Nassau County Executive Edward Mangano has removed a lucrative incentive from a financial adviser’s contract to study a potential $1 billion lease of the county’s sewer system to a private investor.
The administration wants to hire Manhattan-based KPMG to analyze the pros and cons of a long-term system lease, which would provide the county upfront cash to retire sewer debt.
In late July, Mangano submitted a contract to the county legislature that could have paid KPMG as much as $900,000 for the initial analysis, consulting and bid solicitation — and at least $2.3 million more if the firm successfully negotiated a lease.
But after Democratic lawmakers and members of the county’s financial control board expressed concerns about the large “success fee” — for which KPMG would have been eligible even before it determined if a lease were viable — Mangano this week submitted a revised pact to county lawmakers without that provision.
The new contract guarantees KPMG $197,925 for studying the impact on sewer system rates under both a lease and continued county operation. If KPMG concludes that the status quo would be better, the county could walk away with no further obligation to the company, Mangano aides said.
If the study supports exploration of a lease, KPMG could earn a maximum of $887,568 over two years to assist the county in also assessing interest from private investors and reviewing responses that would precede formal bids.
For KPMG to earn the more-than $2 million “success fee” tied to a lease closing, a second contract would need to be drafted and approved.
“KPMG will assist the county in evaluating whether this is a good option for ending the decades-old operational deficit plaguing Nassau’s sewer system and ensuring proper infrastructure investments for the future,” Eric Naughton, Mangano’s finance deputy, said in a statement.
Mangano, a Republican, has tried twice before to hire an adviser to explore a lease of Nassau’s three sewage treatment plants, 53 pumping stations and 3,000 miles of sewers. Previous contracts were blocked by the Nassau Interim Finance Authority, the county’s fiscal control board.
The administration has said an investor could provide $650 million to $1 billion upfront for the county to retire long-standing debt, largely for its sewer system. In exchange, the investor would operate the system for nearly 40 years, paying to maintain it while collecting revenue from user fees.
Mangano has said the investor likely would abide by a cap on annual rate increases set by the county. He has said that a private investor could keep rates lower than the county, which struggles to pay for system improvements and to maintain services.
Cristina Brennan, spokeswoman for Presiding Officer Norma Gonsalves (R-East Meadow), said the KPMG contract “is under review.” Brennan said the contract will not be called for a vote at Monday’s Rules Committee meeting but did not specify when a vote would occur.
Minority Leader Kevan Abrahams (D-Freeport) said an investor would raise fees on residents to guarantee a profit, and that Democrats plan to vote against the contract. “This deal will only hurt taxpayers,” he said.
The KPMG contract would also need NIFA approval. NIFA chairman Adam Barsky declined to comment Wednesday on the proposed agreement.