New Program: Is It for You?

Confronted with ever-rising expenses, co-ops and condos are looking to cut costs any way they can. And utilities, like water, are a favorite target. Most co-ops and condos are currently billed for water based on either their street frontage or their actual water usage as determined by meters installed by the city’s Department of Environmental Protection (DEP). But there’s a third option: the Multi-Family Conservation Program (MCP). This was created by the DEP to offer certain residential buildings – including co-ops and condos – a flat annual rate water charge per unit in exchange for their implementing certain water conservation measures.

You may wonder if enrolling in the MCP will save your co-op or condo money. Indeed, does the program make sense for you?

Warren C. Liebold, director of technical services/conservation for the DEP’s Bureau of Customer Service, says that the goal of the MCP was to avoid creating huge water bills in low-income, high-density buildings. Ideally, the DEP wants everyone to employ meters so each property pays for only the water it uses. Metered billing also encourages water conservation, adds Alan Rothschild, president of the Vantage Group, a strategic water- cost management company. And it gives owners an incentive to address leaks.

But, according to Liebold, a DEP study of rent-regulated apartment houses and their water usage determined that 10 to 17 percent of the properties would see large increases in their water bills if they were switched overnight to metered billing. Those buildings typically had not been water-efficient, had plumbing problems and leaks, and had a high number of occupants per unit. The MCP was designed to help those structures implement water conservation measures now, so they can transition to metered billing later.

The deadline to apply for the MCP was extended until December 31, 2008. According to the program’s administrative guidelines, to qualify for the MCP, a building must be residential, have six units or more, and be metered. If it has any commercial tenants that consume a great deal of water, such as restaurants or laundromats, each must be separately metered. Also, the building must have any leaks repaired and at least 70 percent of its toilets, faucets, and showerheads must be low-flow. In addition, if the building has a central laundry room, the washing machines must be water-efficient. Otherwise, they must be replaced either at the end of the next contract award, renewal, or extension if the machines are leased, or within five years if they are owned by the building.

Once a property is accepted into the MCP, it will pay the MCP rate, which is currently $583.35 per unit per year. It is adjusted annually in proportion to any adjustments to the frontage or metered billing rates, says Liebold. According to the program’s guidelines, the DEP will periodically conduct leak surveys and audit the water usage of buildings in the MCP to ensure that water conservation is being achieved and that the owner is controlling water usage. If a building fails to meet reasonable conservation objectives, it will be subject to increased monitoring and possible enforcement action.

Should co-ops and condos enroll in the MCP? Although it was essentially designed as “a safety net for high-density rental buildings,” says Rothschild, qualifying co-ops and condos can participate in the program as well. The fact is, however, few of them probably need to. Liebold, who reports that there are only a small number of buildings currently in the MCP, suspects that few are co-ops and condos. That’s because most are already on metered billing. Rothschild agrees and adds that most also have low-tenant density.

Note that by July 1, 2009, all residential buildings must pay either the MCP rate or the metered billing rate. So, the few co-ops and condos currently paying the frontage rate have a “short window of opportunity” to choose how they’ll pay for water before frontage is phased out, says Debbie Ginsberg, president of MyWaterMeter.com, a water information services provider. But since the MCP rate is actually higher than the frontage rate, they may want to stay on frontage billing for as long as possible. Then, as the deadline gets closer, they’ll have to figure out whether to enroll in the MCP or switch to metered billing.

A company like Ginsberg’s or Rothschild’s can help you decide whether enrolling in the MCP makes financial sense. Liebold says you’ll need to determine if your annual per unit water cost exceeds the MCP rate. If it’s less than $583.35, then staying on metered billing is your best bet. If it exceeds that, then switching to the MCP may be worth considering.

None of Rothschild’s clients, who are all on metered billing, pay more than $583.35 per unit per year for water, so it wouldn’t make sense for any of them to enroll in the program. And if a co-op’s or condo’s annual per unit water costs exceed the MCP rate, Rothschild believes the building must have serious problems, such as leaks or waste. Once the problems that are connected to the building’s high water costs are corrected, its net water costs will drop “well under” the MCP rate, he explains.

So why would a co-op or condo enroll in the MCP if it’ll cost more? Under metered billing, your building’s water bills will fluctuate. By paying a fixed rate, like the MCP rate, you trade certainty for the extra cost.

But participating in the MCP poses a special challenge for co-ops and condos. Remember that to qualify for the program, at least 70 percent of a building’s toilets, faucets, and showerheads must be low-flow models. If your co-op and condo doesn’t meet that requirement, it’s unlikely that you’ll be able to force shareholders or unit-owners to install such fixtures in their apartments, says attorney Bruce A. Cholst, a partner at Rosen & Livingston. It’s also unlikely that your building has the right to install such fixtures itself, he adds. That’s because a co-op’s proprietary lease and a condo’s bylaws typically say that all plumbing fixtures that protrude from the wall are the shareholders’ and unit-owners’ responsibility.

You could try to get a “super-majority” of the shareholders or unit-owners to agree to amend the building’s proprietary lease or bylaws to require them to consent to having the necessary fixtures installed in their apartments, Cholst says. But getting such an amendment approved may be difficult. In the end, he believes the easiest approach could be to explain the benefits of the MCP to the shareholders and unit-owners, ask them to voluntarily consent, and hope enough agree to do so. He suggests that the co-op or condo should pay for the new fixtures. Liebold adds that buildings that apply for the MCP will be eligible for a $100 voucher per toilet, which the co-op or condo can use to defray the costs.

Bottom line: few co-ops and condos really need the MCP and if they do, they should have their water usage analyzed and address any problems that are uncovered. Fixing leaks and reducing waste may cost your building now, but doing so will save it money over time, says Rothschild, who adds: “Using water isn’t expensive; wasting it is.”