City Journal

Peter Judd and Roger Starr
How to Keep New York's Water Running
Upstate development and federal environmental mandates threaten New York's supply of both water and housing
Summer 1992

The price of water in New York is going up: Water and sewer charges have doubled since 1986 and are expected to continue increasing at an annual rate of 10 to 15 percent. As a result of increasing demand and federal clean-water mandates, the water system needs billions of dollars to maintain water quality, reduce sewer discharges into the water around New York, complete a third tunnel to carry water through the city, add new resources to the supply, and perhaps most costly of all, filter all of it. To help pay for this and to encourage responsible use of water, the city has embarked upon a water metering program, so New Yorkers will directly bear the costs of the water they use.

The metering program, however, is dangerously flawed in its treatment of apartment buildings. It is nearly impossible to meter an individual apartment, so one meter is installed for the entire building, and the landlord pays the bill. Although these bills are far higher than under the old billing system, rent regulation prevents landlords from passing their increased expenses on to tenants—many of whom could not afford to pay anyway. The likely result is a new housing abandonment crisis that would leave thousands of New Yorkers homeless and add to the inventory of city-owned buildings, which already costs the city some $1 billion a year to maintain.

The approaching tragedy begins with a blessing: New York City has one of the world’s finest gravity-fed municipal water systems. Its storage reservoirs straddle the Hudson River, draining the Croton River in Westchester County, the mighty Delaware on the west slope of the Catskills, and a number of smaller streams on the mountain range’s east slope. The city’s reservoirs were designed to be large enough to supply the city and suburbs with all the water they would need to survive a drought as long as the worst of the last hundred years.

But these assets have depreciated. The Croton River system, which provides 10 percent of the city’s water, once was surrounded by deep country. It is now encroached upon by developments whose sanitary systems leach effluents into the drainage areas around the reservoirs. Still of acceptable quality, the Croton water has nevertheless been tainted and is expected to get worse. Since there is no way to roll back the development that created Croton’s problems, the city is building a plant at a cost of just under a half billion dollars to filter the Croton supply. The filtration plant will cost as much as $60 million a year to operate, nearly 10 percent of the total 1991 operating budget for water.

Although development in the Catskill region has lagged behind Westchester’s, there are signs that the city may soon have to make a major capital investment there as well. Inadequately treated sewage is currently flowing into streams that feed the Catskill and Delaware reservoir systems. New roads have been built in many sections of the reservoir country, hastening storm water drainage and washing salt (applied to the roads for de-icing) into the streams and reservoirs. Runoff containing animal wastes and pesticides is also a problem in farming regions.

The Federal Safe Drinking Water Act makes the pressure more immediate. It requires all municipal surface water systems to be filtered regardless of how clean the water is to begin with. The Environmental Protection Agency has mitigated the burden this requirement imposes, by allowing states to grant waivers to municipalities. The state agency that administers the law in New York has put the city on notice to prove by the end of the year that its water is and will remain safe enough to drink. Filtering the Catskill and Delaware supplies might cost as much as $6 billion, on top of the water and sewer system’s current ten-year capital budget of $10 billion, as well as $800 million a year to run the plants thereafter. By contrast, in 1991 the entire cost of operating the water and sewer systems was $650 million.

An alternate scheme has been proposed by Albert Appleton, commissioner of the city s Department of Environmental Protection. He would attempt to control land use by regulation, acquisition of development rights, and outright purchase of strategic sites in the Catskill region. No one knows how much the Appleton plan would cost, but the figure of $1 billion has been floated by some supporters. The Appleton plan would almost surely be cheaper than filtration. But it relies on land use controls and discharge limitations that have been bitterly opposed by many residents of the area. Nor will it necessarily keep the water pure enough to meet the Federal Government’s requirements, which may be overly strict.

The city’s water authorities face substantial expenditures on the sewage side as well. The city has already been forced to commit $4 billion between 1992 and 1996—more than 70 percent of the capital budget for the water and sewer system in those years—to meet federal mandates to reduce the release of pollutants into the Hudson and East rivers.

Another $1.6 billion is being spent to dispose of sludge on land. The Federal Government prohibited deep sea disposal after medical wastes washed up on New Jersey beaches in 1988—a phenomenon that had nothing to do with sludge. New York City has been dumping sludge 101 miles out at sea in an area away from the continental shelf, said by a number of oceanographers to be a biological “desert” entirely acceptable for the purpose. Yet the Federal Government has not weighed the adverse environmental effects of “dewatering” the sludge in electricity-powered shakers and disposing of it on land. This is a dubious way to “save the planet.”

Even apart from these federal mandates, however, the water system’s capital expenses are likely to grow because of a long-term trend toward increased water consumption, a series of unusual dry spells in recent years, and the possibility of other communities—particularly on Long Island, where the existing water supply is threatened by pollution—turning to the city for water. Nassau and Suffolk counties draw their water from deep wells, which are subject to contamination by salt water and wastewater discharges into the sandy soils of the island. The fast-growing upstate counties abutting the water tunnels and supply all have statutory rights to the city’s water. The costs of adding new reservoirs would be very large; the political opposition, even to such relatively mild measures as tapping the Hudson River in the spring freshet, has been and will be formidable.

One way to reduce the need for expanding the water supply is to reduce the demand. Serious conservation efforts have never been undertaken in New York except during droughts. Moreover, each past expansion of the water supply has been followed by higher levels of use. New Yorkers use 20 percent more water per capita than other Americans, about a third more than Canadians, and twice as much as Europeans. There is thus a large potential for conservation. The leading method to control demand is the meter: The user pays for the water he uses instead of the flat fee that is common in the absence of meters. (Sewer charges in New York City are a percent of the water charge; formerly smaller, they are now well over 100 percent of the water charge because of the high cost of pollution control.) Universal metering began six years ago in New York City; prior to 1986 only commercial and industrial properties were metered. Metering replaces the misleadingly termed “frontage” method of billing, a formula based on such factors as the number of apartments, number of fixtures, and height of the building, as well as the length of the front lot line for which it is named. It was intended to represent average water use for a given building, but it now appears that it reflects lower-than-average consumption.

Almost half of the one- and two-family houses in the city are now metered, but less than 10 percent of the over 100,000 apartment buildings are. In those buildings, the potential for conservation may not be unlocked by the “discipline of the meter.” This is borne out by the records of a number of apartment buildings where a meter has been in operation for a year or more. The households in these buildings use more water than expected, more than the national average. By contrast, consumption figures in metered single-family homes are coming in substantially below the level estimated by the frontage formula, suggesting that billing on the basis of consumption does encourage conservation if the consumer is the one paying the bills. In an apartment house, a single meter for the entire building does not pinpoint the consumption of individuals and provides residents no incentive to be frugal in their water use. Thus the meter in the basement of a multiunit building fails almost as dismally as a flat rate to determine who is wasting water and make him pay for it.

The impracticality of metering the water use of apartments is a particular problem for New York because of the city’s high number of apartment dwellers. In Chicago, for example, less than half of the city’s families live in apartments; in New York, some 70 percent do.

Observations of the first apartment houses to be metered show an average use of 292 gallons per apartment per day, about 30 percent more than what the frontage rate would have paid for. This translates into 113 gallons per person per day at home, considerably higher than the national average of 94 gallons. The divergence between buildings is striking: The heaviest users of water consume over 700 percent more per apartment than those on the low end. Yet because apartment buildings use almost 50 percent of the water sent to the city, they are crucial to any conservation effort.

The obvious answer is to install meters for each individual apartment. Unfortunately, this is a prohibitively complicated and expensive task. Water, unlike electricity and gas, cannot be delivered through a single connection. In a typical residential building, each apartment is provided with water by several separate vertical supply lines called “risers.” Each fixture has its own set of risers, one for hot and one for cold water; at every floor each riser typically connects with more than one apartment. In a modest apartment, containing kitchen and bathroom sinks, a shower, and a toilet, there could be as many as seven separate lines requiring meters. There are systems being used in Europe to meter such intakes and read them automatically. But because of the cost of installation, including the price of placing meters within the apartment, it is likely to be a long time before they are introduced in New York. (The devices might also have short lives, given the ingenuity of some building residents.)

Another problem with metering apartment buildings is that the heaviest water users turn out to be those who can least afford to pay higher rates. After metering was introduced, officials realized that the frontage formula had provided for a huge subsidy from buildings with well-to-do residents to those with poorer households. Results of meter readings show that the highest household water use is in low-income neighborhoods, in part because of large families and overcrowding. Consumption of four hundred to six hundred gallons per apartment per day—up to twice the average amount—is found in buildings renovated under the recently active city-sponsored programs, and a number of private owners have reported similar levels of use.

Current city policy makes building owners solely responsible for water and sewer charges in apartment houses. There are some things a landlord can do to bring down water consumption: maintain his fixtures well, replace wasteful toilets and shower heads with new water-efficient ones, and engage in aggressive management: having the super visit each apartment to check for leaks at least once a month and responding immediately to reported leaks. But such surveillance is not always possible, and few owners in the most vulnerable buildings have the ability to keep up such efforts, given the other pressures they face.

A keen super might be able to reduce a building’s water use by 10 to 20 percent. In many cases, however, this is not enough. A building on Grand Street in Manhattan, for example, received an annual bill for $30,000 based on metered use; its bill based on frontage had been $6,000. A thirty-apartment building on Catherine Street in Manhattan saw its bill skyrocket from $4,750 to $21,000 when metering began. The Community Housing Improvement Program, an association of small landlords, reports that water and sewer rates went up 258 percent in three Bronx buildings during the first year of metering. This translates to a monthly increase of $28 to $42 per apartment—a substantial sum for apartments whose rents range from $350 to $500 a month—which cannot be passed on to tenants because of rent regulation or low tenant incomes.

Water and sewer costs have increased at an annual rate of 15 percent or more. Combined with property taxes, which have risen by 22 percent for the average building over the last four years, they are threatening the economic viability of many buildings in low-income neighborhoods. Generally the landlord cannot find relief by raising rents, either because of regulation or because the tenants cannot pay. A rule of thumb is that for a healthy building, operating costs consume about 60 percent of rental income, the balance being available for mortgage payments and return on investment. In rent stabilized buildings, according to the Rent Guidelines Board, the average share of rental income devoted to operating costs is 72 percent. Thus it is already difficult to operate such a building without losing money. With water and sewer rates rising at double-digit levels, the already vulnerable economies of these buildings will deteriorate further, especially as new expenses such as filtration and sludge disposal drive rates still higher. Building owners will do what they did at other times when the rigidities of rent control rendered them incapable of earning money on their investment: They will bleed their properties as long as they can and finally let the city take them over for nonpayment of taxes or, in this case, of water and sewer fees.

Building owners have already turned to the city and pointed out that they are unable to meet their payments under the metered water system; even if they could legally pass the cost on, their tenants would also be unable to pay. The largest owner group, the Rent Stabilization Association, has even filed a lawsuit demanding that the metering program be stopped, in part because it does not promote conservation. The authorities have so far granted moratoriums permitting owners of residential buildings to continue paying on the frontage formula (meaning, of course, that since they are not paying the full costs of what they use, the difference must be made up by others).

Such stopgap solutions can last only so long. The time is coming within the next five or six years when all city buildings will be metered and rising water charges can no longer be put off by interim and temporary deferrals. In a city already plagued by a shortage of low-cost housing and by a substantial population in temporary shelters, a serious new loss of housing would be a tragedy. Avoiding it will require changes in local, state, and federal policies and regulations, and in the administration of environmental, water, and sewer functions within the city. Still, several things can be done.

The first is to establish, to the degree practicable, the principle that individuals are accountable for the water they use. An effective beginning would be to change the housing statutes to require that water and sewer charges be assessed as a separate item on the rental bill. The Water Board should establish a normal expected level of water use for each residential building. Landlords would be required to pass the cost or savings on to tenants by assessing rent surcharges or granting credits depending on whether water use exceeded this baseline during a given month. By forcefully reminding apartment residents as a group of the cost of water, such a policy would likely spur conservation. The political opposition to such a proposal would be strong, however.

More fundamental changes are necessary as well. Water and wastewater treatment are increasingly expensive, and should no longer be considered a municipal service, but a utility with a monopoly product—just like the electric and gas utilities. The water and sewer operations in the city should be established by state statute as independent public utilities, either as privately owned companies or independent public authorities. Two separate utilities should be established: one responsible for the water supply, wastewater treatment, and large-scale capital projects; the other for water distribution within the city, including maintenance of the mains and service lines and customer relations. Such a division between supply and distribution is a common arrangement in both energy and water utilities throughout the nation.

The distribution utility would purchase water from the supplier and be provided a rate of return on its investments, creating incentives to improve cash flow through efficient and timely billing and maintenance of hydrants and mains, which would reduce waste. The discipline of “profit” would reduce the costs of the system. It is an obvious discipline on privately owned utilities, but can be extended to public authorities selling a product as well. Public utility status for the city’s water and sewer operations would also contribute to long-term professional stability for the skilled staffs necessary to maintain and rebuild the system.

Water and sewer services are a monopoly and require regulation; since the present and future costs of the system are so enormous, and the impact on customers has such potential for devastation, approval of rates, expense schedules, and debt requires sophisticated skills. Fortunately, New York State has an outstanding Public Service Commission, which could apply the lessons of other utilities to regulating the water provider. The water utilities should regard reduction of water consumption as one of their primary goals. Thus, the Public Service Commission could institute demand management regulations, similar to those imposed on electric utilities, requiring the water company or authority to conserve water at the point of use by investing in water-efficient appliances such as low-flow toilets, which use 1.6 gallons per flush, compared with five to six gallons for conventional toilets. To meet the needs of low-income consumers, the commission could institute subsidized “lifeline” rates similar to those offered by local phone companies. In the long run, such skilled oversight of the costs of water and sewer service would give customers confidence that rate increases were being held to a minimum and that cross-subsidies between users were strictly controlled.

It is particularly important that private users not be required to subsidize the use of water and sewers by the city: its offices, housing developments (including tax-foreclosed in rem housing), parks, street cleaners, and subsidiary authorities such as the Housing Authority and Health and Hospitals Corporation. Currently the city pays for its water according to a formula that may underestimate use even more than frontage does. By underpaying, the city and public authorities make building owners pay for costs that should be borne by the general tax base. This practice is not fair and it risks further damage to the city’s housing stock, already made vulnerable by the rapid increase in water charges.

These organizational changes would restrain the growth in the cost of the water and sewer systems, but they would not solve many of the enormous problems that are foreseeable. The potential capital costs of filtration and new supply may simply be too high to be met by charges against the housing costs of New Yorkers, particularly those who live in apartments.

An assumption behind the establishment of the “self-funding” system of the Water Finance Authority and the Water Board was that the residential population, who use three-quarters of the water in the city, can afford to pay in full for the water system by user charges. But the enormous costs imposed by present and proposed federal mandates mean that this is no longer a viable premise.

It is unjust for the Federal Government to establish ever-tighter standards for drinking water quality and sewage discharge, and then force municipalities to bear the full costs of meeting those standards. The city should lobby Congress to legislate aid to municipalities forced to filter their water supply. The government has supported wastewater treatment plants by giving similar grants to municipalities. The city should cite the effect on housing of the $10 billion of mandated expenditures in the next five years as evidence of the environmental and social effects of proposed environmental improvement measures.

Water quality has declined because of increases in the rural and suburban population. New York City, a municipality that built its reservoirs years ago in clean, underpopulated areas, cannot fairly be expected to bear these costs. Nor can the owners or tenants of buildings in low-income areas. The national Safe Drinking Water Act should therefore be amended, providing funds to assist municipalities when filtering becomes necessary because of population growth outside the city.

It is possible that all of these proposed measures would not bridge the gap between what can be raised from occupants of residential housing and the financial needs of the water system. Supplementation from the city’s general tax revenues may be necessary to keep low-income buildings whose residents use large amounts of water from falling into abandonment. The threat to the soundness of New York’s water supply is not yet fully grasped by most New Yorkers, but neither is the threat that water metering poses to what remains of the housing stock. The city is nearly alone in its fight to bring water consumption and water maintenance under control. But that must quickly change if we want to ensure that our future water needs will be met while averting the destruction of a significant portion of our privately owned housing.

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