NEW YORK (Reuters) - A divided appeals court in Manhattan on Thursday rejected New York City’s plan to give small homeowners a $183 credit on their water and sewer bills, a defeat for Mayor Bill de Blasio.

FILE PHOTO -- Mayor of New York City Bill de Blasio speaks at a protest against U.S. President-elect Donald Trump outside the Trump International Hotel in New York City, U.S. January 19, 2017. REUTERS/Stephanie Keith/File Photo

The Appellate Division, First Department of the State Supreme Court ruled 3-1 that the city’s water board lacked a rational basis to award the credit to owners of one- to three-family homes, while leaving other property owners ineligible.

De Blasio had last April promoted the one-time credit, to be funded with a water board surplus, to cut annual water and sewer bills by 17 percent to 40 percent for about 664,000 homeowners.

His proposal also included a 2.1 percent rate increase, and was to take effect last July 1.

But real estate companies and the Rent Stabilization Association trade group objected. They called it unfair to subject larger landlords, and in turn their tenants, to the rate hike, while denying them the credit.

The appeals court said the credit “cannot be reconciled” with the city’s budgetary needs, and the water board had no basis to conclude that small homeowners were “more needy” than other property owners or paid too much relative to them.

De Blasio said in a statement he remained “confident” that homeowners will eventually receive the credit.

“Wealthy landlords and high-priced lobbyists have spared nothing to line their own pockets at the expense of hardworking New Yorkers,” he said. “Today’s court ruling keeps $183 of water rate relief out of the hands of everyday homeowners - for now.”

Michael Berengarten, a partner at Herrick Feinstein representing the objecting landlords, welcomed the decision.

“This was a flat giveaway to a broad class of property owners, regardless of need, without any legitimate water-related purpose,” he said in a phone interview.

“Board members are appointed by the mayor, and abdicated their responsibilities to achieve the mayor’s political goals,” he added.

De Blasio is widely expected to seek re-election this year.

Thursday’s unsigned decision upheld a June 2016 ruling by State Supreme Court Justice Carol Edmead in Manhattan.

Justice Marcy Kahn dissented, saying the water board had authority to help “overburdened” lower and middle-class homeowners, including the elderly, facing rising water rates.

The case is Prometheus Realty Corp et al v New York City Water Board et al, New York State Supreme Court, Appellate Division, First Department, No. 653003/2016.