Incorporating Affordability Concerns in Water and Wastewater Utility Planning September 2013

1. Incorporating Affordability Concerns in Water and Wastewater Utility Planning September 2013

2. 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

3. DEP Capital Spending vs. other NYC Investments Source: New York City Office of the Comptroller, Comprehensive Annual Financial Report, Fiscal Years 2002-2009

4. 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

5. Past Capital Costs, Current Debt Service • 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

6. How much does a gallon of DEP water Cost? ~ Water: $0.005/gallon Wastewater: $0.007/gallon Total: $0.012 /gallon

7. Consumption declining, Rates increasing FY14 $3.58/CCF for water, $5.69/CCF for wastewater; $9.27/CCF combined.

8. Rate Trends in Major Cities Average Annual Single-family Charge and Average Growth Rate 1999-2013 All estimates based on consumption of 80,000 gallons per year

9. % Difference in Consumer Costs, NYC vs. US Source: New York City Water Board Measurement Report Fiscal Year 2012

10. EPA Financial Capability Guidance Background EPA CSO Guidance provides two-tiered economic “tests” • Affordability to residential customers: “Residential Indicator” based on City-wide Median Household Income (MHI) • 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.

11. 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) Confidential- Internal-Not for Distribution 11

12. 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.

13. NYC Income Levels Income levels vary widely across neighborhoods and have declined in recent years. 46. Confidential- Internal-Not for Distribution 13

14. NYC Income Distribution Focus on the median household disregards widespread income distribution above and below the 50thpercentile 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

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

16. MHI bears little relationship to poverty 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%) Confidential- Internal-Not for Distribution 16

17. 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

18. 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

19. 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

20. Secondary Screening Analysis: Utility Financial Capability Average NYC score = 2.0 (mid-range economic impact)

21. 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 .

22. 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.* Local taxes per $100 of gross taxable resources in 9 large U.S. cities *NYC Independent Budget Office, 2007

23. Regulatory, Policy & Program Initiatives • 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 OpXprogram to review DEP operations • Demand Management of Non-Revenue Water • Multi-family conservation program

24. 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

25. Questions? For more info: SangamithraIyersiyer@dep.nyc.gov 25