Incorporating Affordability Concerns in Water and Wastewater Utility Planning

September 2013

About DEP: Overview Supply 1 + billion gallons of water per day to 9

million New Yorkers 19 storage reservoirs and 3 controlled lakes 295 miles of aqueduct and tunnels 7,000 miles of water mains 109,000 fire hydrants

Treat 1.3 billion gallons of wastewater per day 14 In-city treatment plants; 8 upstate 95 pump stations

$14 billion in active construction and design projects

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DEP Capital Spending vs. other NYC Investments

Source: New York City Office of the Comptroller, Comprehensive Annual Financial Report, Fiscal Years 2002-2009

Category ShareEnvironmental Protection 28%Education 26%Transportation 10%Parks & Public Buildings 6%Technology & Equipment 6%Housing 5%Economic Development 3%Public Protection 3%Hospitals 3%Sanitation 2%All Other 8%Total Commitments 100%

Capital Outlook• From FY 2002 to 2012, $15.2B (65%) of capital commitments were mandated• In next decade, DEP could spend billions addressing mandates for CSOs, treatment

plant upgrades, as well as non-mandated but still critical programs to build storm sewers, replace storm and sanitary lines, and asset management.

• ~$2 B (16%) of the FY 2014 to FY 2023 Capital Improvement Plan is mandated

Actual Projected

• DEP’s capital commitments are tied to the System’s debt service. Capital commitments result in expenditures; and debt is issued as expenditures are incurred

• From FY 2002 to 2013, commitments will total $26.5B, but, on account of the lag effect, expenditures funded by debt issuance will total $23.9B

• Annual debt service increased by 131% from FY 2002 to 2012, but the Authority has seized opportunities in the low interest rate environment to refinance and buyback $6B of higher-cost debt in the past five years

Past Capital Costs, Current Debt Service

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015$0

$1,000

$2,000

$3,000

$4,000

Commitments Expenditures Net Debt Service

Fiscal Year

$ in

Mill

ions

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How much does a gallon of DEP water Cost?

Water: $0.005/gallonWastewater: $0.007/gallonTotal: $0.012 /gallon

~

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Consumption declining, Rates increasing

FY14 $3.58/CCF for water, $5.69/CCF for wastewater; $9.27/CCF combined.

Rate Trends in Major Cities

All estimates based on consumption of 80,000 gallons per year

Aver

age

Ann

ual S

ingl

e-fa

mily

Cha

rge

and

Aver

age

Gro

wth

Rat

e 19

99-2

013

$0

$600

$1,200

$1,800

$2,400

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Atlanta: 11.7%

Average: 6.4%New York: 7.1%

Chicago: 8.0%

San Francisco: 6.7%

Boston: 4.8%Washington D.C.: 6.5%

% Difference in Consumer Costs, NYC vs. US

Source: New York City Water Board Measurement Report Fiscal Year 2012

Condo/coop sale

Electricity Natural gas Enhanced basic cable

Heating oil Gasoline Water-10.0%

60.0%

130.0%

200.0% 192.0%

122.4%

21.3% 18.1%

4.5% 2.0%

-2.0%

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EPA Financial Capability Guidance Background

EPA CSO Guidance provides two-tiered economic “tests”

1. Affordability to residential customers: “Residential Indicator” based on City-wide Median Household Income (MHI)

2. Utility capacity to finance investments: “Financial Capability Indicator” based on a suite of fiscal metrics

Exisiting Flexibility in Guidance allows utilities to submit any additional documentation that would create a more accurate and complete picture of their financial capability.

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EPA Affordability Criteria for Wastewater

1. Municipal Preliminary Screener (Residential Indicator - RI)

                 

Low economic impact: < 1.0% of MHI Mid-range economic impact: between 1.0% and 2.0% of MHI. Large economic impact: > 2.0% of MHI

(NYC average household wastewater/sewer costs are ~1% of NYC MHI)

%2income householdMedian

householdpercostpollutionwatertotalAverage

Confidential- Internal-Not for Distribution

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MHI is a poor indicator of affordability

MHI does not capture impacts across large, highly diverse communities.

Focus on the median household disregards widspread distribution above and below the 50th percentile

MHI is a poor indicator of economic distress and bears little relationship to poverty or other measures of economic need.

MHI does not take into consideration cost of living such as housing burden or market conditions.

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NYC Income Levels

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Income levels vary widely across neighborhoods and have declined in recent years.

2011 MHI

US $50,054NYC $49,461Bronx $32,058Brooklyn $42,752Manhattan $66,299Queens $53,572Staten Island $70,578

46.

Confidential- Internal-Not for Distribution

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NYC Income Distribution

Focus on the median household disregards widespread income distribution above and below the 50th percentile

NYC has fourth highest “Gini” index of U.S. metropolitan areas with populations > 300,000 (Gini index is a standard measure of income inequality)Confidential- Internal-Not for Distribution

0%

2%

4%

6%

8%

10%

12%

14%

US

NYC

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NYC Poverty Rates• 20.9% of NYC population (> 1.7 million people)

is living below the federal poverty level

• ~16 % of elderly population is living in poverty

% of individuals living below federal poverty

level (2011)

US 15.9%

NYC 20.9%

Bronx 30.4%

Brooklyn 23.6%

Manhattan 18.3%

Queens 15.8%Staten Island 11.7%

New York City CEO developed an alternative poverty threshold, which indicates that poverty levels are even higher than what is measured by official standards.

10%

12%

14%

16%

18%

20%

22%

24%

26%

$45,000 $46,000 $47,000 $48,000 $49,000 $50,000 $51,000 $52,000

% o

f Peo

ple

in P

over

ty

Median household income

Nationwide

NYC

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Analysis of 20 large cities with MHI similar to NYC shows no relationship between MHI and poverty rates (rates range from 13.7% to 23.3%)

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MHI bears little relationship to poverty

Confidential- Internal-Not for Distribution

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Housing Burden

High housing costs in NYC further compound affordability issue.

Government agencies consider housing costs between 30%-50% of income to be a “moderate burden” and > 50% to be a “severe burden” 20.7% of NYC households pay between 30% - 50% of income for

housing* 24.0% pay more than 50%*

*MPC American Community Survey 2009, iPUMS**2008 Housing Vacancy Survey

Confidential- Internal-Not for Distribution

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%0%

1%

2%

3%

4%

5%

6%

7%

8%

2014 2020

Percentage of Households

Aver

age

was

tew

ater

bill

as p

erce

ntag

e of

MHI

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Avg. Wastewater bill compared to HH Income

• Currently 29% of HH pay 2% of income or more on wastewater/sewer bill• With estimated projections of rate increases, could increase to 39% in 2020

Income bracket % of HHsLess than $20,000 24%$20,000 to $39,999 19%$40,000 to $74,999 23%$75,000 to $99,999 11%$100,000 to $199,999 17%$200,000 or more 7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

2014 2020

Percentage of Households

Aver

age

tota

l wat

er a

nd w

aste

wat

er b

ill a

s per

cent

age

of M

HI

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Avg. Water + Sewer bill compared to HH Income

• Currently ~21 % of HH pay 4.5 % of income or more on water and wastewater services

• With estimated projections of rate increases, could increase to 30 % in 2020

Income bracket % of HHsLess than $20,000 24%$20,000 to $39,999 19%$40,000 to $74,999 23%$75,000 to $99,999 11%$100,000 to $199,999 17%$200,000 or more 7%

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Secondary Screening Analysis: Utility Financial Capability

Average NYC score = 2.0 (mid-range economic impact)

Indicator Strong Mid-Range Weak Value RankBond Rating AAA-A(S&P)

or Aaa-A (Moody's)

BBB (S&P) Baa (Moody's)

BB-D (S&P) Ba-C (Moody's)

GO Bonds:AA (S&P), AA (Fitch), Aa2 (Moody's)MWFA Revenue Bonds: AAA/AA+ (S&P), AA+/AA+ (Fitch), Aa1/Aa2 (Moody’s)

Strong/3

Overall net debt as % of FMPV

Below 2% 2%-5% Above 5% 5.22% Weak/1

Unemployment rate as % of national average

More than 1 Percentage Point Below the National Average

+/- 1 Percentage Point of National Average

More than 1 Percentage Point Above the National Average

0.1% above national average

Mid-range/2

MHI as % of national average

More than 25% Above Adjusted National MHI

+/- 25% of Adjusted National MHI

More than 25% Below Adjusted National MHI

97.40% Mid-range/2

Property tax revenues as % of FMPV

Below 2% 2%-4% Above 4% 2.02% Mid-range/2

Property tax revenue collection rate

Above 98% 94%-98% Below 94% 97.90% Mid-range/2

EPA Utility Financaial Capability Matrix NYC

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Secondary screening doesn’t tell the whole story By comparing local unemployment rates to current national average, FCI does not

take into account deteriorating economic/financial condition of communities throughout U.S.

In recent years, national unemployment surged during the recession, but NYC unemployment rate is typically much higher than nationwide rate

.

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Secondary screening doesn’t tell the whole story • Reliance on property tax burden does not capture impacts in cities that rely on

multiple forms of taxation (e.g., income, sales and business taxes)

• NYC property taxes account for < 41% of total non-exported tax burden (2007).

• NYC has much higher tax burden than many other large cities in the U.S.*

4.093.57 3.43

3.02 2.872.55 2.54

2.05

5.62

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

Local taxes per $100 of gross taxable resources in 9 large U.S. cities

*NYC Independent Budget Office, 2007

• Addressed billions of dollars in unfunded Federal mandates, including:• Eliminated or deferred $3.4B for handling combined sewer

overflows by replacing costly gray infrastructure projects with green infrastructure projects in amended consent order with NYS Department of Environmental Conservation

• Deferred $1.6B construction of Hillview Reservoir cover; evaluating alternative of incremental monitoring

• Undertook extensive OpX program to review DEP operations • Demand Management of Non-Revenue Water• Multi-family conservation program

Regulatory, Policy & Program Initiatives

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Continuing the Dialogue on Affordability Affordability Considerations should include:

Income distribution: evaluate impact on low and middle income households , Poverty rates, Unemployment, Housing burden (% of income spent on housing costs) and other non-discretionary spending, full tax burden, long term debt)

Comparing the environmental, social, and financial benefits of all water-related obligations to develop priorities for spending and the implementation of mandates. Financial Capability Guidance should be revisited through a stakeholder process to fully capture the financial picture of utilities and their ratepayers.

As many utilities provide both drinking and wastewater services, and households often pay one bill, financial capability and affordability should look at total water spending.

Focus limited resources where the community will get the most environmental benefit. Spend wisely to ensure attaining clean and safe drinking water goals.

Initiatives toward expense cuts, reductions in non-revenue water demand, flexibility in scheduling 24

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Questions?

For more info:Sangamithra Iyer siyer@dep.nyc.gov

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