Nassau picks contractor for advice on sewer privatization

Nassau has agreed to pay $45,000 a month to an outside consultant to negotiate the lease of its sewer system to a private investor in a deal that could net the county an estimated $750 million, according to contract documents.

KPMG, an international audit, tax and advisory firm, will assist Nassau as it moves to lease its three sewage treatment plants, 53 pumping stations and 3,000 miles of sewers.

Nassau County Executive Edward Mangano said the contractor will determine if leasing the sewer system would reduce the county's debt, stabilize sewer rates and "ensure capital investments to strengthen our wastewater treatment system."

The one-year contract, which would begin next month, must clear the GOP-controlled county legislature and the Nassau Interim Finance Authority, a state monitoring board that in 2012 blocked a previous effort by Mangano to lease the system.

Minority Leader Kevan Abrahams (D-Freeport) expressed concern that Nassau would cede control of a public utility to a private investor "entirely focused on profits. It's the ultimate one-shot. I had grave concerns in the past and unless they are addressed now, I still have those concerns."

Eric Naughton, deputy county executive for finance, said sewer rates likely would need to rise during the life of the leasing agreement, which could last up to 49 years.

But he said a private investor may be able to hold down increases using "better management, strategic capital investment and efficiencies."

The investor would be repaid from sewer fees paid by county residents. Nassau still would own the system but the investor would set sewer rates.

The county would use revenue from the investor to pay down $500 million in sewer system debt, Naughton said.KPMG had the lowest bid among finalists Goldman Sachs and Morgan Stanley, county officials said.

In addition to its fee, KPMG would get 0.45 percent of the total Nassau receives in the deal. For instance, if Nassau received $750 million, KPMG would get $3,375,000.

If the transaction provides Nassau with $600 million to $800 million, KPMG would repay the county its monthly fees or a maximum of $250,000, whichever is less. If the deal brings in more than $800 million, KPMG would credit the county the monthly fees or a maximum of $500,000, whichever is less, the contract states.

KPMG previously worked with the county on efforts to renovate Nassau Coliseum.

Presiding Officer Norma Gonsalves (R-East Meadow) said the KPMG contract "represents a first step towards a transaction designed to save taxpayers money, and in these challenging times, we must avail ourselves of every opportunity to save taxpayer dollars."

The contract will go before the legislature's Rules Committee on Monday, a Gonsalves spokesman said.

NIFA chairman Jon Kaiman said the board will be briefed on the KPMG contract next week. "We want to put all the pieces together and do our due diligence," he said.

Mangano proposed leasing the sewer system in 2011. But NIFA rejected a $5 million contract with Morgan Stanley to negotiate the deal, calling the leasing scheme "backdoor borrowing."

Gov. Andrew M. Cuomo since has replaced the NIFA board of trustees, which has approved some Mangano budget initiatives, including new borrowing and union labor deals.

Nassau last year hired New Jersey-based United Water to manage and operate the sewer system through 2035. The firm's contract would be assigned to the investor, who could then choose to buy out the agreement, Naughton said.

"United Water has had experience in this situation and if done properly it can be a tremendous benefit to the community," United Water spokesman Michael Martino said.

The Federal Emergency Management Agency is investing $830 million to repair and harden the Bay Park sewage treatment plant in East Rockaway after it flooded during superstorm Sandy. FEMA will fund the plant improvements as long as the system is owned by Nassau, Naughton said.

By Robert Brodsky

robert.brodsky@newsday.com@BrodskyRobert

Robert Brodsky is a breaking news reporter who has worked at Newsday since 2011. He is a Queens College and American University alum.