Water hike proposed at 5%.

The water board met last week and proposed an increase of 5 percent in water and sewer rates and to continue the moratorium on paying frontage rates for one more year. These proposals are still subject to public hearings before a final vote in late May.

Meanwhile, the city's water system is being used for a bit of fiscal gimmickry in order to provide capital funds for other city projects.

According to the Giuliani party line, the city will sell the water system to the New York Water Board so its customers will no longer have to pay rent to the city. Instead, it will pay off bonds over a 30-year period that the Water Finance Authority will float. And coincidentally, the city will be able to have $800 million in cash to finance water projects as well as other capital programs, said Marilyn Gelber, Commissioner of the Department of Environmental Protection, which operates the city's water system.

The Water Finance Authority can raise its own money without the 2.5 percent debt limitation ratio to revenues that the city faces. Additionally, the city will be able to retire general obligation debt. So once again, the reorganization of paper and debt will allow the city some breathing space and provide working capital.

The money will be used by the city over the next few years for capital projects, but $200 million will replace the revenue from two-shots of tax receivables that brought in $201 million last year with another $220 million expected from an accelerated sale this May.

Joseph Strasburg, president of the Rent Stabilization Association, noted if the water board and its customers have to buy the water system, it has to "float bonds and by definition, increase rates."

The head of another owner's group, Dan Margulies, executive director of the Community Housing Improvement Program, said "On one hand the city is trying to reduce the near-term costs of borrowing. But the pot is the same. It's still the taxpayers but a different entity will be doing the borrowing. I'm not sure of the advantages or disadvantages of this scheme."

Strasburg and Margulies noted the city is also about to increase water and sewer rates and was trying to end the moratorium on paying frontage rates after meter installation.

"They would keep the [maximum payment] cap at $500 per unit but those under frontage are paying about $315 and that will go straight up to the $500 maximum when the moratorium ends," noted Strasburg. He expects about 25 percent of the metered buildings would be impacted when the moratorium ends.

They were among the industry leaders who met with Commissioner Gelber last week and made an impassioned case for not increasing water rates at a time when affordable housing is under increasing financial pressures, particularly from water charges.

Gelber confirmed the Water Board was going to ask for a 5.5 percent increase, and after meeting with the representatives agreed with them to ask for a smaller raise.

"We reviewed both our ten-year projection of capital needs as well as our operations and maintenance," she told REW in response to a question asked at the New York Association of Realty Managers luncheon last week at Tavern on the Green. "This is a very big system that requires a lot of dollars to run," assuring the audience, "You will not have a 5.5 percent increase. It will be much more modest than that."

Gelber added, "It's not going to be zero, as much as I would like it to be zero... we are committed to be sure in future years we we're not playing fiscal games; not have zero this year and five years from now do 15 or 20 percent. Those days are over. We need to plan more effectively."

As to the ending of the moratorium on paying frontage rates while being metered for water usage, Gelber promised the industry she would recommend to the Water Board they maintain the moratorium for one more year.

"I've made it clear that over this next year we have to find a solution to this problem. Whether it's some sort of variable or mixed rate for lower income housing, I can't say at this time what the solution is. But we will be finding the solution."

Gelber met with Mayor Rudolph Giuliani last Wednesday night to discuss the final number, which became not such a modest number. The 5 percent rate was approved by the Water Board at its Thursday afternoon meeting.

While the infusion of capital through the sale of the water system is welcomed by the construction industry, Richard T. Anderson, president of the Building Congress, is concerned about what will really happen to ongoing water projects and other citywide projects in the future.

"What's troubling is that it's a one shot deal at a time when we need a comprehensive long-term look at financing for long-term capital improvements," said Anderson.

Nevertheless, he is glad the administration is focusing on capital improvements. "This appears to be a strategy to free up funding for capital investment in the city, which would be very beneficial at this time when the capital program is under the severe constraint of the state constitutional debt limit requirement," observed Anderson. "But it raises a host of questions regarding the impact on Department of Environmental Protection capital spending and an increase in water and sewer rates, both of which should be addressed before this proposal is approved. What's especially heartening," he added, "is the administration is seriously considering ways to potentially increase funding for the capital program and that's urgently needed."