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New York City Comptroller William C. Thompson Jr. today wrote to the members of the New York City Water Board expressing concerns regarding the slow progress and troubling direction of a $1 million water rate study currently being conducted by Booz Allen Hamilton.

In his letter, Thompson says he was initially hopeful that the study would lead to a transparent, fair and rational rate structure.  However, some troubling findings regarding the study have emerged.

“As you know, I strongly advocated for restructuring New York City water rates to promote a transparent, fair and rational rate structure.  I was therefore hopeful in June 2008, when the Water Board promised to undertake a study of this issue,” Thompson wrote. “Like many others however, I was deeply disappointed to learn that the study, which was to have been completed in time for the FY 2010 water rate determination process, had barely been started by this spring.”

Thompson said that the study must address two key principles:

• Ensure that the water rate study identify costs that are appropriate to the water and sewer system and are distributed fairly among the users of the system, and
• Ensure sufficient resources be allotted to the water and sewer system to meet its mission of providing clean water in an environmentally and financially sustainable way.

The study was originally promised in time for the May 2009 rate setting, but is well behind that schedule, and preliminary findings caused the Comptroller to have “profound doubts as to whether the study is working towards these goals with the objectivity and thoroughness that City ratepayers expect and deserve.”

In the past, Comptroller Thompson has been critical of the rental payment made by the Water Board to the City of New York because it unfairly penalizes water rate payers.  Thompson noted that the rental payment calculation was set in fiscal year 1986 to cover the City’s outstanding water debt, at a time when the federal government was still an important contributor to water systems.

“It is unlikely that the creators of the City’s current water rate structure foresaw the elimination of these significant federal contributions, which expanded the system’s capital debt and thus exacerbated the substantial escalations in local water and sewer rates,” Thompson said.

Thompson said that since 2005 these rental payments have far exceeded the underlying General Obligation debt service for water and sewer purposes, and this “excess rent,” which is essentially a backdoor tax, grows substantially each year as the Water Authority’s debt burden climbs, as seen in the chart below:

The Comptroller took issue with the preliminary findings of the study, calling it “biased towards the status quo with respect to the rental payment.”  He cited incomplete data on other water systems’ transfer payments, risking an essentially apples to oranges comparison, and the sudden inclusion of uncompensated City-provided “services” -- after two-plus decades of operation -- to justify the excess rent.

“Nowhere does it challenge, as I do, the basic premise that the existence of rental payments elsewhere makes ours acceptable,” Thompson said.

Comptroller Thompson demanded that both his office and the City’s ratepayers be provided an opportunity to review the results of the water system comparison survey before the study is finalized, citing “methodological concerns with the survey itself that deserve scrutiny.”

Thompson slammed the report for only superficially addressing core issues of the Water system, such as Combined Sewer Overflow (CSO), which is caused in part by run-off from City streets but treated at the expense of the water and sewer rate payers in New York City.

“A recent study found that one-quarter of all land in Manhattan is covered by streets, presumably causing public streets to account for at least one-quarter of the borough’s storm water runoff,” Thompson said. “However, the treatment cost is absorbed solely by water system customers.  This is wrong.”

“The current study is extremely important because it may influence the creation of a new water rate structure for years to come. It is therefore critically important that that this study be both transparent and credible,” Thompson wrote. “I have directed my staff to continue monitoring this matter closely.”   

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