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Ed Mangano reviving plan to lease Nassau’s sewer system

Nassau County Executive Edward Mangano discusses a new

Nassau County Executive Edward Mangano discusses a new sewer privatization plan on Wednesday, May 18, 2016 in Mineola. Credit: Howard Schnapp

Nassau is reviving plans to lease the county’s sprawling sewer system to a private investor in exchange for hundreds of millions of dollars to be used to pay down county debt.

County Executive Edward Mangano issued a request for proposals Tuesday for a financial adviser that would study whether a concessionaire could run the system more cheaply and more efficiently than the county. Bids are due June 8. The county expects to award a contract this summer and pick an investor in late 2017.

The county wants an upfront payment of at least $600 million from any investor — although officials expect the county to receive more — which would be used to retire $500 million in sewer system debt. The funds also would be used to pay off general obligation debt. The county has $3.1 billion in total debt — the highest in the state.

“This is the county’s opportunity to substantially reduce its debt to benefit our taxpayers,” Mangano said.

The concessionaire would be required to cap rate increases at a predetermined level, likely 2 percent to 4 percent, Mangano said. Operating improvements and population growth would help hold down fee increases, he said.

Without an agreement, Mangano said Nassau will burn through $40 million left in its sewer reserves fund by 2018, forcing the county to raise rates.

The investor would sign a lease of up to 49 years and be repaid from sewer fees collected from county residents. The county would continue to own the system and bill customers.

Democratic Minority Leader Kevan Abrahams (D-Freeport) opposes the privatization effort. “I have not seen evidence that the county can make this work for ratepayers,” he said.

Presiding Officer Norma Gonsalves, who like Mangano, is a Republican, declined to comment. The legislature’s Rules Committee must approve any contract.

Earlier efforts to lease the system were blocked by the Nassau Interim Finance Authority, a state oversight board in control of the county’s finances.

Adam Barsky, the board’s new chairman, said he is “open minded” and supports the hiring of a financial adviser. “I am in favor of going through the process,” he said. “Let’s see what the adviser says. Let’s see if there is a case to go forward.”

Mangano first proposed to lease the system in 2011 and hired Morgan Stanley as an adviser. At the time, it was projected that an investor would pay the county $750 million to $1 billion. But NIFA rejected Morgan Stanley’s contract, calling the county’s plans “backdoor borrowing.”

Mangano resuscitated the effort in 2015, hiring KPMG to act as its adviser. But NIFA again blocked the contract, arguing that it needed more details.

The board hired its own consultant, New Jersey-based Lamont Financial Services, which recommended in a February report that Nassau move forward with the hiring of a financial adviser.

NIFA board member Chris Wright, who opposed the deal in 2011, said his opinion has not changed, arguing these “transactions tend to make money for two groups of individuals or organizations — the dealmakers and their lobbyists.”

The Federal Emergency Management Agency invested more than $800 million into the system after superstorm Sandy damaged the Bay Park Sewage Treatment plant in 2012.

Despite those improvements, a recent engineering report solicited by the county found the system needs $1.7 billion to $3.1 billion in repairs over the next 40 years. Those costs, Mangano said, would be paid by the investor.

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