City Forcing Me to Run New Service Line

[Nathan Mailly]

I am flipping a single family that I purchased about 2 months ago with hard money. When I went to cut out what looked like old water lines (capped and bent over) under the sink I was surprised to find that the cold line was live, (this house was winterized and the water had been shut off just before the meter.) The water dep. eventually came to help, but when they realized that my service line served my house and the house behind me, they decided to just crimp the line. 

The water dep. determined that it was an illegal line on my property that I was responsible to remove, but they seem to be okay with me just capping it and burying it in the concrete slab. 

The main problem is that now the water dep. is saying that I need to install a new service line from the street so that I have my own shut-off, which is required according to code. This would require around a 25' long trench 4-5' deep and everything required to install a new line, which I don't know too much about. 

What should I do? This is going to cost at least $2,500 from what I understand but could be around 5K. I guess my real question is can I fight this? The water dep. pulled my meter and sent me a letter saying that I can't obtain a CO until I come up to code with the water line.