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Nassau consulting contract could lead to long-term sewer lease

Nassau lawmakers Monday approved a consulting contract that could lead to a long-term lease of the county's sprawling sewer system worth hundreds of millions of dollars to the county.

The county legislature's Republican-controlled Rules Committee authorized the deal with financial advisers KPMG by a 4-3 party-line vote. It calls for paying the company $270,000 over six months -- with the potential for more if KPMG negotiates a lease that nets Nassau between $600 million and $800 million in cash from a private investor.

Nassau County Executive Edward Mangano wants KPMG to determine whether a lease will bring in enough revenue to pay off debt and stabilize sewer rates. The contract marks the second attempt by Mangano to explore a lease of system assets, which include three sewage treatment plants, 53 pumping stations and 3,000 miles of county sewers.

"We don't have the expertise in house to make that decision," about entering into a lease, Mangano's top finance deputy, Eric Naughton, told lawmakers.

Naughton said KPMG could recommend against privatizing the sewer system. But Democrats who voted against the contract questioned whether KPMG could provide an objective opinion, since the company would receive 0.45 percent of a lease value as a "success fee."

For instance, if a 49-year lease provided Nassau $750 million, KPMG would receive nearly $3.4 million.

"How in the world can we expect them to be neutral in their advice?" said Legis. Judith Jacobs (D-Woodbury).

In 2012, the Nassau Interim Finance Authority, a state board that controls county finances, blocked Mangano's $5 million consulting contract with Morgan Stanley to negotiate a sewer system lease. At the time, NIFA's board called the lease a "one-shot" revenue scheme and "backdoor borrowing." But the board's leadership has since been replaced and has been more supportive of Mangano's fiscal initiatives.

NIFA chairman Jon Kaiman has said the board is reviewing the deal and would "do our due diligence" before voting.

Naughton said he wouldn't consider the lease a "one-shot" because the money would be used to pay down the system's $500 million debt, reducing annual interest costs.

"We're looking for a way to stop the bleeding," Legis. Dennis Dunne (R-Levittown) said of sewer system losses.

The administration says sewer rates likely will rise over the next 40 years regardless of who controls the system, but argues that a private investor could "stabilize" increases.

Democrats said they were uncomfortable with a private firm having input on tax rates.

"It doesn't make good sense to spend that money now," Minority Leader Kevan Abrahams (D-Freeport), said of the KPMG contract, "if we're not comfortable with that [lease] arrangement down the road."

Also Monday, the Rules Committee approved a settlement with the New York Islanders to use $4.5 million the team had paid the county for its failed Lighthouse development for a new team practice facility at Cantiague Park in Hicksville.

The pact, which now goes to the full legislature, resolves a dispute between Nassau and the team without a lawsuit.

The Islanders had paid the $4.5 million for development rights to Nassau Coliseum and its surrounding land, but when the team's plan for a new arena and surrounding housing and retail failed, the county continued to hold the funds.

The Islanders, who will play in Brooklyn next season, will invest a total of $5.1 million to turn part of Cantiague Park into official practice and office space.


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