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|  Statement on Fiscal Year 2010 Rate Proposal from Steven W. Lawitts, Acting Commissioner of the New York City Department of Environmental Protection As we prepare to present the 2010 rate proposal, I want to share some highlights of the year and address various questions that are sometimes raised in connection with the rate. Though our City and our Department face economic challenges that are very much influencing the way we do business, the Bloomberg Administration is arguably presiding over the most important period of revitalization for New York City’s water and wastewater infrastructure since the creation of the Delaware Water Supply system in the 1950s and the post 1970s transformation of our Waste Water Treatment System. The Third Water Tunnel, the Croton Water Filtration Plant, the Ultra Violet Treatment Plant, land acquisition and infrastructure support for the Filtration Avoidance Determination (FAD), sweeping changes to the Newtown Creek Waste Water Treatment Plant, and preparation to fix the Delaware Aqueduct are just a few of the agency’s significant on-going projects. These projects are ambitious and forward thinking. They are in the best traditions of the engineers who more than 150 years ago began building one of the greatest water supply systems in the world, and will ensure that this system can support an additional population of 1 million people by 2030 and remain viable for generations to come. However, we are also acutely aware that we are building these projects at a time when our account holders are particularly concerned about their personal finances and are facing increases in many of their living expenses. Unfortunately, we do not have the option to slow or reduce this program of capital investment, since most of our major projects are mandated. We must build them on a set schedule, which means that in some cases we end up paying significant debt service on several large projects at once. This year, debt service is neck and neck with our operating budget as both a component of providing service and the rate. That said, we continue our efforts to seek from our regulators mandate relief where it does not compromise public health or environmental quality. We hope for some success in the future, which could have an effect on moderating rates. But, it is also undeniable that in addition to the fundamental benefits that these projects will provide for the system, they also have a tremendous stimulative effect. Looking only at our three largest on-going projects—the Croton Water Filtration plant, the Ultra Violet Treatment plant, and the Newtown Creek Waste Water Treatment Plant—together they provide work for approximately 1,700 contract employees. This is particularly important to note as communities around the country consider the possibilities of the economic stimulus programs created by the American Recovery and Reinvestment Act (ARRA). In talking about stimulus, however, I must mention that water infrastructure is unlike many of the other major infrastructure categories where states and municipalities will get a majority of the ARRA money in grants. In the 1970s, waste water infrastructure took a great leap forward, but nearly 90% of those upgrade costs were funded through Federal and State aid—primarily in the form of grants. Since then, however, money to support water and wastewater infrastructure has come in the form of low interest loans. Though this is certainly preferable to paying the full cost of borrowing, loans do not have the same mitigating impact on our system costs or rates as grants. Ultimately, the decision to allocate stimulus funding as grants or loans will be determined by the State, and City officials and DEP staff members have spoken extensively with State officials who will be involved in making this decision. DEP and the water system achieved considerable successes last year. We implemented ways to make sure that everyone pays his or her fair share, through the stand alone lien sale and water service terminations. The lien sale—and the Payment Incentive Program that we offered to delinquent customers prior to the lien sale—netted approximately $100 million and started us on the way to dramatically reducing the number of long-term delinquencies. That reduction has continued in Fiscal Year 2009, with serious delinquencies down more than 10% over last year. If we did not have the lien sale, we would be looking at a much more significant revenue gap, which would undoubtedly have an impact on the rate. At the Water Board meeting today, we have also introduced denial of access and theft of service charges for property owners who do not provide access for our meter readers or where deliberate tampering with city-owned metering equipment has occurred. We have also started implementation of Automated Meter Reading, which will improve the accuracy of customer information and eliminate the need for estimated bills. To date, more than 3,500 meters have been installed, and when citywide roll out is complete, we expect collection rates to increase substantially. We have introduced all of these programs with a sensitivity to the concerns of our most vulnerable customers, and created the Safety Net, which connects these customers with existing financial counseling and social services at other city agencies. To date, this program has served more than 1,500 potential clients. But, like many organizations this year, we have faced considerable challenges. One of the biggest challenges has turned out to be the unexpected six percent drop in water consumption. If this unprecedented trend continues, FY 2009 will mark the lowest water usage since the severe droughts of the 1960s. Based on past trends, DEP plans for reductions in usage, but such a large unplanned decrease does have an impact on the rate. Last year, our rate was also influenced by the skyrocketing cost of energy and chemicals. In addition, we experienced the negative effects of one of the most extreme periods of construction inflation in recent memory. The construction market was so competitive, that we were not only competing against other city and regional projects (both public and private) for bidders, but also against ourselves. As a result, all of our bids came in high. Last year, for instance, we awarded two of the largest construction contracts in city history. The high cost of construction over the past few years will continue to have an effect over the next few years as our debt service grows. We are pleased, however, that construction costs do appear to be coming down, which should have a beneficial effect on rates in the future. In recognition of rising system costs, this year we have worked to reduce our operating budget and have already cut it by 5 percent as have other city agencies. We identified savings in areas which would not affect drinking water quality, waste water treatment, or our extensive environmental health and safety program. We have already taken similar cuts in our FY ’10 operating budget and continue to look for further reductions. The following are some issues raised in the past concerning the financing of the water and sewer system: Rental Payment
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MORE INFORMATION
NYC Department of Environmental Protection
Communications & Intergovernmental Affairs
59-17 Junction Boulevard
19th Floor
Flushing, NY 11373
(718) 595 - 6600
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