Court Agrees 2016-17 Water Rates Should Be Applied Equally

In Matter of Prometheus Realty Corp. v. New York City Water Board, the New York State Supreme Court Appellate Division, First Department, agreed that water rates for 2016-17 should continue to be frozen for all, rather than increased for multifamily customers so that single-family homeowners could get a credit. It upheld the lower court's ruling invalidating the city's attempt to approve a 2.1 percent increase to the water rates for fiscal year 2017 and a one-time credit of $183 for Class 1 property owners of one- to three-family homes. The Water Board’s proposal effectively would have frozen [?] water rates for Class 1 property owners of one- to three-family homes while increasing rates for all other ratepayers, including rental property owners, by 2.1 percent.             

The plaintiffs argued that the Water Board’s actions, in this case, were beyond its authority, but even if they were not, the rate increase adopted and credit issued to some, but not all, of its customers were without a rational basis and, therefore, arbitrary. The Appellate Division court followed the decision by the lower court, stating, "We agree, however, with the trial court's assessment that the one-time credit adopted for some, but not all, water customers at the same time the Water Board needed to increase overall water rates to fund a projected budget shortfall for that particular year, has no rational basis."

According to the court, the rationale for designating Class 1 property owners as qualified for or deserving of a credit, but not other classes of property owners, was lacking. The Water Board argued that consistent with its right to set rates "equitably," it acted rationally to alleviate the financial burden of water bills for Class 1property owners by issuing a credit. But the court found that there was no factual basis to conclude that Class 1 property owners have been more financially burdened by paying water bills than other classes of users; there is no basis for any conclusion that Class 1 property owners are needier than other ratepayers.

The Water Board claimed that a rational basis derives from the fact that Class 1 property owners clearly include "seniors and low or moderate income homeowners." But the court pointed out, however, that Class 1 includes owners of luxury brownstones and other high-value dwellings in the city; just as it should be clear that Class 2 properties consist of other types of residential buildings, including coops and condominiums, also occupied by seniors and persons of low or moderate income, none of which derive any benefit, directly or indirectly, from this credit.             

Although the Water Board claimed that the credit would be more financially meaningful for Class 1 property owners, the credit was not in any way tied to financial need. There was no rational basis for the conclusion that Class 1ratepayers have traditionally borne a disproportionate burden of water and sewage fees. While the Water Board argued that some members of Class 1 rate payers experience financial hardship in paying for water, the application of the credit does not in any manner take into consideration an owner's ability to pay or customers' need for this benefit, solely relying on the classification of the property for tax purposes, which bore little relation to the stated objective.