The formal proposal to steeply increase water rates in New York City, announced Friday, sets the stage for a political fight between candidates in November's city-wide elections.

Acting city Department of Environmental Protection commissioner Steven Lawitts proposed increasing the water rate by 14%, which if approved by the water board would be the city's third double-digit rate increase in as many years.

The water board, which is appointed by the mayor, will hold hearings on the rate change at the end of the month and is expected to vote on the proposal by May 15.

"We are working to keep the rate as low as possible, including taking the same 5% budget cut as other agencies," Lawitts said in a press release. The rate hike was expected and had been projected last year.

Projected revenues are down for the system by $117 million to $2.42 billion for the current fiscal year, primarily due to reduced consumption, according to DEP presentation documents.

The DEP operates the city's water system while the New York City Municipal Water Finance Authority finances an ambitious capital plan projected to total $17.48 billion from the current fiscal year through 2019.

The authority plans to scale back its capital spending on the system to $1.65 billion in fiscal 2010 from $3.24 billion in the current fiscal year, according to a recent official statement.

The MWFA has $20.94 billion of bonds outstanding on its first and second resolutions. Debt service coverage on the combined resolutions is projected to fall to 2.2 times by fiscal 2011 from 2.45 times in the current fiscal year.

The rate hike proposal drew sharp criticism from New York City comptroller William Thompson Jr., who is running for mayor against incumbent Michael Bloomberg.

"Today's action by the water board in considering a 14% increase in water rates is simply outrageous," Thompson said in a video statement posted on YouTube.com. "Ratepayers are being taken advantage of, homeowners are being ripped off by the water board ... We will continue to oppose this rate increase."

Thompson proposed several actions to mitigate the hike, including a rent rebate by the city to the water system to be used for pay-as-you go capital spending and rate reductions.

The water board raises rates to meet expenses, which includes authority debt service, operations, and a rental payment to the city. A portion of the rental payments go to the city to pay for debt service on general obligation debt incurred by the city for water and sewer projects before the authority was created in 1985.

According to information provide by the MWFA last year, the city plans to use roughly a third of that rental payment, expected to be $198 million in fiscal 2010, to pay GO debt service.

Thompson also called on Gov. David Paterson to use $514 million of federal stimulus funds allocated for clean water and drinking water projects as grants rather than as a combination of grants and loans through the New York State Environmental Facilities Corp., as is currently planned.

"A direct grant to the water authority would offer immediate relief and have a lasting impact on New York City's water rates," Thompson wrote in a letter to Paterson. "For every $100 million that is granted, debt service of over $5 million per year will be put back in ratepayers pockets."

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