On NY American Water takeover, Hempstead sees hurdles, Sea Cliff sees benefits

Two local governments studying the prospect of a municipal takeover of New York American Water’s Nassau County infrastructure have found the proposal would benefit one, but the other, not so much.

As the company prepares for a sale, the Town of Hempstead said it would see "serious" consequences if it were to spend the estimated $500 million to acquire the assets of New York American Water in the town, and municipalize the system, according to a state filing.

Conversely, the Village of Sea Cliff, which also had been considering taking over the northern Nassau service area of New York American Water’s 4,365 customers there, found its proposed takeover is "in the public interest and is a viable alternative" to a pending sale to Liberty Utilities for $607 million.

The state Public Service Commission last year issued a request for the state authority and districts to provide proposals for public takeover in lieu of a sale. The Massapequa Water District, which completed its study, found it feasible to acquire the company’s East Massapequa district.

But Hempstead’s filing suggests big hurdles for the 114,000 American Water customers in the town.

For one, the town found, customers would not see a net reduction in costs because the removal of the water authority from the tax rolls would require it to raise taxes to make up for the lost revenue. A buyout "would not result in a net cost reduction to customers as they would absorb these costs in their own property tax bills."

Further, the $500 million cost to acquire the assets would require Hempstead to issue half a billion dollars in debt. "The issuing jurisdiction would experience a debt burden scenario that would pose serious risk to the government’s Wall Street credit ratings," said the filing, from Hempstead water commissioner John L. Reinhardt. The "negative credit rating adjustments would result in increased borrowing costs for all municipal projects," the filing said.

The town also would have to outlay money to cover costs tied to addressing "significant water quality complaints," costs that could "erode nominal savings" from the deal.

Reinhardt suggested the State Legislature get involved in the process, in part to help to help address the "massive acquisition costs" tied to any deal. Gov. Andrew M. Cuomo has introduced a utility reform bill that calls for a study of the municipalization of the New York American Water territory in Nassau, which has around 120,000 customers.

New York American Water, a frequent target of ratepayers and lawmakers over high rates and water quality, has said any study by the state "would demonstrate that we can best deliver safe, reliable water service to our customers." President Lynda DiMenna, in a statement Wednesday, said, "A transaction with Liberty Utilities is in the best interest of our customers."

DiMenna added the "fastest way" to lower water rates for customers is to "address the special franchise tax that is unfairly levied on our customers, which both filings acknowledge is a significant issue that must be addressed."

The Village of Sea Cliff study, meanwhile, found a newly created North Shore Sea Cliff Water District broken away as a municipal entity would result in "a reliable system with potentially significant fiscal savings."

The district would use two existing groundwater wells and two elevated storage tanks currently used by New York American Water, the study found, and the value of the system, including water lines and hydrants, to be an estimated $19.2 million. The study noted there would be savings for customers even if the current taxes paid by New York American Water were assumed as a voluntary payment in lieu of taxes by the new water district. The savings would come from forgoing profits and eligibility for grants not currently available to the water company, as well as exemptions from state and local taxes on equipment and other purchases. Rates could be from $430 to $492 lower per year, the study found, and savings came even with property taxes paid.

The Sea Cliff study notes that the district currently is the most expensive water district on Long Island, while the nearby Jericho Water District is the second least expensive. "The only reason for this unjust disparity is ownership — a municipal district vs. a publicly traded company whose sole motivation is greed and profit for investors," said the Sea Cliff filing, signed by Mayor Edward L. Lieberman.

David Denenberg, a consumer watchdog at Long Island Clean Air, Water and Soil, applauded Sea Cliff’s finding, but said Hempstead’s study fell short.

"Even if the value is $500 million," Denenberg said of the cost to municipalize the Hempstead district, "given the number of ratepayers over 30 years, it’s affordable and you have real savings by taking profit and taxes out of the equation."

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.