NIAGARA FALLS, N.U. -- City of Niagara Falls residents will continue to pay the same water use rates in 2017.

The rate was locked at Thursday night’s Water Authority board meeting.

It’s not an increase, but it’s also not the rate decrease some were hoping to see after an audit revealed the Niagara Falls Water Authority has a $3.2 million surplus.

The $3.2 million dollars was settlement money from Occidental Chemical many years ago.

It was placed in debt service reserve account, which Water Authority counsel John Ottaviano says has to maintain a certain amount of money in it to show bond holders the authority has enough to pay them off eventually.

"The error that was discovered was that in 2013, when the bonds were refinanced, certain restrictions were taken off that $3.2 million in that debt service reserve, and it could have been moved down to operation and maintenance, and it was not,” said Ottaviano.

Now that the money is in the proper account, the surplus can go toward capital projects or non-reoccurring costs, such as an unanticipated water main break.

Executive Director Paul Drof says at least $500,000 will stay where it is and serve as a safety net for insurance purposes.

"We are liable for the first half a million dollars in any settlement," Drof said.

He explained by putting that half million aside, that’s money they won’t have to worry about budgeting for.

The remaining money will offset the Authority's 5-year plan for capital improvements, but Niagara Falls leaders asked why it couldn't go toward a residential rate reduction instead.

Ottaviano said the $3.2 million was never gained from revenue because it was settlement money instead, and that reductions in rates can only come from gained revenues and fees.

"It cannot be applied toward normal operating expenses or earmarked as revenue because that would misstate the budget. it's not revenue that's coming in from the rates, and it’s not part of the normal operating expenses,” he said, calling it a unique situation and an “oddity.”

Another expense that some thought the money could go toward is the 72nd Street repairs. The notorious frozen water pipes cost about $1 million to fix.

Elected leaders suggested the Water Authority's surplus could aid with that, but Drof said there's no need.

“Again it was not a water board project, it was a city project,” Drof said, noting an agreement that was signed between the two entities. “My understanding is that we are receiving $250,000 from Senator Ortt's project, Assemblyman Ceretto has guaranteed $125,000 of his member funds toward this project, and the rest was paid for by the State of New York, so there is no out of pocket expense once all of the funding is completed to the City of Niagara Falls.”

Channel 2 reached out to two Niagara Falls councilmen and the Mayor Thursday night, none of whom where available to comment.