Water Vigilance

Paul Vercesi has been living in his apartment on Gramercy Park for more than half a century and is now president of the co-op’s board of directors. After all those years, he thought that he knew everything there was to know about the 81-unit post-war building and its systems. Then one day he got a watery surprise.

A doctor who used a ground-floor apartment as his office decided to move out. When the new shareholder started renovating the space, she discovered an outmoded water-cooled air conditioner inside a closet. The air conditioner was not only out of date but also was illegal because it didn’t recycle the water it used to cool the apartment, as required by new city regulations. In effect, the co-op had been unknowingly paying thousands of dollars for the water that cooled the doctor’s office and then went down the drain.

“I, for one, felt stupid,” Vercesi says with a wry chuckle. “We have a guy on the board [who] does a lot of benchmarking. We noticed our building was using more water than similar buildings. So we put a separate meter on the florist who’s in the building, but when the florist left we noticed that our consumption was still out of line. We couldn’t figure out where we were using the water. It wasn’t until the doctor moved out that we discovered that 25-year-old air-conditioning unit inside the closet.”

Prior to that discovery, the board had been diligent about monitoring and conserving water – a major new concern for co-ops and condos throughout the city, as water prices have soared in recent years. But the surprise discovery of that hidden and costly air conditioner underscores the need for boards and their property managers to be almost superhumanly vigilant – and to remember that there is no letting up in the campaign to conserve water.

Rising Tide...and Costs

Vercesi, like many veteran board members, remembers the good old days when such vigilance was unnecessary. “You didn’t notice the water bill when the prices were low,” he says. “It was a couple hundred dollars a year, a nominal bill. Then, about 10 years ago, it started hitting thousands of dollars and up.”

To be precise, annual water rate increases in New York City were in the low single digits a dozen years ago: prices rose by one percent in 2001 and by three percent in 2002. Then, in a terrible piece of timing, annual rate increases soared into double digits just as the Great Recession was reaching its terrible depths. In 2008 the increase was 11.5 percent; the following three years saw increases of 14.5 percent, 12.9 percent, and 12.9 percent. Just like that, water had become a major and growing expense when many buildings could least afford it.

Officials from the city’s Department of Environmental Protection (DEP) and the Water Board offered a variety of explanations that did little to mollify New Yorkers suddenly faced with staggering water bills. The officials blamed everything from neglected infrastructure to unfunded federal mandates. There is a lot of expensive work going on, including the construction of a $2.8 billion filtration plant, a $1.4 billion ultraviolet disinfection facility, and the ongoing work on the $6 billion Tunnel No. 3 that will supplement the city’s two existing water tunnels, which were built in 1917 and 1936 and are expected to need major work in the future. That work will be addressed once Tunnel No. 3 is completed.

Waste Not, Pay Not

“The bottom line for boards and property managers is that they have to be diligent in making sure there’s no wasted water,” says Steve Greenbaum, the director of property management with Mark Greenberg Real Estate. “What we’re doing is being very diligent that there are no leaks in faucets, toilets, and showerheads. We speak about it all the time at annual meetings. We want to educate rather than control.”

The super routinely checks apartments for leaky plumbing fixtures, and all apartments have converted to water-conserving fixtures.

Sometimes shareholders balk at repairing leaks. When that happens, the board acts. “We take a very aggressive approach,” says Greenbaum. “If they refuse to do the repair, we do it and then bill them for it.”

New York City real estate abhors a vacuum. When the city’s Department of Finance transferred responsibility for water billing to the DEP in the 1990s, a number of water-consulting businesses sprang up. More recently, when rates started annually increasing by double digits, they were joined by other companies.

As rates began to rise, the Gramercy Park co-op hired New York Water Management, founded in 1998, to help it monitor its water use and figure out ways to control galloping water bills.

“The first thing we did was go to a metered plan for the building,” says Mark Schwartz, president of New York Water Management. “Then we needed to bill separately for the commercial space since the DEP will no longer bill the stores directly.”

The commercial space at the time was occupied by a florist, as board president Vercesi noted earlier. This florist had a water-cooled refrigerator in his shop, one of the thirstiest appliances on the market. Once the separate meter was installed in the commercial space, the board thought its problems were solved. Wrong. It wasn’t until the doctor moved out of the ground-floor office and his antiquated air conditioner was discovered that the co-op finally got its water bills under control.

The co-op’s decision to get off flat-rate billing and go to metered billing was a major move. Back in 2000 the DEP decreed that all city properties must have a water meter installed. Water meters were seen as an incentive to conserve and as an alternative to the antiquated and notoriously inaccurate flat-rate water bills.

Those bills were calculated in one of two ways. “Frontage” water bills were based on a building’s street frontage and the number of stories, apartments, and water-using fixtures. That billing system was phased out in the summer of 2012. The surviving flat rate, known as the Multi-family Conservation Program (MCP), is $976 per unit, regardless of water usage. The MCP still accounts for about $1 billion of the city’s annual $3.8 billion in water billing. It tends to be favored by low- and middle-income buildings, where the boards or landlords calculate it will save money.

They also like the peace of mind that comes with knowing the water bill won’t fluctuate. There’s less incentive to conserve, but if an MCP building experiences substantial increases in water consumption caused by unaddressed leaks or waste, it can be expelled from the program.

When Schwartz assesses buildings that are considering shifting from flat-rate to metered billing, he advises against making the shift unless the potential savings are sizable – at least 20 percent.

Schwartz also advises clients to take advantage of the city’s free Residential Water Survey. Above all, he advises clients to stay on top of leaks. “Leaks are what kill you,” says Schwartz, noting that a single leaking toilet can cost as much as $1,000-$5,000 per year, a fair amount of money for a whole lot of nothing.

“An easy way to check for leaks is, any time a super is in an apartment, have him stop for a second and check for leaks and try to fix them on the spot. That will save you thousands of dollars.”

There is a fledgling movement toward submetering for water – installing a water meter for every apartment, as many buildings now do for gas and electric. But so far, according to Schwartz, it’s confined mostly to low-density, new-construction condominiums. The cost and logistics of retrofitting larger, older buildings is not yet feasible.

Another key to keeping water bills reined in is making sure those bills are accurate. “DEP can make mistakes,” says Alan Rothschild, president of the Vantage Group, which provides strategic water cost management for 1,000 New York City properties. “So you need to monitor your water meters, and we have proprietary methods for doing that, things a layman wouldn’t be able to do. Our clients do not get surprise DEP bills.”

Good News

Despite all the gloom and doom, there’s actually some good news about water in New York City. In fact, this story has a happy ending, sort of. The double-digit annual rate increases that arrived with the last recession are finally moderating. This fiscal year the increase was 3.4 percent, less than half of what was expected.

There were several reasons for this, including low interest rates that reduced DEP’s debt service, improved revenue collection, created fewer estimated bills and billing disputes, and saw the installation of a total of more than 800,000 automated water meters.

But that doesn’t mean co-op and condo boards are off the hook. When it comes to monitoring water use and avoiding waste, vigilance will be required for many years to come. Which is a gentle way of saying forever.