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Nassau may move to lease sewer system to private investor

Digestor tanks at the Bay Park Sewage Treatment

Digestor tanks at the Bay Park Sewage Treatment Plant in East Rockaway. At right is a 60-foot high gas sphere, seen here on March 9, 2011. Photo Credit: Kevin P. Coughlin

Nassau is moving to revive a proposed lease of its massive sewer system, which officials say could bring an upfront cash payment to the county of as much as $1 billion.

The county Monday issued a request for proposals for a financial adviser "in connection with a potential public-private partnership transaction" for Nassau's three sewage treatment plants, 53 pumping stations and 3,000 miles of sewers.

The transaction "may consist of the concession, lease or other similar arrangement involving the system, including but not limited to a public-private partnership," the RFP said.

Proposals are due by March 27 with a contract expected to be awarded next month.

County Executive Edward Mangano originally proposed to sell or lease the system in 2011 and hired Morgan Stanley as financial adviser for the complex deal.

At the time, it was expected that a private investor would pay the county $750 million to $1 billion upfront to take over the system. The investor would be repaid from sewer fees collected from county residents.

Officials predicted that operating efficiencies and population growth would hold down the need for fee increases, which would be capped at the rate of inflation.

However, the county's financial control board, the Nassau Interim Finance Authority, in May 2012 rejected Morgan Stanley's $5 million contract, calling the privatization plans "backdoor borrowing."

Since then, Gov. Andrew M. Cuomo has replaced NIFA chairman Ron Stack with former North Hempstead Supervisor Jon Kaiman. Cuomo also replaced a majority of the NIFA trustees, who have been more receptive to Mangano's budget initiatives than the former board.

The new RFP for a financial adviser does not address the amount of money expected to be paid to Nassau upfront or how an investor would be repaid.

"This is very preliminary," Deputy County Executive Edward Ward said yesterday. "It is a request for a financial adviser to explore the feasibility of entering into a concession agreement, which would allow for the leasing and maintenance of the sewers through a public-private partnership."

Kaiman said, "I think we need to see what the county ultimately puts forward based on the response that they get. I don't think we should prejudge it and so we will wait and see what they present to us."

The county turned over operation of the system to United Water on Jan. 1. The request for proposals says the county's contract with New Jersey-based United Water will be assigned to the investor who steps forward to lease the system.

Mangano proposed the sale of the sewer system before superstorm Sandy severely damaged the county's Bay Park Sewage Treatment plant in the fall of 2012.

Because the Federal Emergency Management Agency has awarded Nassau more than $700 million to repair the plant, the county will not be selling the system to a private operator but would retain ownership under a long-term lease.

It is expected that the county would pay down outstanding debt if it collects a large one-time payment from an investor, thus freeing up millions of dollars in borrowing costs.

The request for proposals does not commit the county to award a contract.

Nassau Legis. Howard Kopel (R-Lawrence), whose district includes the Bay Park plant, said he will wait until the administration submits a proposal to the legislature before forming an opinion.

"It's their job to look and try to find ways that will make the county more efficient and cheaper to run," Kopel said. "If it does indeed do that, great. If it doesn't, not so great."


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