An important, yet obscure, element of municipal finance is a “rental payment” made by the public authority financing the water and sewer system to New York City’s treasury.  What was once a declining overhead cost for the water system has become a rapidly growing expense that increased from a low of $102 million in 2003 to $234 million in the current fiscal year. The sharp reversal is attributable to the City’s decision to change the basis on which it charges rent and has contributed to the rising price New Yorkers are charged for their water; this price increased at more than twice the rate of general inflation in each of the past six years.

This report provides a history of the rental payment, critiques the current method for setting the rent, and suggests alternative approaches to setting the rent.   These options do not necessarily lead to a lower rental charge, but are more appropriate methods for setting the payment.  In brief, the rent is not too damn high – but ain’t quite right.