-- Testimony Criticizes DEP’s “Precipitous” Proposals, Brands them “Scare Tactics” --

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New York City Comptroller William C. Thompson, Jr., represented by Deputy Comptroller for Budget Marcia Van Wagner, provided testimony today at the New York City Council’s Finance and Environmental Protection Committees hearing regarding City water billing and collections.

The testimony focused on the three proposals by the Department of Environmental Protection (DEP) to the City Council and Water Board to address revenue shortfalls. The testimony can be viewed at www.comptroller.nyc.gov.

The DEP is projecting a $200 million shortfall for this year, maintaining that it is due largely to the lack of a water lien sale in 2007. DEP has asked the City Council to authorize an expanded water and sewer lien sale program and the Water Board to approve much more stringent collection procedures. Further, DEP has initiated the process for a mid-year rate increase of 18 percent. Of DEP’s three proposals, Thompson considers only the lien sale authority to be reasonable.

Of the water lien proposal, Thompson said: “Allowing water-only lien sales is a sensible approach if DEP can be certain that the relevant accounts are accurate. Lien sales are also the best enforcement tool for delinquent properties such as rental apartment buildings where water shut-offs would penalize innocent tenants.”

Thompson criticized the other two proposals, saying they are “precipitous and smack of scare tactics.”

“The detailed information on collections and arrears that is needed for sound policy decisions has been sorely lacking,” Thompson said. “It appears from the limited data DEP has made public that the collection performance has varied in unexplained ways and has so far in October been bouncing back. There is not sufficient evidence to allow DEP to leverage the potential shortfall into a contrived emergency for the purposes of attaining radical policy changes.”

Today’s testimony comes weeks after Thompson’s October 2 letter to the Water Board. In that letter, Thompson noted that the FY 2008 budget includes an $84.5 million surplus, on top of approximately $55 million in additional funds rolled over from FY 2007. Thompson proposed that the funds be used to offset any need for mid-year rate increases, which in combination with a sensitively implemented collection strategy would allow time for a more comprehensive financial review and plan to be completed.

In June, Thompson suggested a change in the rental payment from the Water Board to the City that would lessen the pressure on water rates in both the short- and long-term. Currently, the Board pays the City an amount that is the greater of either the debt service on outstanding water-related debt predating the establishment of the Water Authority in 1985, or 15 percent of the Water Authority’s debt service.

From 1986 to 2004, this formula led to rental payments by the Water Authority in the amount of General Obligation (GO) debt service. Starting in 2005, however, there began to be a growing disparity between rental payments and GO debt service. Rental payments are expected to increase between 2007 and 2011 while GO debt service is expected to decrease. The difference is “excess rent.” In FY 2008, excess rent will total $77 million, growing to $175 million by fiscal year 2011.

Thompson proposed to rebate the excess rent back to the Board and use it to offset the costs of running the water system. Using the excess rent in this way would save ratepayers approximately $276 million during FY 2009 to 2012.

Thompson concluded: “Public policy always involves finding the right balance among competing needs. In this case, the DEP’s regulatory and rate proposals jump too quickly to the ratepayers’ pockets without adequately using the tools and resources already at hand.

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