Image credit: NYC Water Board
Court of Appeals affirmed Water Board plan: credits to some, rate hikes for all. The New York City Water Board leases the reservoirs and water and sewage system from the City. Historically, the City tied the rental amount to the sum owed on the City’s water and sewer-related general obligation bonds. In 2003, however, the City began collecting rent above what was owed on the bonds. This increase led to a spike in water rates for ratepayers and an outcry of complaints.
In April 2016, the Water Board and the Department of Environmental Protection published a new rate proposal for FY 2017 with a 2.1 percent rate increase to fund a $76 million gap between revenues and expenses. The proposal also sought to extend the Home Water Assistance program for low-income, senior, and disabled homeowners; to establish a new Multi-Family Water Assistance Program for affordable housing with a per-unit credit not to exceed $230; and to introduce a rate freeze for account holders using less than 95 gallons per day.
On April 25, 2016, Mayor Bill de Blasio announced that the City would cease rent collection from the Water Board until 2020, resulting in millions of dollars of savings. The Mayor also proposed a $183 one-time bill credit for account holders within Tax Class 1 (one-to-three-family residences)—a category that includes 80 percent of the Water Board’s account holders. The Mayor also proposed that the savings from rent forbearance be passed on to all account holders. The Water Board accepted the proposal and on May 20, 2016, the Board approved the 2.1 percent rate increase, the assistance programs, the bill credit, and the low-consumption rate freeze.
Various landlords not eligible for the one-time bill credit filed an Article 78 proceeding. New York County Supreme Court Justice Carol R. Edmead granted the petition on the ground that “increasing the rates while simultaneously giving a bill credit amounts to an impermissible tax.” The court held that the resolution and rate increase were “ultra vires and exceeded the Water Board’s statutory authority” and that it was “unreasonable, arbitrary, capricious, and an abuse of discretion.”
The Appellate Division affirmed the Supreme Court’s judgment. The Appellate Division rejected the claim that the Water Board’s action was ultra vires, but ruled that there was no rational basis for the simultaneous one-time tax credit and rate increase.
The Court of Appeals reversed, and reinstated the Water Board’s original rates and programs. The Court of Appeals ruled that rates may be determined in accordance with public policy goals and were not limited to economic goals. The Court pointed out that Tax Class 1 owners had been excluded from rate relief programs for years. The decision to allocate a modest gain while bypassing a costly application process was not irrational. Furthermore, the Court stated that the rate increase was justified because the Board would have kept the rate increase at about 2 percent per year regardless. The Board was not required to set the lowest possible rate each year; it can balance rate-setting with other needs and goals.
Prometheus Realty Corp. v. NYC Water Bd., 30 N.Y.3d 639 (N.Y. 2017) (Attorneys: Michael Berengarten, Jared D. Newman, for Prometheus; Zachary W. Carter, Richard Dearing, Devin Slack, for City).
By: Kelly Padden (Kelly is a 2017 graduate of New York Law School. She is now working for the Legal Aid Society of Suffolk County.)