THE NEW YORK CITY TOILET REBATE PROGRAM: Economic Incentives for Water Conservation New York City, U.S.A

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1 THE NEW YORK CITY TOILET REBATE PROGRAM: Economic Incentives for Water Conservation New York City, U.S.A Background and Context The New York City water supply system has traditionally been recognized as one of the country s best systems in terms of quantity and quality of water. Three watershed systems outside of the City limits provide a steady supply of water of a quality comparable to bottled water. This reliable source of water aided the extensive growth of New York City during the 1800 s and mitigated the outbreak of diseases which occurred in other urban areas. However, changing conditions have created the need for conservation. New York City s per capita water usage rate is one of the highest in the country. High usage and periodic summertime drought conditions have put stress on the supply system, forcing the City s reservoirs to dip to dangerously low levels. In addition, each gallon of water consumed creates at least one gallon to be treated by one of the City s 14 sewage treatment plants, four of which are operating near, at, or above capacity. Federal environmental mandates such as the end of ocean dumping of sewage have even further stressed the City s existing sewage treatment plants and created the need for new plants. Since it is extremely expensive to increase supply and expand treatment plant capacity, New York City faces difficult decisions. The high cost of suggested new sources, such as tapping into the Hudson River, may be low compared to their potential long-term environmental and biological costs. Furthermore, political issues, such as the difficulty in siting new or expanded treatment plants could create considerable opposition from both affected communities and local politicians. While it is common practice for electric utilities to offer incentive programs to stimulate conservation and thus mitigate costly expansion projects, this idea is just beginning to develop in the water supply field. Over the past decade, various mayors have made efforts to review and address these issues, working with the Department of Environmental Protection (DEP), which operates and maintains the system, and the Water Board, which makes policy and sets rates. A comprehensive water conservation effort was begun by the DEP with the objective of reducing demand so that the need for new supply and/or treatment capital projects could be delayed or eliminated. Several components were envisioned as part of this conservation effort: identification and repair of distribution system leaks; residential and commercial water surveys to audit water usage and offer free conservation devices; installation of water 1

2 meters to bill according to actual usage; public education; and a toilet retrofit program. Project Description The New York City Toilet Retrofit Rebate Program offers a financial incentive to home and multi-family building owners to replace old toilets which used five gallons per flush (gpf) with modern, low-flow toilets which use less than 1.6 gpf. The toilet retrofit program is arguably the most successful and innovative of the conservation measures. The replacement of a large number of high water consumption toilets can greatly assist conservation. The majority of toilets in New York City consume five gpf. Given the total number of toilets in the City and the frequency with which they are flushed, the amount of water consumed by toilets is considerable. But the innovative nature of this program lies not only in the overall concept which promotes incurring short-term costs for long-term gain, but also in the public/private process by which it was designed and is administered. The origins of the program can be traced back to early New York City established an Advisory Committee on Water Conservation, consisting of city officials, environmental groups, real estate groups, plumbing industry representatives and others interested and involved in water conservation. The Committee generated many of the ideas for the comprehensive water conservation effort, including the Toilet Retrofit Program, and worked to develop the concept. The Committee framework was valuable in providing benefits for all involved; DEP gained access to the knowledge and ideas of the participating organizations and the organizations provided input for a program in which they had vested interests. It also established the advanced credibility among building owners and plumbers that was eventually necessary for a successful program. New York City was not the first municipality to link economic incentives with large-scale toilet replacements. Los Angeles and San Diego had similar programs in place, and the Advisory Committee contacted officials from these municipalities to get a better understanding of their programs. However, it was not feasible for New York City to simply replicate one of the existing programs, as many differences between the cities such as the age and type of building stock, the labor costs and the economics of the rebate level required tailor-made components. The preliminary research was followed by an in-depth analysis of the effects of different rebate levels and a comparison of the costs of the conservation rebate proposal with supply expansion options. The cost comparison clearly pointed to a toilet rebate program as an efficient investment. After determining the financial components of the program, the way the program was to be administered was discussed. Officials decided that the program should be privately administered. Two factors weighed heavily on that decision: the ability of the contractor to quickly issue rebate checks and the ability to adjust 2

3 personnel levels as the size of the program changed. The city procedure for issuing checks can be lengthy, which would have been a disincentive to participate for both building owners and plumbers. Many would simply be unwilling to wait for the rebates, regardless of the potential savings. The city needed to be able to depend on the Coordinator to consistently issue the checks within four weeks after installation. In addition, the city hiring process can be just as lengthy as the check-issuing process, and would not allow for a flexible work force, which is a necessity as the program expands in size during the start-up and middle phases, and shrinks towards the end. A private coordinator however, would be able to quickly add and subtract staff as needed. Without such measures to create efficiency and credibility, the participation rates of the program could suffer. New York City contracted out the day-to-day duties of the program to a private firm through a sealed, competitive-bid process. Stringent financial and experience requirements were established to ensure a qualified group of bidders. The duties of the Project Coordinator were detailed: responding to information requests; processing applications; briefing plumbers and manufacturer s representatives; designing and distributing education materials; and inspecting finished work. A report detailing the program s progress was to be submitted by the Coordinator to DEP on a bi-weekly basis. The program began in the Bronx in late 1993 and was phased into the remaining boroughs in September The total running time was scheduled for three years. DEP has set a goal of 1.5 million toilet replacements over the three years, nearly a third of the total toilets in the City. If the initial retrofit results are encouraging, the program may be extended beyond three years. The terms of the Toilet Retrofit Program are simple the City offers a rebate of up to $240 on the installed cost of the replacement of an outdated toilet with a modern, low-consumption toilet. The rebate applies only to the first bathroom in a residential dwelling unit (apartment, house), while additional bathroom toilet retrofits qualify for a $150 rebate. Owners of commercial buildings receive a $150 rebate on each toilet. Ownership is a criterion for participation; individual tenants within apartments or commercial buildings cannot apply. The major focus of the program is on owners of multi-unit residential buildings, which offer the greatest potential for conservation savings. To further maximize this potential, the terms of the program stipulate that at least 70% of the toilets in a building be replaced to qualify for a rebate. Additionally, low-flow shower heads and faucet aerators a screen which reduces faucet flows must be installed at the time of the retrofit. Program officials view publicity as vital to the success of the program, particularly if the toilet replacement goal of 1.5 million is to be met. The program was publicized through formal and informal channels. An outreach campaign was 3

4 undertaken, including a series of information sessions for building owners, housing organizations, plumbers, and community organizations. A more informal avenue has been the word of mouth of licensed plumbers, since it is in their financial interest to push the program, and since in many cases they have existing relationships with building owners. The retrofit of just one multi-unit building provides a considerable amount of work and income for plumbers. The participation process is as equally straightforward as the terms of the program. Building and home-owners must first submit an application to the Project Coordinator specifying the number and types of toilets to be installed and the name of the licensed plumber who will conduct the work. The new toilets must be on a certified list of low-consumption fixtures published by New York State to ensure the toilets are truly low-consumption. Once the application is approved, which takes no more than two weeks, the installation work begins and final paperwork is submitted to the Coordinator. For multi-unit buildings, this paperwork must include a list of apartments with new toilets. As mentioned, the Coordinator is required to issue the rebate checks within four weeks of the installation. After installing the new toilets, the used toilets must be discarded by the building owner or plumber at the Department of Sanitation (DOS) drop-off sites located throughout the city. The discarded toilets may eventually be recycled as road material. The toilet s internal parts must be removed prior to disposal and the metal parts may be sold by the plumber or building owner as scrap. Such an arrangement ensures that a water conservation solution does not create a waste disposal problem. To conclude the program, a separate contract will be issued by the city for an evaluation. The evaluation will focus on two areas: reductions in water usage and water bills and the level of customer satisfaction. The water meters of several hundred buildings will be read both before and after the retrofits to determine the drop in usage and the subsequent reflection on the water bill. Customer satisfaction will be gauged by mailed surveys sent to thousands of new toilet owners. New York City has budgeted $240 million in capital expenditures to cover the rebates, which pales in comparison to many of the capital projects which the city has undertaken or would potentially have to undertake. The total budget also includes $27 million for the program coordinator contract, the evaluation contract, and DOS costs for handling discarded toilets. Obstacles Many obstacles surfaced during the development of the program. It took painstaking convincing of city budget officials who had to approve the expenditures for the rebates of the worth of the program. Although the 4

5 economics clearly indicated that implementing a conservation program would be much less expensive than supplying expansion projects, politicians feared shortterm political repercussions. Debating and negotiating program specifics, such as the scale and implementation schedule, was another obstacle. Some favored a citywide program as soon as possible, while others favored a much smaller program which could be gradually phased in citywide. The rebate level was also a point of contention. The final rebate level had to strike a careful balance that both ensured significant participation and efficiently spent the city s financial resources in a time of major budget constraints. Program development officials and city budget officials debated this point extensively before reaching a compromise. A major point of concern prior to implementation was that the program could be prone to fraud and scandals. Many critics thought plumbers could easily falsify work. To address this issue, special measures were integrated into the program. The terms of the program stipulate that the building owner cannot receive a rebate without verification of the amount of discarded toilets at the DOS drop-off sites. Also, inspections are conducted on a minimum of 20 percent of total installations to verify the work and prohibit falsified retrofits. The requirement that work be contracted to New York City licensed master plumbers further insures legitimacy. Although these measures may not deter all fraud, they can minimize the frequency. A final obstacle is the receptivity of building and home owners. A short-term mindset may work against the program and result in the failure of owners to see that future water savings provide ample incentive to spend immediate funds in retrofitting. Project Impact The program brought a number of benefits to both individuals and the city as a whole. Water Conservation is a primary benefit of the program. DEP projects that 100 million gallons of water per day can be saved after three years, assuming the 1.5 million toilet replacement goal is met. This is a significant saving in a city which consumes nearly 1.5 billion gallons per day. The cost savings resulting from conservation are significant. It is estimated that the cost of conserving 100 MGD is one-half to one-quarter the cost of expanding supply sources and/or sewage treatment plants. In addition to the City, those using and participating in the program also benefit greatly. Retrofitting the toilets in a building or home will translate into lower water bills during a time when the water and sewer rates have skyrocketed. According to DEP estimates, percent reductions may be experienced. In addition, extensive work opportunities have been created, particularly for licensed plumbers. Although a short-term benefit, it comes during a low point in the construction market. 5

6 Scaling up the Impact As mentioned, similar programs have been enacted in Los Angeles and San Diego. Even if a city does not currently have water supply problems, a toilet retrofit program and a conservation program are sound investments in the future. They can allow for the growth of a city without a proportional growth in the water supply and infrastructure construction necessary to deliver and dispose of the water. Both resources and costs are thus saved. However, although the program s general framework can be transferred to other municipalities, some of the specifics may differ. For example, lower labor costs may allow for a lower rebate level. Also, the associated savings in consumers water bills will also differ depending on water prices, which should be considered to create appropriate incentives. If a similar program is being considered, several conditions must be met. The government must recognize the long-run versus short-run economic gains to such a program and be willing to risk immediate negative political pressure. Also, a suitable administrative structure must be established to ensure little bureaucratic red tape and a quick pay back period. If necessary or appropriate for a given setting, a private/public partnership should be established. Input must be sought from all potential participants including building and home owners, housing groups, and plumbers. Finally, the rebate level must be significant enough to encourage participation in the program. 6