Plan could generate $277.6 million in savings over four years

View Water Board letter

New York City Comptroller William C. Thompson, Jr. today offered a long-range proposal to the New York City Water Board that would effectively lower charges to ratepayers while at the same time limiting future debt through the use of “pay as you go” capital financing.

The proposal was outlined in a letter Thompson delivered to Water Board members in advance of the Board’s vote today that could hike rates by 11.5 percent for Fiscal Year 2008. In the letter, he also pointed to an additional 23 percent growth in the Water Authority’s 10-Year Capital Strategy that will trigger further increases.

“Not since 1992 have ratepayers been faced with double-digit hikes, and the impact on homeowners and affordable housing will be substantial,” Thompson wrote. “I urge you to look beyond the current year and consider how to re-balance the annual demand on ratepayers and the system’s long-term capital needs.

“We believe there is an opportunity to improve this balance while maintaining the Authority’s strong AA-level ratings, which are important to continued cost-effective financing of the capital program,” Thompson stated.

The Comptroller noted that the Water Authority’s rent payments, which are determined by a City-established formula, are growing dramatically. Typically, rent is funded in the last months of the year and after all debt service expense is set aside.

“Rather than transfer the funds to the City, the funds could be retained by the Board and formally rebated by the City to the Board for the use of the Authority,” Thompson wrote.

The Comptroller suggested sharing the rebated rent between two uses to address both short- and long-term needs:

• Return to Ratepayers. Rent could be effectively returned to ratepayers in a variety of ways. Most simply, funds could be rolled forward to reduce the need for subsequent years’ rate increases.

• Fund Capital on a Pay-As-You-Go Basis. By reducing borrowing needs, greater use of “pay-go” would pay financial dividends for decades to come. If half the estimated “excess rent” for 2005-2036 was applied to “pay-go” capital, $4.46 billion less would be borrowed, saving $9.81 billion in total debt service through bond maturity.

Thompson provided an analysis that noted that the annual “excess rent” is estimated to be $76.7 million, $121 million, $123 million and $175.1 million in FYs 2008 through 2011. If one-half of the excess rental payments were applied to rate relief and the other half used as “pay-go” capital, it could result in estimated savings of $277.6 million over the four years.

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