NIFA rejects $5M contract for sewer deal

George Marlin, along with the majority of the

George Marlin, along with the majority of the NIFA board, rejected Nassau County's sewage privatization plan at their meeting Thursday in Uniondale. (May 17, 2012) (Credit: Newsday/Danielle Finkelstein)

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Nassau's fiscal control board Thursday struck a serious blow to County Executive Edward Mangano's plan to privatize the county sewer systems by rejecting a $5 million contract to hire a financial adviser for the deal.

The Nassau Interim Finance Authority, which took control of the county's finances more than a year ago, voted 5-0 against approving a contract with Morgan Stanley & Co.

Mangano has said the company would be paid $5 million to assist the deal. A sixth board member, Robert Wild, abstained, saying he didn't have enough information about the plan.

Chairman Ronald Stack said NIFA's rejection "doesn't preclude the county" from proceeding with a sewer privatization plan. But most NIFA board members indicated they would not approve the rest of the deal as currently proposed.

"It's backdoor borrowing," said NIFA member George Marlin.

"It's not a public-private partnership," said NIFA member Chris Wright. "It's a loan."

NIFA member Leonard Steinman was the most blunt. "The sewer deal is dead," Steinman said.

In a statement after the vote, Mangano said the "NIFA board is clearly confused about the potential public-private partnership for Nassau's sewage treatment plants -- which are in a state of disrepair and face fiscal crisis. The public-private partnership is not a loan or borrowing."

He said in an interview that he had offered to brief NIFA on the plan but was rejected.

"Comments made by NIFA board members demonstrate their lack of understanding of public-private partnerships," Mangano said. "The county has a legal opinion that the transaction is not a borrowing."

But Wright said, "It's not that we don't understand the deal. The problem is we do."

Mangano's proposal calls for New Jersey-based United Water to manage and operate the Bay Park and Cedar Creek plants, 53 sewage pumping stations and 3,000 miles of sewers. Rates would be frozen through 2015 and then capped for the life of the deal at the rate of inflation.

Under the proposal, a private investment group would provide at least $750 million raised from individual investors. That money is to be repaid by the county from sewer fees and from system efficiencies instituted by United Water.

The money from the investment group would go into the county treasury to reduce the county's $3 billion debt. The investment group would pay for improvements to the system.

Marlin warned that investors will expect high returns for financing the deal.

"To use such costly funds to pay down low-interest, tax-exempt county and sewer debt makes no sense," Marlin said. "This would be like drawing down the credit line on one's Visa card at 15 percent interest per year to pay down one's home mortgage, which has a 4 percent annual interest rate."

Democrats had opposed the privatization plan. Minority Leader Kevan Abrahams (D-Freeport) said NIFA's rejection gave "a quick and swift death to an unwanted deal to sell our sewers."

The NIFA vote came a short time before Mangano held the last in a series of public meetings meant to inform residents about the sewer plan. About a dozen people attended at the county executive building in Mineola, and several peppered Mangano with questions about the deal's financing.

"I am skeptical of the economics of the transaction," said Steve Vilda of Syosset.

United officials who attended said that despite the NIFA vote they remain optimistic a deal can move forward.

"It's premature to make a final judgment without fully vetting this out," said Patrick Cairo, the company's senior vice president of corporate development.

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