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Edward Mangano hires adviser to study sewer system lease

The Bay Park Sewage Treatment Plant in East

The Bay Park Sewage Treatment Plant in East Rockaway is seen on Jan. 7, 2016. Photo Credit: Flying Dog Photos

For the third time in five years, Nassau County Executive Edward Mangano has hired a financial adviser to study leasing the county’s sewer system to a private investor.

This time, however, he has built the contract to address past concerns by the county’s fiscal control board.

Mangano on Monday submitted to county lawmakers a contract with Manhattan-based KPMG that guarantees the firm $197,925. KPMG will get at least $3 million more if a decadeslong lease — netting Nassau more than $750 million in upfront cash to retire sewer debt — is finalized.

The legislature’s Republican-led Rules Committee could vote on the two-year pact with the adviser by late August.

“We’re not predisposed to going this route or not going this route,” Mangano, a Republican, said of the leasing option. “This is a fact-finding initiative.”

The administration first hired KPMG last year to explore a lease of Nassau’s three sewage treatment plants, 53 pumping stations and 3,000 miles of sewers. But the contract was blocked by the Nassau Interim Finance Authority, with the state financial control board expressing concerns about the benchmarks for paying the firm.

NIFA also blocked a similar 2011 contract with Morgan Stanley, calling the lease proposal “backdoor borrowing.”

The 2015 contract would have paid KPMG $270,000 over six months and potentially net the company a 0.45 percent “success fee” if a lease deal was closed. That would total $3.4 million if Nassau leased its system in exchange for $750 million upfront, and $4.5 million if the deal was for $1 billion.

The new contract would pay KPMG a 0.5 percent success fee on the difference between a “baseline” estimate of the lease value and any additional payment the firm could negotiate with an investor. If the baseline were $750 million and the county got $1 billion, KPMG’s success fee would be $1.3 million.

The new contract also connects KPMG’s initial payments to completion of particular tasks. The first task, paying $197,925, would be an evaluation of the impact on sewer rates of a lease and the “status quo.” Mangano has said that an investor, which recoups its upfront investment through sewer fees paid by county residents, would abide by a cap on annual rate increases.

He also has said an investor could keep future rates lower than the county, which struggles to pay for system improvements and maintain reserves.

Determining the impact of rates is “the foundation for the rest of the analysis,” Mangano said, noting that if the firm found that sewer rates could increase more under a lease, the county could walk away only owing the $197,925.

If the study goes forward, the second, third and fourth tasks — including the drafting of a “request for qualifications” sent to potential investors and the review of their responses — would pay KPMG $689,643.

If a lease is finalized, the firm would be paid $2.3 million for its work drafting a request for proposals, vetting bidders and helping Nassau award and negotiate a contract.

A spokeswoman for the legislature’s GOP majority said Tuesday that lawmakers were still reviewing the contract and declined to comment.

NIFA chairman Adam Barsky also declined to comment.

Legislative Minority Leader Kevan Abrahams (D-Freeport), said he opposes a sewer lease.

“We believe it doesn’t benefit the taxpayer,” Abrahams said. “Anybody who wants to invest would want to raise rates to make money. They wouldn’t be interested otherwise.”

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