Nassau County Executive Edward P. Mangano, presents his third "State...

Nassau County Executive Edward P. Mangano, presents his third "State of the County" address at the Cradle Of Aviation Museum in Garden City. (March 14, 2012) Credit: Chris Ware

Nassau County Executive Edward Mangano says he will continue with a plan to privatize the county's sewer system, despite a state oversight board's rejection of a contract that is crucial to closing the deal.

On Thursday, the Nassau Interim Finance Authority, which controls the county's finances, unanimously rejected a $5 million contract with Morgan Stanley, the county's financial adviser on the deal.

Despite the roadblock, Mangano said he is not giving up. "I certainly do not have enough information to summarily dismiss this transaction," he said in an interview.

Mangano said he is "exploring all our options required to move the transaction forward" but did not offer specifics.

But NIFA board member Chris Wright said it would be a waste of time for the county to continue pursuing the deal, and that Nassau should focus on finding $150 million in recurring labor savings.

"They should get back to basics and spend less time on these kinds of distractions," he said.

On Friday, Mangano asked NIFA chairman Ron Stack to meet with the county and Morgan Stanley. NIFA has rejected previous offers, Mangano said.

Taking a shot at NIFA's high-profile announcement on Thursday, Mangano spokesman Brian Nevin said the county executive "is concerned that NIFA board members are theatrically opposed to Morgan Stanley's plan that could reduce county debt by $750 million and stabilize Nassau's Sewer Authority finances."

Mangano's plan 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.

A private investment group would provide Nassau with at least $750 million to fund the transaction and spend at least $300 million for capital improvements to the plants over the next decade.

Those funds, Mangano said, would be repaid to the investor through system efficiencies instituted by United Water and from sewer fees paid by taxpayers. Mangano pledged to freeze sewer rates through 2015 and cap them at the annual inflation rate -- currently 2.3 percent -- for the life of the contract.

A Morgan Stanley official familiar with the deal said their model assumes the rate of inflation will grow and that ratepayers would pay an increase of 3 percent annually for the next 50 years -- the expected length of the financier's deal. The model also assumes plant improvements would reduce operating expenses by 30 percent, and that additional revenue would come from tax benefits and population growth.

"This is what we do every day," said the company official, who declined to be identified. "And this model has been vetted internally."

NIFA members, however, said it is highly unlikely that the financier could earn a profit and that sewer rates would exceed Mangano's cap.

"No one is giving you $750 million for nothing," board member George Marlin said. "Their mathematics do not work."

"The entire business model is not credible," Wright added.

Gov. Andrew M. Cuomo, who appoints NIFA board members, declined to comment Friday.

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