How a ‘Hidden’ $1.4 Billion Tax Will Make N.Y.C. Water Bills Rise

It is a problem bedeviling local governments nationwide: How can they pay for city services at a time of limited funds and rising costs?

In New York City, Mayor Eric Adams has found an answer: resurrect a funding mechanism that has been called a hidden tax on New Yorkers.

The city plans to charge its own Water Board more than $1.4 billion in rent over four years to lease its water and sewer systems from the city, according to budget documents reviewed by Rahul Jain, a New York State deputy comptroller.

The city’s Department of Environmental Protection, in turn, is now proposing that the Water Board raise its rates for homeowners and landlords by 8.5 percent this year, according to a proposal reviewed by The New York Times and set to be released Friday by the board.

The proposed rate increase — which, if approved, would be double last year’s rate hike and the highest in 14 years — would only pay for a portion of the rent charges. Some of the rest are likely to come from funds that typically finance capital upgrades to the water and sewer system, potentially leaving the city more vulnerable to critical breakdowns.

The funding gimmick had been used by New York City for decades, but was discarded in 2017 (only to make a temporary, partial reappearance during Covid before it disappeared again). The mayor at the time, Bill de Blasio, said the city was “righting a wrong” — which would suggest that Mr. Adams is now attempting to wrong a right.

“It’s all legal, but legal doesn’t make it right,” said James Gennaro, the city councilman who leads the Committee on Environmental Protection. He described it as a “hidden tax” — a way to extract money from New Yorkers without raising property or sales taxes.

Indeed, Mr. Adams continues to boast that his budget for this year contains no tax increases, even though pandemic aid has evaporated and costs continue to mount because of the arrival of thousands of migrants to New York City.

“We have not increased our taxes, in spite of what we have gone through,” the mayor said on Tuesday.

Liz Garcia, a spokeswoman for the mayor, defended the plan on Thursday, insisting that New Yorkers would not notice the Water Board’s likely reduction in financing long-term repairs.

“We are investing billions of dollars in large-scale capital improvements over the next decade to enhance our water and sewage systems and make drainage upgrades, all while making sure that working-class New Yorkers — particularly low-income and senior residents — pay affordable rates,” she said. “We will continue our commitment to delivering low costs for high-quality water to New Yorkers while making critical upgrades to our city’s infrastructure.”

Experts noted that water payments are a regressive tax, in that they are assessed on homeowners regardless of income, while renters see the payments passed down to them in the form of rent hikes.

“It’s robbing Peter to pay Paul,” said Eric A. Goldstein, the senior attorney and New York City environment director at the Natural Resources Defense Council. “The bottom line is this is coming at a time when the city’s water and sewer needs are large and growing.”

The average single family New York City homeowner pays $1,088 a year for water. Landlords pay for water, but pass along the costs to tenants. The increase, if it goes through, would amount to another $93 a year, according to the proposal acquired by The Times.

But low-income New Yorkers pay more as a share of income than wealthier New Yorkers. They are also less able to take long vacations and go out for meals.

“The kids get bathed in that tub every night, and all the meals are cooked on that stove, and they tend to use more water,” Mr. Gennaro said.

“And unbeknownst to them,” he said, part of those water charges “are going to other areas in city government that have nothing to do with water and sewer.”

Following years of deterioration, city and state officials created the Water Board in the mid-1980s to establish a reliable revenue source for the water and sewer systems and enable them to be self-sufficient.

At the time, there was a pile of outstanding water-and sewer-related debt backed by the city’s general fund, and the officials agreed the Water Board would pay for it with rental payments, according to Mr. Gennaro, who worked for the city’s budget office at the time. The construct works like this: The Water Board leases the water and sewer systems from the city, levies water charges and uses the revenue to underwrite those systems, which are managed by the Department of Environmental Protection.

But with nearly all of that debt retired, Mr. Gennaro said the argument for rental payments no longer holds.

Much of the department’s work is focused on making the water and sewer systems resilient to climate change.

Mr. Adams, in fact, announced a new budgeting practice on Tuesday, declaring that New York would become the nation’s first big city to formally embed climate considerations into its budget decision-making.

Mr. Goldstein, the Natural Resources Defense Council official, said that he welcomes the new policy, but that the mayor’s decision to reinstitute the water board rental payments defies it.

The timing for the new rental charges appears less than ideal.

This year’s hurricane season is expected to be an unusually bad one, with Michael Mann, a University of Pennsylvania climate scientist, saying, “It’s likely that New York will be impacted by one or more Atlantic tropical cyclones.”

Thanks to rising temperatures, the coming years in New York City are expected to see “more dangerous storm surges,” more heat waves, and a higher “frequency of heavy rainfalls and periods of drought,” according to a city assessment released Monday.

And in April, the New York City comptroller suggested that the city’s flood preparedness was, if anything, lacking. When flash floods hit New York City in September, most of New York City’s specialized catch-basin cleaning trucks — an integral part of the city’s flood-prevention kit — were out of service.

The issue is of particular concern to Donovan Richards, who used to chair the environmental protection committee in the City Council and now serves as the borough president of Queens, where 11 New Yorkers died in flash floods in 2021.

“We still have an astronomical amount of needs,” Mr. Richards said. “We don’t sleep in this office when we know there’s going to be a torrential rain.”