New York City Council Committee on Environmental Protection Fiscal Year 2014 Executive Budget
May 9, 2013
Testimony of Carter Strickland,
Commissioner, New York City Department of Environmental Protection
Good afternoon Chairmen Recchia and Gennaro and Members. I am Carter Strickland, Commissioner of the New York City Department of Environmental Protection (DEP). I am joined today by Steven Lawitts, DEP’s Chief Financial Officer; Joseph Murin, DEP’s Assistant Commissioner for Budget; and other senior managers. Thank you for the opportunity to testify on the Fiscal Year 2014 (FY14) Executive Budget.
Before I review the Expense and Capital budgets I want to review with Members the proposed water rate increase for FY14.
On April 5th, DEP proposed a 5.6% increase in the FY14 water rate to the New York City Water Board. If adopted tomorrow that would be the lowest increase in eight years and the fourth year in a row that the increase has come in significantly below the previous year’s projection. A typical single-family homeowner would see an increase of approximately one dollar per week, from $939 a year now to $991 a year in FY14, based on an average consumption of 80,000 gallons of water per year. A typical multi-family unit with metered billing would see their bill go from $610 a year per unit to $644, based on an average consumption of 52,000 gallons of water per year. Among essential services here in New York City – shelter, electricity, heat, and of course water – only the charges for water and wastewater are below the national average of 30 major U.S. cities.
Although I understand that no increase is ever welcome, the need to maintain and improve the delivery of water and sewer service is critical. In the absence of regular state and federal assistance for environmental infrastructure, rates borne by property owners are the only way we have of providing the revenue to support this service, which is essential for local public health and quality of life and is highly regulated at the state and federal levels.
We were able to reduce the FY14 rate increase by over two points compared to the projection last year due to the following factors:
- our continued commitment to efficiency and cost-cutting without sacrificing the quality of the services we provide to New Yorkers;
- strong revenues due to the 96% completion of the automated meter reading initiative;
- regulatory advances that have enabled us to better control our capital budget; and
- low interest rates that allow us to build necessary infrastructure at low cost.
For FY 2014 alone, DEP is cutting its operating budget by 4% to save $37 million, including the Operational Excellence, or OpX, program initiatives. Fifteen Operational Excellence initiatives implemented through March 2013 are projected to save $15.7 million per year. DEP anticipates Operational Excellence initiatives implemented by the end of FY 2013 will produce recurring annual savings of over $20 million. Also, our pilot program to cap the Water Board’s payment for rental of the water supply and wastewater systems resulted in a $12 million refund to the Water Board in FY 13 and is projected to bring $10 million in FY14.
The 5.6% rate increase was also made possible by revenue projections that are higher than planned due to the near completion of DEP’s meter replacement and wireless meter reading initiatives. DEP has installed 820,000 wireless meter reading devices – 96% of target – which have had a favorable effect on collections, even above our projections. As of May 9, revenues were $91 million or 3% ahead of projections. Another benefit of wireless meter reading is that we are seeing a 77% reduction in estimated bills since 2009, and a 16% reduction in billing disputes since 2008. These developments mean that we will start FY14 in a strong position.
DEP has also benefited from what we hope is a continuing shift in regulatory policy away from very capital-intensive mandated projects. From 2002 through 2012, 65% of DEP’s capital spending was for mandates. And even though the projects funded during that period may be complete, or nearly complete, ratepayers will be paying debt service related to these projects for years to come. Unfunded federal mandates cost the average homeowner $258 this year on their water bill.
DEP has been successfully working with regulators to reduce future mandates and in the FY14-23 Capital Plan the percentage of mandated projects will fall to 16%. Last year DEP eliminated or deferred $3.4 billion in mandates for handling combined sewer overflows by gray infrastructure with a new mandate for green infrastructure projects in an amended consent order with the New York State Department of Environmental Conservation. DEP also deferred $1.6 billion for construction of an unnecessary cover over the Hillview Reservoir and is evaluating the alternative of incremental monitoring.
This reform effort is ongoing and DEP is particularly concerned about proposed federal and state regulatory actions regarding the Gowanus Canal, storm sewer systems, combined sewer overflows, and stringent new permit limits, which could cost ratepayers many billions of dollars. Nevertheless, the reforms achieved to date will allow DEP to allocate investments towards building out storm sewers in areas that flood, replacing water and sewer pipes, and keeping our treatment plants in a state of good repair to maintain the water quality levels achieved since the passage of the Clean Water Act.
Finally, interest rates played a valuable role in keeping this year’s rate increase two points below our projections. Actual debt service payments were $147 million lower than projected in FY 2013 due to continued low interest rates. With lower interest rates available since 2009, the Water Finance Authority has refinanced over $5.3 billion of higher-cost debt, achieving over $700 million of debt service savings.
The Executive FY14 Expense Budget
The projected expense budget for FY13 is $1.7 billion, including approximately $577 million in general funds for the Rapid Repairs program, for which DEP served as the contracting entity, pending reimbursement from the Federal Emergency Management Agency. For FY14 we expect DEP’s expense budget to be $1.1 billion. That number includes an 8% reduction on the tax levy part of the agency’s budget, and a 4% reduction in the operating budget for the water and sewer systems.
The 4% reduction, amounting to $37 million, includes the following items:
- $5.7 million in savings related to the use of chemicals, achieved by re-negotiating contracts, changes in our process, and reductions in quantities used;
- $1.6 million in savings created by vacating a fleet garage made redundant through fleet consolidation;
- $4.5 million in savings through re-alignment of duties, re-allocation of personnel, and a reduction in headcount; and
- $1 million in savings from contracting-in for positions related to wastewater sampling and floatables control.
The Agency also had an increase of $30 million for items that have to be expensed based on a stricter interpretation by the Comptroller’s office in applying Directive 10. This includes Filtration Avoidance Determination programs such as septic replacement, stream bank management and forestry, as well as dredging at Kensico Reservoir. After taking into consideration these and other efficiencies and reductions, as well as offsets for new needs and programs to staff new facilities and modernize the agency, the net reduction in the Executive FY14 expense budget as compared to the FY13 Executive Budget is projected to be $14 million.
The expense budget breaks down into the following large categories:
- The Preliminary FY 14 budget projects $453 million, 41% of the total, in personal services to pay the salaries for our nearly 6,000 funded positions. As with other agencies, changes in non-salary benefits are not shown in individual agency budgets.
- Taxes on upstate watershed lands account for $157 million or nearly 15% of the expense budget. As I noted during the March budget hearing, I am pleased to report that we have successfully negotiated agreements with upstate jurisdictions to make our tax obligations more stable and predictable and, in some cases, to reduce them.
- Heat, light and power – DEP’s energy costs – account for over $111 million or 10% of the FY14 expense budget;
- DEP has a number of energy projects in its capital plan like high-efficiency centrifuges that will reduce dewatering costs, new engines and refurbished boilers at 26th Ward that will increase efficiency by 15%. These and other energy projects are expected to reduce energy costs by more than $5 million annually.
- Sludge management of 1,200 tons per day is projected to cost about $40 million in FY14, or about 4% of our projected FY14 expenses. To reduce these costs, with the assistance of our Operational Excellence program, we developed a mechanism to optimize our existing sludge disposal contracts, resulting in a savings of $500,000 per year.
- In addition, we have just let a new biosolids disposal contract to replace our most costly contract. This is expected to save us approximately $1 million per year.
Executive Ten-Year Capital Plan for FY14-FY23 (“the Capital Plan”)
The Capital Plan projects total capital spending of $12.4 billion between fiscal years 2014 and 2023. Highlights of the Capital Plan are as follows:
The Capital Plan projects a $4.4 billion investment in wastewater treatment projects, $3.5 billion of which is for the reconstruction or replacement of components of the wastewater treatment plants and pumping stations. The remaining $878 million investment will be used to control combined sewer overflows, with $661 million for green infrastructure such as green roofs and bioswales and the remainder for gray infrastructure, such as tanks and tunnels to store wastewater. In addition, $195 million is budgeted for the construction of a new cogeneration plant at the North River Wastewater Treatment Plant.
The North River cogeneration project is one of the projects funded in the Capital Plan that will help get us to the PlaNYC goal of a 30% reduction in greenhouse gas emissions by 2017. Since peaking in 2008, greenhouse gas emissions from DEP facilities have decreased by 14% through increased capture of fugitive emissions from sewage treatment plants, as well as decreased natural gas consumption. Our capital program contains projects that DEP will complete by 2017. Those projects will reduce our greenhouse gas emissions by an additional 75% or 225,000 metric tons.
Reservoirs, Dams, Treatment Facilities and Water Mains
Over the next ten years, DEP is proposing to invest an additional $3.5 billion in protecting the quality of our reservoirs and the integrity of our dams, providing for treatment where necessary, and maintaining and repairing the water main system that conveys potable water to all New Yorkers. The principal project categories are:
- $385 million for the reconstruction of dams in our three watersheds; and
- $535 million for pressurization of a two and one-half mile segment of the Catskill Aqueduct that will increase the volume of water available to the city and re-establish DEP’s ability to bypass the Kensico Reservoir when necessary to access the highest quality water.
The Rondout-West Branch Tunnel and Water for the Future
The Capital Plan provides $560 million for the Rondout-West Branch bypass itself and $113 million for other projects related to providing supplemental sources of water during the Delaware Aqueduct shutdown. Increasing the capacity of the Catskill Aqueduct – a project distinct from pressurization – accounts for an additional $146 million.
City Water Tunnel No. 3, Stages I and II
To modify the chambers built during Stage I at the Hillview Reservoir, the Capital Plan allots $392 million. An additional $383 million is for additional work related to the activation of the Manhattan leg of City Water Tunnel No. 3.
The Capital Plan projects $2.2 billion of spending on sewers:
- $703 million for replacement of sewers (storm, sanitary or combined); and
- $1 billion for new sewers (of all types).
Storm sewers as a category by itself (either new or reconstructed) accounts for $727 million of projected spending, of which $338 million is for high-level storm sewers, including Third Avenue in Brooklyn.
In addition, there is $300 million for both the conventional sewers and the lands necessary to create Bluebelt systems, which are also being extended beyond Staten Island to Springfield Lake in Queens, Van Cortlandt Park and the Bronx Botanical Gardens, and other locations.
Capital Plan Highlights by Borough
In Queens, the Capital Plan shows a total of $1.9 billion allocated for projects of all types. Sewers account for $391 million. $330 million is budgeted for work on two shaft sites connected with Stage II of City Water Tunnel No. 3. $84 million is projected to evaluate, assess and restore groundwater wells in Southeast Queens.
In Staten Island, the Capital Plan projects a total of $773 million, of which $409 million is for sewers. The Snug Harbor sewer project is budgeted for $24 million. Repairs to the Oakwood Beach plant and to the Hannah Street pumping station are projected to cost $140 million.
In the Bronx, the Capital Plan projects $722 million of capital spending from FY14-23. Approximately $266 million is budgeted at the Hunts Point treatment plant, including $50 million for new centrifuges and $96 million for new digesters. Restoration of the Mosholu driving range, clubhouse and related work is budgeted for $49 million in fiscal years 2014 and 2016. To reduce CSOs into Pugsley Creek and Long Island Sound DEP has budgeted $73 million in FY 2016 for construction of a parallel sewer that will help divert flow away from the Creek.
In Manhattan, the Capital Plan shows $966 million over the ten years between FY14 and FY23. The largest single project is the Wards Island treatment plant where the Capital Plan budgets $325 million for upgrades. The Capital Plan budgets $195 million for a cogeneration project at the North River Wastewater Treatment Plant and $125 million for other work at North River unrelated to the cogeneration project. The cogeneration project will replace existing equipment for recycling digester gas with a more efficient system that will allow more of the plant’s energy needs to be generated by the plant itself, thereby reducing energy costs and air emissions. Another $175 million is for the Wards Island Wastewater Treatment Plant. And $150 million will fund the construction of water mains connecting two of the City Water Tunnel No. 3 shafts with the local water distribution system.
In Brooklyn, the Capital Plan budgets $1.1 billion for all projects. Improvements to the 26th Ward wastewater treatment plant and associated sewer work to reduce CSOs into Fresh Creek account for $439 million. In the current fiscal year, the capital budget allots $31 million for Coney Island sewer improvements with an additional $108 million for Coney Island sewers budgeted between FY14 and FY23. The Capital Plan also budgets $65 million for green infrastructure projects in Brooklyn, and $180 million for various sewer and water main projects, exclusive of the Coney Island projects.
Before closing, I want to stress how much the budget of the agency reflects choices made in the key planning documents guiding DEP in this Administration: PlaNYC, the NYC Green Infrastructure Plan, and DEP’s Strategic Plan 2011-14. By following the general and specific goals set forth in those planning documents, DEP has been able to keep rate increases to a minimum while improving the environment and public health. DEP’s budget is a demonstration of the Administration’s commitment to ambitious environmental goals, which are achievable.
That completes my prepared statement. In the interest of time I was not able to discuss all the critical projects and issues that may be of interest to the Committees. If there are specific projects that I did not discuss today, I hope Members will feel free to ask this afternoon or contact me or my staff at a later time.
Thank you Chairmen Recchia and Gennaro for the opportunity to testify on the budget of one of the most important environmental agencies in the country.