Water rates hiked; RGB costs affected.

The city's Water Board voted last week to implement the 5 percent increase in water rates that was proposed last month, along with a one-year extension of the frontage billing program.

It did not vote to purchase the water system bonds from New York City as Mayor Rudolf Giuliani had proposed

The board made a strong point that this was not the purpose of the meeting and they promised to have a public heating before any action is taken on the mayor's proposal. At its recent briefing by the administration, sources said the board asked pointed questions and made it clear they would not act hastily.

"It would be more hidden taxation on co-ops and condos in servicing the debt," explained Mary Ann Rothman, executive director of the Council of New York Cooperatives. In her testimony to the Water Board, Rothman said "We also urged them to get on with restructuring the rate to cover infrastructure costs. I would like to see an infrastructure component and then a reasonable set of norms so the bill would more similarly reflect the old frontage rates." They are also in favor of a census-based circuit breaker to help densely populated buildings that use proportionately more water.

A five percent water increase also means an uptick in sewer charges that are based on 159 percent of the water charges.

The real estate industry is concerned, also, that this five percent was not accounted for in the Rent Guidelines Board (RGB) "price basket" of costs, where merely a three percent raise in water costs was calculated by the staff.

Additionally, noted Dan Margulies, executive director of the Community Housing Improvement Program (CHIP), an owners group, the RGB also didn't take into account any real estate tax increase, and right now, apartment house owners are facing nearly a 4 percent raise.

Under the RGB methodology, a 4 percent property tax increase would translate into a 1 percent increase in operating costs, Margulies explained. And a 5 percent increase in water and sewer rates translates into a quarter of a percent rise in operating costs.

"So water, sewer and taxes make up more than 100 percent of the proposed rent increase of one percent, and the owners are losing money before they start the year," he observed.

Steve Miller, a partner with Duffy & Miller that manages rentals as well as co-ops, said water and sewer charges make up about five percent of the budgets. But he worries about the buildings' costs once they transfer to meters. In high-density housing, water costs can go above the $500 per unit cap.

The Real Estate Board of New York has been warning the RGB of the impending 5 percent water increase and will now be meeting with that board to emphasize the seriousness of the situation.

"The (RGB) board doesn't vote until June and we will restate that the Water Board went ahead and did what they said they were going to do," said Steven Spinola, president of REBNY.

Spinola believes the entire guidelines review process needs to be changed. "The research is flawed and we need to see that reformed," he noted. While the RGB is controlled by the Mayor, the current board is still made up of appointments left from the last administration. Staffers have also been conducting cost research for many years.

"Clearly, they have - in my opinion - become out of touch with reality," said Spinola. "We will bring it up with Giuliani and [Deputy Mayor Peter] Powers. It has to do with a fair returns, and will help increase the value of real estate in the city."

Agrees Joseph Strasburg, president of the Rent Stabilization Association, the city's largest owner's group, "There's a strong argument to be made to look to revise the price basket. Even the housing vacancy study is crafted in such a way that owners can never get a fair shake. Now we have an institutionalized formula that no one wants to change."

Strasburg believes it may be time to scrap the two-year lease because forecasting prices so far ahead becomes a losing proposition for owners. The proposed two-percent rise for a two-year lease is one example of an unrealistic proposal. "Back in '84 we eliminated the three-year lease option," he recalled. "There is a strong argument to do annual leases that will give you a clearer picture [of costs]. Two percent is the greatest deal in the world."

The rent proposals are subject to hearings beginning on June 19th from 1 to 9 p.m. for apartments. On June 22nd testimony begins at 1 p.m. for hotels and SRO's while testimony over apartments will be heard beginning at 6 p.m. The final RGB meeting that will lead to a vote is on June 26th from 5 to 10 p.m.

All hearings take place at One Police Plaza and owner groups urged members to attend as many of the meetings as possible. Co-op owners will be joining the apartment owners this year since many co-ops now own rent stabilized apartments after acquiring them from sponsors and lenders or are concerned that rents will not cover large sponsor positions and force a default.