BRIEF SUMMARY:

Water submetering would transfer water bills from owners to tenants through proportional billing according to actual submetered water usage.

Water conservation among the tenant population could reach 25% to 30% reduction in water usage – and save taxpayers the huge costs of new water and sewage treatment plants in the future – but only if water submetering is widely implemented in the tenant population.
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Two critical requirements in H.5001 – high initial start-up costs and delayed billing of tenants – make submetering nearly impossible to implement in existing rental housing, and the conservation impact of submetering in new construction is miniscule.

Less that 10% of existing and older properties could implement water submetering under H.5001’s restrictions, based on consensus among rental property owners of these properties.

If only 10% of the tenant population achieves a 30% water usage reduction, the net water conservation in the total tenant population is just 3%. BY CONTRAST, if 75% of the tenant population achieves the same 30% water usage reduction, the net water conservation in the total tenant population would be 22.5%, dramatically higher.

To achieve any significant water conservation, H.5001 needs to be AMENDED so that water submetering is implemented widely in the tenant population, to at least 75% of all tenants and as far down the “housing ladder” as possible. [See next page: Amendments]

Small property owners were excluded from drafting negotiations on this bill, which largely explains its unworkability in so much existing rental housing.

H.5001 imposes minimal barriers to water submetering in new construction, but new construction adds less than 1% to total rental housing stock each year, yielding less than 0.3% incremental new water conservation each year – or 3% water conservation in new construction units only after 10 years of implementation.

EXTENDED SUMMARY:

CONSERVATION GOALS

Massachusetts is the only state that does not allow tenant water billing. Water submetering has the potential to cause water usage to drop 25% to 30% in the tenant population, the only segment in Massachusetts with no similar conservation incentive.

COST FACTORS in IMPLEMENTATION

COST/BENEFIT INCENTIVE: Owners will only submeter if savings on their annual water bills – about $400 to $500 per unit – exceed their start-up and ongoing costs for submetering. Even if ongoing costs are recoverable from owners’ reduced water bills when tenant water billing becomes stabilized and well established, initial start-up costs and costs in the near future after start-up can disincentivize owners from submetering at all.

This Water Submetering bill (H.5001) imposes the following start-up, near-future and continuing costs on owners in order to submeter:

  1. Submetering itself – Changing water lines and installing submeters for every unit – about $1,000 per unit – a minimum unavoidable cost, but substantial in all existing housing.
  2. Modernization – Changing all faucets, showerheads and toilets in every unit – about $700 to $1,500 per unit or more. This modernization component is not required in any other state and creates the chief deterrent to water submetering in existing rental housing, and a greater deterrent as the age of the housing increases.
  3. Administrative costs – Ongoing monthly charges from water billing companies, who administer the complex allocation of main bills to unit bills, cannot be passed on to tenants under this bill – and will eat up about 20% of total annual savings from owners’ water bills.
  4. Delayed start of water billing – All start-up costs are incurred at once, but existing tenants cannot be billed for their water usage. The unit is not eligible for water billing until existing tenants leave “voluntarily” or are evicted “for cause,” creating a potentially long period before full tenant water billing is achieved to offset owner start-up costs.
  5. Weak enforcement for bill collection – For unpaid water bills of about $30 to $40 a month, only very ineffective enforcement is available – either eviction (too expensive and confrontational) or deducting unpaid bills from security deposits (but many tenants leave by not paying the one month’s rent equivalent to the security deposit).

IMPACT on WATER CONSERVATION & ENVIRONMENT

Because of start-up cost barriers, delayed billing, and weak billing enforcement, most owners of existing rental housing, and virtually all owners of older housing and all small property owners, will not submeter under the present provisions of H.5001. Less than 10% of the tenant population will be submetered, and at an estimated 30% drop in water usage after submetering, the net water conservation among the total tenant population would be under 3%. To achieve any significant water conservation, this bill needs to be amended to remove cost barriers, so that water submetering penetrates to at least 75% of the tenant population.

IMPACT on STATE & MUNICIPAL EXPENDITURES

The chief goal of water conservation is to reduce demand for the increasing high cost of water and sewage infrastructure. This bill would produce little conservation, and state and municipal expenditures for water/sewage infrastructure will continue to rise in the future.

IMPACT on STATE & LOCAL TAX REVENUE

The two controversial provisions in this bill – modernization costs not required in any other state and delayed start of water billing to existing tenants – both reduce property tax values and reduce state income tax revenues from owners who cannot recover costs.

IMPACT on RENTS & TENANT COSTS

The cost of water submetering to achieve conservation must ultimately be borne by tenants, both in water bills and potential rent increases if submetering costs are too high. Because of its high-cost start-up requirements, this bill will EITHER effectively limit or deter water submetering in existing rental housing and thus have little impact on rents OR will place a very strong pressure on owners to raise rents to cover start-up costs if they do submeter. To the extent water submetering can be expanded to more rental housing stock by amendments to this bill, the goal should be to keep owners’ costs as low as possible, which will keep pressure on rents as low as possible.

IMPACT on HOUSING STOCK

The modernization requirement in H.5001 is a throw-away cost since it is done in isolation and not linked to more extensive modernization of kitchens and bathrooms. As a throw-away cost, it would divert owners from priorities for other modernization needs of older housing that ensure long-term preservation of the housing and increased property values in neighborhoods.

IMPACT on LANDLORD/TENANT LAW & LITIGATION

The complex method that this bill “grandfathers” all existing tenants until they leave “voluntarily” or are evicted “for cause” will lead inevitably to lengthy eviction trials, which will impose financial and administrative burdens on the courts as well as owners. The “just cause” eviction precedent in this bill is regressive for landlord/tenant law – going back to the days of rent control.

SUGGESTED AMENDMENTS to ENCOURAGE SUBMETERING

  1.  Eliminate the modernization component, which is not required in any other state. This is the single most costly deterrent to implementing submetering. OPTION: Texas (the only state with any requirement to alter water-using fixtures) only requires that older 5-gallon toilets be brought down to a 3.5-gallon flush with simple devices inserted by hand into the toilet tank.
  2. Remove the “grandfathering” and “just cause” eviction provisions for existing tenants. OPTIONS: Require a six-month notice before existing tenants can be billed for water. Require a one-year notice before elderly, disabled, and low-income existing tenants can be billed for water. This would ensure a predictable recovery time on owner start-up costs to encourage submetering.
  3. Include option of proportional or “RUBS” billing, which allocates water bills proportionally to units by any specified measure, such as number of water-using fixtures or square footage of apartment. This very low-cost water billing system was “off the table” from the start in negotiations on H.5001, so it is controversial for tenant advocates. Mixed research data suggest modest water conservation or possibly none, but the billing system would heighten tenant awareness broadly and prepare them for eventual submetering.
  4. Amend the building code to require submetering when substantial renovation takes place on kitchens and bathrooms. Submetering would be the least costly at the point of substantial renovation of the kitchen and bathroom in any given unit. By requiring submetering at this point in the code, owners do not unwisely overlook it and then face substantial costs later to retro-fit submetering.

DETAILED ANAYSIS

CONSERVATION GOALS

Massachusetts is the only state that does not allow submetering or other methods of billing tenants for water usage.

Evidence from other states shows that water usage drops about 25% to 30% when tenants are billed for water usage – in the same way they pay other utilities (electricity, gas, oil).

Residential tenants in Massachusetts are the last remaining block of the state’s residential, commercial and industrial population that has no incentive to conserve water. Owners currently MUST supply water to tenants and pay for it. Water costs are therefore included (and hidden) in rents.

COST FACTORS in IMPLEMENTATION

The only incentive for owners to implement submetering arises in the savings of $400 to $500 a year per unit in owner-paid water bills that would be transferred to tenants in $30-to-$40-a-month tenant-paid water bills (assuming no reduction in total revenues to municipal water companies). If submetering costs exceed these savings, owners will not submeter.

This bill imposes the following cost (or loss) factors, whose combined impact will inhibit or effectively stop water submetering by most owners of existing rental properties – probably 90% or more of them, especially owners of older properties and small property owners. For new rental housing construction, these costs factors, in contrast, would be minimal.

  1. Submetering costs This bill requires certified submeters measuring only the water usage in each individual unit. These unavoidable costs of submetering involve changing old water lines, installing submeters to each unit or multiple point-of-use submeters in each unit, and installing a radio-transmitter device in every building which transmits submeter readings to a billing company. These start-up costs alone – roughly $1,000 per unit – would likely deter submetering by a significant portion of (usually small) owners of existing rental housing.
  2. Modernization costs In addition to submetering costs, however, this bill also requires full modernization of every water-using fixture prior to billing tenants – in other words, replacing every faucet (kitchen and bathroom sinks), showerhead, and toilet in every unit. This modernization requirement would cost from $700 to $1,500 and possibly more per unit. For all older, less modernized buildings (typically owned by small owners), these costs become larger and larger – and compete against other modernization needs of older buildings. All 49 other states allow submetering, and NOT ONE STATE requires this modernization component. Texas only requires a 3.5-gallon flush by installing simple devices (e.g., hand-installed water dams in the toilet tank) in existing 5-gallon-flush toilets. Moreover, modernization of water-using fixtures is already required by building codes and dictated by available products when owners undertake general remodeling of kitchens and bathrooms. Thus, this bill’s costly modernization requirement, tied to water submetering, would be unique to Massachusetts and presents THE MAJOR DETERRENT to submetering under this bill.Furthermore, the evidence from other states of a 25%-to-30% reduction in water usage when tenants are submetered is based on submetering WITHOUT modernization. No evidence exists to show that modernization in conjunction with submetering affects water conservation by tenants.
  3.  Administrative costs Owners will incur several administrative costs: (1) the initial search for a professional installer and billing company, (2) the signing of detailed written agreements with tenants (most difficult with semi-literate minority owners and in oral tenancies-at-will), and most importantly, (3) the ongoing cost of monthly water billing done by specialized billing companies, which cannot be passed on to tenants. This last cost will cut into about 20% of the annual savings in water bills.
  4. Delayed start of tenant water billing Practical and economic reasons dictate a one-time installation effort to submeter ALL units in a building at once, a high-cost start-up to submeter. This bill allows this installation to occur in the units of existing tenants, but strictly forbids any water billing to these same existing tenants. Existing tenants are “grandfathered” until they either leave voluntarily or are evicted “for cause,” which could be for months or years or decades, at which point the unit becomes eligible for water billing to new tenants. Thus, submetering and modernization costs must be incurred for an entire building, but cost recovery through tenant water billing cannot start except very partially, nor expand to the whole building except gradually as existing tenants move out, a highly unpredictable payback to the owner for the original investment. This unpredictable delay in billing that would recover start-up costs creates yet a further deterrent to submetering.
  5. Weak enforcement in collecting water bills In this bill, if tenants do not pay water bills, the owner’s only recourses are to evict the tenant or to deduct the unpaid bills from the security deposit, if a security deposit was collected. Eviction for unpaid bills of $30 to $40 a month, even as they accumulate, is not cost effective (court costs plus attorneys’ fees) and could risk escalating into a major legal battle between owner and tenants. Deducting unpaid bills from the security deposit has an upward limit, and each deduction reduces the effectiveness of the security deposit for its original purposes. Many owners do not collect security deposits because of the inherent legal risks under the Security Deposit Law. Many tenants defeat the security deposit by simply not paying the last two or three month’s rent – when owners have no time to evict. These weak enforcement factors create uncertainty in collecting water bills, which would deter submetering or cause some percentage of hapless owners to operate submetering at a loss.
  6. Cost-effective strategies of marketing to older, small-scale housing so typical throughout Massachusetts’ housing stock will be difficult or impossible to develop. Water billing companies that already exist in other states focus almost exclusively on new construction and larger, newer buildings and have little experience with older buildings. Thus, water conservation in older rental housing and in rental housing owned by small owners will not be achieved in great part because of this bill’s high initial start-up costs and requirements.

IMPACT on WATER CONSERVATION & ENVIRONMENT

Because of the costs outlined above, this bill offers few financial incentives and substantial financial deterrents to water submetering. Accordingly, this bill will fail to deliver its primary intended goal – water conservation through submetering. The goal fails in most existing rental housing.

The consensus among small property owner groups throughout the state is that less than 10% of smaller property owners would undertake submetering under the conditions imposed by this bill. Larger owners of older buildings would also have a low rate of submetering. Thus, net water conservation will be severely restricted unless submetering is expanded to a larger portion of the tenant population, as the following table shows.

Percent of total tenant
population submetered
Average conservation
of submetered tenants
NET water conservation
in tenant population
10% 30%* 3%
25% 30%* 7.5%
50% 30%* 15%
75%
 30%*   22.5%
 100%
 30%* 30%

*This is the highest estimate of tenant water conservation under submetering

In new rental housing construction, the cost factors of submetering are negligible. Modernization is included in construction costs, and tenant billing begins at once in all units. Water submetering will be universal in new construction. But new construction proceeds only very slowly, and adds less than 1% a year to the Commonwealth’s total rental housing stock. The net conservation among the total tenant population that is contributed solely by tenants in newly constructed units starts at zero, grows very slowly and adds very little to overall water conservation among tenants.

To achieve any significant water conservation, the deterrent cost factors in this bill must be reduced so that submetering in existing rental housing occurs more widely and further down the “housing ladder.”

Sewage treatment costs are included in water bills and explicitly included under this bill. Without water conservation, the current pressures on existing sewage treatment facilities remains, and existing environmental pollution from sewage would continue unabated.

IMPACT on STATE & MUNICIPAL EXPENDITURES

The public benefit of water conservation is to reduce the demand for new infrastructure, that is, for construction of water purification plants and sewage treatment plants, which must be funded out of state and municipal tax revenues. By reducing demand over time or holding it constant, pressures on existing water/sewage facilities are reduced, older facilities can be maintained longer, and the need to build new water/sewage facilities at considerable cost to taxpayers can be held at bay or at least postponed much longer. Successful water submetering leading to significant water conservation would significantly reduce future expenditures out of state and municipal treasuries for new infrastructure – but expenditure reduction will not happen under the present Water Submetering bill.

IMPACT on STATE & LOCAL TAX REVENUES

If submetering is effectively blocked in most rental housing by the deterrent aspects of this bill, there is no impact on state or local tax revenues, but there is also no benefit on reducing future state and local expenditures on water/sewage infrastructure. If submetering does occur, and to the extent it does occur under this bill, the impact on state and local tax revenues would be as follows for each of the bill’s separate provisions:

  1.  Submetering costs (alone, without modernization costs) would marginally improve the property tax values of submetered properties, but would reduce state income tax revenues from rental property owners to the extent submetering costs cannot be recovered in higher rents and are deducted from gross rental income.
  2. Modernization costs, done in conjunction with submetering only and not as part of any other concurrent modernization, would have zero impact on property tax values. New faucets, showerheads and toilets by themselves have no improvement value except in the context of extensive renovation of kitchens and bathrooms – and this bill only encompasses modernization in conjunction with submetering. Modernization costs would reduce state income tax revenues from rental property owners to the extant that these modernization costs cannot be recovered in higher rents and are deducted from gross rental income.
  3. Delayed start of tenant water billing reduces property tax values and reduces state income tax revenues from owners until all tenants are paying water bills, unless owners can recover unpaid tenant bills in higher rents.
  4. Administrative costs, which this bill explicitly prohibits being charged to tenants, reduces property tax values and reduces state income tax revenues from owners to the extent owners cannot recover costs in higher rents. The extent to which owners can recover the above water submetering costs in higher rents is limited to “what the market will bear,” a difficult calculation to make. Those expenses that are most difficult to recover in higher rents should be eliminated: modernization costs and delayed start of water billing.

IMPACT on RENTS & TENANT COSTS

The Boston Tenant Coalition opposes this bill because they fear it will raise rents. This fear is not ungrounded if owners actually do submeter. By “rents” they presumably mean at least the transferred new water bills that tenants must pay, and their well-founded suspicion that owners will not reduce current rents when water costs are transferred. Start-up costs, as indicated above, will more than eat up owners’ savings on water bills, and owners will not likely reduce rents, unless competitive forces require it. Tenants will therefore incur at least an additional “rent” of about $30 to $40 a month in new water bills, though they will have the opportunity to conserve and reduce their water bills.
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Will owners INCREASE rents at the same time that water bills are transferred or submetering is installed? The answer is “yes” (but limited to the extent “the market will bear”). Depending on actual costs and perceived rates of return, or actual payments on loans taken out to submeter, owners would attempt to raise rents on submetered tenants – on top of water bills. Much more certain rent increases would occur for those existing tenants who cannot be billed, so that owners could recover their start-up costs. This Water Submetering bill does not prevent rent increases on existing tenants (that would be rent control). The “grandfathering” of existing tenants is therefore pointless and counterproductive.

Ultimately, the cost of conversion to water submetering to achieve water conservation must be borne by tenants; owners won’t do it for free. To keep rents as low as possible, the goal should be to make water submetering as easy and cheap as possible, which this bill does not do.

IMPACT on HOUSING STOCK

If this bill is not amended and effectively prevents almost any water submetering in existing rental housing, there will be no impact on the existing housing stock. The bill allows submetering in new construction, but as noted above, this segment of the housing stock in miniscule and grows slowly.

If the bill is changed in part to increase incentives to submeter, various features of the present bill – if still retained in the bill – would have the following specific negative impacts whenever water submetering is implemented:

  1. The modernization component of this bill, if retained, could shift owner priorities to the detriment of long-term housing preservation and increased property values. Water submetering with the modernization component could derail or delay more important improvements needed in older buildings that could ensure long-term preservation of our most economical lower-rent housing – improvements such as new electrical and heating systems, new roofs, replacement of rotting porches, etc.
  2. The delayed start of water billing has the same effect modernization costs on shifting owner priorities to the detriment of long-term housing preservation.
  3. Any litigation that results from this complicated bill (for example, tenants who fight eviction with the “just cause” provision in this bill or tenants who feel wrongly billed) would also rob owners’ financial resources to improve and preserve housing. Litigation risks always need to be reduced for the sake of the housing stock.

IMPACT on LANDLORD/TENANT LAW & LITIGATION

Significant litigation could result from the complex language and methodology used in this bill to “grandfather” all existing tenants until they leave “voluntarily” or are evicted “for cause.” These terms are inherently vague and subject to interpretation, which easily can lead to lengthy litigation during eviction trials. The potential for lengthy litigation becomes a deterrent to submetering if owners think about it or hear about it. The cost of this litigation not only burdens the courts further, but cuts deeply into owners’ financial resources, reduces services to other tenants and slows modernization and housing preservation. Through these effects, local neighborhoods are impacted negatively.

The “just cause” eviction language directly infringes on, and makes an exception to, existing owner rights to terminate tenancies with 30-day notice or at the end of a lease or under the termination provisions of a lease. Massachusetts had “just cause” eviction only in rent-controlled jurisdictions – just three cities – and it came and went with rent control.  Thus, this feature of this bill is regressive for landlord/tenant law – regressing back to the days of rent control. If this provision becomes a precedent that widens under case law or in other statutes, it imposes significant new costs on rental property owners who must engage in lengthy eviction trials or, in avoiding such trials, must suffer the costs that unwanted and undesirable tenants cause in their housing. These costs, of course, always devolve onto other tenants in the immediate future, one way or another, whether in reduced maintenance or poorer living conditions.

SUGGESTED AMENDMENTS to ENCOURAGE SUBMETERING

  1. Eliminate the modernization component that is not required in any other state. This is the single most costly deterrent to implementing submetering.

    OPTION: Texas (the only state with any requirement to alter water-consuming fixtures) only requires that older 5-gallon toilets be brought down to a 3.5-gallon flush with simply devices inserted by hand into the toilet tank.

  2. Remove the “grandfathering” and “just cause” eviction provisions for existing tenants.

    OPTION: Require a six-month notice before existing tenants can be billed for water.

    OPTION: Require a one-year notice before elderly, disabled, and low-income tenants can be billed for water.

    These changes would ensure a predictable recovery time period on owner start-up costs to encourage submetering, yet would preserve a significant measure of protection for tenants, the same protection currently allowed in no-fault evictions.

  3. Include option of proportional or “RUBS” billing, which allocates water bills proportionally to units by any specified measure, such as number of water-using fixtures or square footage of apartment. This very low-cost water billing system was “off the table” from the start in negotiations on H.5001, so it is controversial for tenant advocates. Mixed research data suggest modest water conservation or possibly none under RUBS billing systems, but at the same time the cost of implementation is minimal. Thus, the option of starting a RUBS billing system would allow widespread adoption of tenant water billing, probably modest water conservation, but heighten tenant awareness of water conservation broadly in the tenant population and prepare them for eventual submetering as properties become upgraded. This amendment could be a bargaining chip.
  4. Require submetering whenever extensive modernization occurs, such as complete rehabilitation of both kitchen and bathroom. This amendment would change the building code to require submetering – or at least separation of water pipes – whenever a unit undergoes substantial modernization of kitchen and bathroom. This degree of modernization is precisely the point at which water submetering becomes the least costly, adding the least incremental amount to the cost of the same rehabilitation without submetering. The cost impact is minimized, yet owners are not allowed to go forward with an unwise rehabilitation that would later require extensive costs to retro-fit water submetering to a modernized unit.