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Independent Budget Office: It’s Debt, Not Rent Payments

  • 21 May 2014
  • networx

Independent Budget Office: It’s debt, not rent payments, that drives water and sewer
(An interesting article from NYC)
It’s not the rent payments the city charges for use of the water system that’s driving water rates but rather the cost of paying off huge capital projects, the Independent Budget Office said in a report Monday.
While it has been the scapegoat of many a press conference on skyrocketing water rates, the rental payment takes a back seat, the report found.
“Lowering the rental payment has only a limited effect on reducing water and sewer rates. More substantial savings would require reducing debt service by curtailing capital spending for the system, lowering operations and maintenance costs, or changing the structure of the system’s financing,” the report found.
The city charges its own city-run Water Board “rent,” based on the cost of debt service to pay off big projects — but that rental payment sometimes goes into the general fund to help boost the city’s coffers, drawing the ire of elected officials who denounce it as a back-door tax. It has drawn plenty of criticism in recent years, including from Mayor Bill de Blasio when he was public advocate, as the reason for rate increases.
A cap on rental payments was initiated in 2012, designed to save ratepayers $100 million. But while that will help, the bulk of savings homeowners will experience are due to “lower-than-expected debt service costs,” according to the IBO.
From 2005 to 2013, the rental payment rose by 91 percent, from $109 million to $208 million — a direct result, IBO said, of debt service doubling from $701 million in 2005 to $1.5 billion in 2013.
That debt service is going to pay for the cost of building massive, federally required infrastructure upgrades like the Croton Filtration Plant.
The cost of operating the system, meanwhile, has grown more modestly – 40 percent since 2005, from $836 million to $1.2 billion in 2013.
“Although ratepayers will see the savings that the pilot program to cap the rental payment was expected to produce, those savings largely stem from lower-than-expected debt service costs rather than from the cap itself,” the IBO report found.