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New York City Comptroller William C. Thompson, Jr. today testified before the New York City Water Board on his long-range proposal to limit future debt through the use of “pay as you go” capital financing while lowering charges to ratepayers.

The Comptroller’s testimony comes several weeks after the Board approved an 11.5 percent rate increase, and amid predictions of double digit increases from 2009 to 2011.

“The new rate hike points to a challenge we now face: how to expand our water capital program while at the same time reducing the burden on rate payers and minimizing debt service,” Thompson said in testimony. “My office has come up with an innovative plan that could achieve those important goals. The timing could not be more fitting for such an initiative.”

Thompson’s testimony follows a letter he sent to the Board before last month’s vote to increase rates, which takes effect July 1, 2007. The proposal pointed to an additional 23 percent growth in the Water Authority’s 10-Year Capital Strategy that will trigger further increases. You can read the letter and testimony at www.comptroller.nyc.gov.

“Not since 1992 have ratepayers been faced with double-digit hikes, and the impact on homeowners and affordable housing will be substantial,” Thompson wrote in the letter.

“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.”

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’s analysis 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.

“I firmly believe that the Water Board should open discussions with the City to renegotiate its lease rental formula,” Thompson said in his testimony Tuesday. “The timing could not be more opportune. We are enjoying the largest surplus in the City’s history. At the same time, the Water Authority has the highest ratings it has ever experienced. The use of additional pay-go spending as I have proposed today will further protect those ratings.

“Finally, at a time when middle class New Yorkers are being increasingly squeezed, we need a rate structure that gives average taxpayers in our City some breathing room. I urge you to act now to reduce the water rate burden on New York City property owners. In addition to keeping costs to taxpayers down, you will decrease our debt service, protect Water Authority credit ratings, and lessen the cost of borrowing while making needed improvements to our capital program.”

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