The $80,000 Windfall

Water, taken in moderation, cannot hurt anybody.

Mark Twain may have been on the money when he uttered those famous words, but he neglected to mention that a New York City water bill can be a stone cold killer.

Double-billing, unexplained 20-fold leaps in charges, long delays on refunds of overpayments, erroneous past-due notices these are all familiar facts of life for untold thousands of this city’s water users. To make matters just a little bit more maddening, the city still has two methods of billing for water and sewer usage – straightforward monthly or quarterly meter readings; or a flat annual “frontage” fee based on the building’s physical features and number of water-using fixtures.

In what may qualify as a minor miracle, a co-op in the Riverdale section of the Bronx recently turned this bureaucratic nightmare to its advantage and took in a dreamy savings of about $80,000, which will go toward long-deferred maintenance and capital improvements.

Water didn’t hurt this co-op. Water helped save it.

To understand just how welcome that $80,000 windfall was, you need to know a bit about this co-op’s history and a bit about this city’s arcane water policies.

The 69-unit, seven-story brick building was converted to a co-op in the early 1980s and proceeded to suffer from years of poor management. Despite a refinancing of the underlying mortgage in 2003, the co-op was running a deficit, bills were not getting paid, maintenance jobs were routinely deferred, and the reserve fund was depleted. In an effort to replenish the reserves, the board raised fees and maintenance sharply in 2006, which caused an uproar among shareholders. The co-op, as one long-time resident succinctly put it, was “dysfunctional.”

Part of the problem, according to Alex Hao, who has lived in the building since 1985 and was elected president last year, was that the co-op operated under a “crazy” arrangement. The president of the board was also the full-time super – in flagrant violation of a provision in the bylaws that forbids directors from being on the corporation’s payroll.

This “crazy” system began to change when Hao’s son, Alex Hawson, was elected president in late 2006 along with three new members. (The sponsor appoints three to the seven-person board.) The new directors got to work trying to sort out the finances, and by 2008 the changes started coming. The co-op switched management companies, tightened financial controls, removed the former president as super, and hired a part-time replacement. While all this was taking place, the new property manager brought a question to the board that no one had thought to ask before.

“My question was, why are you still getting frontage water billing?” says Carl Borenstein, president of Veritas Management, who was hired in early 2008. “Do you know if this is cheaper than metered billing? They didn’t have a clue.”

“It was something nobody had mentioned before,” says Monique Cameron, who was elected treasurer in 2007 and again in 2008.

Following Borenstein’s suggestion, the board paid $300 to Waste Water Prevention to do a comparative analysis. The company read the building’s water meters for three months (just about every building in the city has water meters, though not all of them are in use). The company extrapolated from the readings that the co-op would spend about $27,000 a year on metered water and sewer bills – as opposed to the $44,000 it was currently paying at the frontage rate. “Of course we jumped to make the switch,” says Hao.

But the savings were just beginning. Buildings that get flat frontage water bills are usually required to put an estimated sum in escrow with their lending institution to cover the coming fiscal year, which begins on July 1. If they choose to switch to metered billing, they must declare the decision before June 30. Once a building has switched from frontage to metered billing, it cannot switch back. Some are reluctant to change out of fear that water leaks will drive the bills through the roof.

So when the co-op announced it intended to switch to metered billing on July 1, 2008, it got back the $37,000 in the escrow account that would no longer be needed to cover the upcoming water bill.

“At the end of last year, we were back in the black,” Hao says, adding that major repairs to the roof, exterior bricks, window sills and lintels will be paid for with savings on the water, as well as assessments and a $750,000 bank loan.

Cameron, the treasurer, adds that in years past there was little supervision of contractors or their workmanship. This time, the work is not merely getting done, it’s getting done right. “Now we’re trying to make long-term improvements,” she says, “as opposed to the quick fixes and patchwork of the past.”

“And we’re trying to keep assessments as low as possible,” Hao adds. “We appreciate the current economic difficulties everyone is having, but we also have to protect the building.”

While the savings on the water bill won’t singlehandedly save the co-op, Hao is glad to have them.

“It helps,” he says. “We expect to save money again this [fiscal] year, and some of the savings could help lower the assessments. Every board is trying to increase revenues and decrease expenses. You’ve got to cut waste and make every dollar work. That’s something this board wants to do: ease the pain.”