They consider the rentals a business and just as your personal liability insurance wouldn't protect you if your plumbing company hurt someone, they want to be reimbursed for their risk.

All CAM charges are reimbursed by the tenant which is indicated in the lease and CCR's.

Rehab funds are typically escrowed and the borrow is reimbursed for rehab expenses as the portions of the rehab work are verified completed.

But just wanted to get everyone’s advise if you have dealt with something similar, and will you reimburse the tenant if you are in my situation?

In the case of the water bill, you would count the 1/2 they reimburse you as income and the amount of the expense you paid attributed to your tenant as an expense. 

If your attorney's are sure the expungement would take then insure with exception, close now at some discount and escrow the 5-8K to reimburse?

The term "cash revenues" shall mean all income resulting from the operation of the property, including but not limited to all rents and other sums deposited including, parking fees, common area charges, percentage rents, operating expense, real estate tax, and insurance premium reimbursements, late charges, security deposit forfeitures, and insurance claims proceeds" 3 Construction Supervision: Agent shall be paid a fee of (10%) of the total costs of any and all Tenant Improvements, Repairs, or Renovations for coordinating, supervising, and contracting for such work on behalf of the Owner.4 If  Agent is successful in obtaining a real estate tax assessment reduction for the property or any part thereof, Owner agrees to pay Agent a fee equivalent to fifty percent (50%) of the first year's real estate tax expense savings realized by Owner as a result of such reduction.

In multifamily when property taxes, insurance, and other costs rise you do not get reimbursed by tenants like other asset classes so can eat into returns.What about consumers hitting their debt ratio to income ceilings in ability to keep paying higher and higher rents per door?

You may not pay the bills with your cash and get reimbursed.

It means you do the work and then they reimburse you.