase north of 2100%!

Given the serious water and sewage challenges currently facing the City, there’s little reason to expect the upward spiral to stop anytime soon. NYC real estate operators and homeowners would do well to ask themselves a few questions:

  • How does the City justify these rate increases?
  • Is my DEP rate plan the most appropriate and economical for my property?
  • What can I do to conserve water and ensure against DEP overcharges?

The NYC Water Board’s most recent public information report states that the city’s water system operations and maintenance costs will increase by $105 million over the upcoming fiscal year (2008). This increase budgets $72 million in “non-discretionary” spending that includes $58 million for employee wage and benefit increases and $14 million for wastewater treatment cost increases. The remaining $33 million is earmarked for DEP initiatives called “discretionary,” for which the city has specified no precise cash allocations.

Strangely, some of the discretionary increases (“filtration avoidance determination,” maintenance contracts and revenue enhancement programs) already have sizeable budget allocations within the DEP’s New Current Capital Program (“NCCP”). With Mayor Bloomberg’s support, the NCCP foresees new DEP spending of $23.3 billion over the eleven years from current fiscal 2007 through fiscal 2017.

The Water Board’s report explains that $23.3 billion is needed to “ensure delivery of high quality drinking water throughout the city” and treat sewage to “ensure the quality of New York City’s harbor waters.” Of the $23.3 billion, about $12.3 billion is earmarked for projects specified in the report. That leaves over $10 billion of the NCCP funds unallocated or deemed unfit for public disclosure. Hopefully the mayor will soon deem that New Yorkers have the right to know what will be done with that $10 billion.

Of the $12.3 billion in specific projects described in the Water Board’s report, the following projects, which are not necessarily the most expensive ones, seem most likely to raise eyebrows:

  • $3.0 billion to protect upstate NYC watersheds, including $600 million to buy land surrounding watershed property, in return for a 10-year moratorium on federal requirements to construct new filtration facilities (at an undisclosed cost). This begs the question of why “filtration avoidance determination” should get any of next year’s $33 million in new DEP discretionary financing.
  • $772 million for a Dependability/Alternative Sources Program (“DASP”) targeting maintenance and repair of the Catskill and Delaware water tunnels which transport 90% of DEP water to NYC from the upstate watershed. The Delaware water tunnel must be repaired soon because it’s leaking. It is hoped that $239 million in exploratory construction work and all the other DASP activities will enable specification of an adequate fix. If so, the tunnel, which delivers about 45% of DEP water to NYC, will be shut for repairs in accordance with a Master Plan of which a draft is due this year. It is a critical DASP goal to determine how the DEP will meet NYC needs with 45% of its current capacity offline. Though the $772 million will provide no tangible solution, it will hopefully provide a sound basis on which to implement one. Meanwhile, let’s hope the Catskill tunnel remains functional while the Delaware tunnel is shut down.

In addition to enlightening the public about the $10 billion in unallocated NCCP funds, Mayor Bloomberg should clarify another issue related to ongoing DEP rate hikes: The variable annual rent that NYC charges the DEP for use of its property. The rental amount is independent of real estate value fluctuations, but proportional to the value of the bonds issued each year by the NYC Water Board. As the DEP’s rent will go up 13.9% ($18.9 million) in fiscal 2008, the 11.5% rate hike will more than offset the added expense. It would still be good to clarify why NYC determines the DEP’s rent in such a strange way, and it’s also the public’s right to know how NYC intends to use the extra $18.9 million.

As Mayor Bloomberg recently observed in defense of the DEP rate hikes on John Gambling’s radio show, about 12% of NYC property owners consistently fail to pay their DEP bills. Others illegally leech DEP services and receive no DEP bills at all. But it’s unthinkable that the DEP would randomly whack certain property owners with humongous “compensatory” overcharges, isn’t it? The mayor could do well to consider the impact that notorious DEP bill inaccuracies have on people’s willingness to pay. Though DEP bill accuracy has improved in recent years, nearly 10% of today’s DEP bills are still inaccurate, and Ashokan’s records show it’s hardly uncommon for large NYC buildings to get hit repeatedly year after year with substantial DEP overcharges.

In sum, NYC real estate operators and homeowners would benefit from more transparency in DEP financial affairs, and should take some simple precautions to protect their interests in the face of rampant DEP bill inaccuracies and rising rates:

  • Conservation: avoid wastage, promptly repair leaks, and install low-consumption plumbing fixtures, thereby minimizing DEP charges and helping to maintain water reserves and protect the environment.
  • Make sure your DEP rate plan is the most economical one that your property qualifies for (metered vs. commercial frontage vs. multi-family frontage).
  • Verify the accuracy of all DEP bills, and get them audited when in doubt.