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Nassau privatized services’ performance results in disagreements

Nassau County Executive Edward Mangano discusses a county

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

As Nassau County Executive Edward Mangano considers the possibility of the county’s biggest privatization yet — an up-to $1 billion deal to lease the sprawling sewer system to an investor — he says the three major deals he’s already enacted have saved taxpayers “tens of millions of dollars each and every year” and improved service quality.

An examination of the record shows a more complicated picture, with savings estimates sometimes in dispute and sharp disagreement between the administration and advocacy groups over whether services have improved in all cases.

Since a private contractor took over inmate health care at the county jail in 2011, Nassau has saved at least $5 million a year compared with what it had paid a public hospital for the work.

But after saving $6 million in bus subsidies in 2012 — the first year a private operator took over the county system — Nassau’s contribution has risen steadily, records show. Counting a one-time payment this year to restore eliminated routes, the county’s contribution is now nearly as large as it was with the previous bus provider, the Metropolitan Transportation Authority, before the state agency unsuccessfully asked for more money.

And last year, the first that a private firm managed the sewers, the county saw increased expenses in the system’s combined fund compared with the year before. Officials blamed unrelated costs.

The deals’ impact on service raises even more questions.

Armor Correctional Health Services, the jail medical provider, was sued in July by state Attorney General Eric T. Schneiderman on allegations of repeatedly denying inmates adequate care, leading to some deaths. Late last month, the company said it wouldn’t bid on a new contract for the work.

NICE Bus, run by the private company Transdev, has cut some routes and raised fares as it struggles each year to balance its budget. A county comptroller’s audit last year said it did not measure the on-time performance of its buses, after which the contractor invested in a range of technological improvements.

Nassau’s agreement with Suez North America to run its sewer system, including major treatment plants at Bay Park and Cedar Creek, has won praise from environmentalists for reducing complaints about odor at the plants. But the company has had clashes with the county’s public employee’s union and a civic leader criticizes company communications.

This comes as Mangano is moving to hire a financial adviser to study the feasibility of leasing the sewer system in a decades-long deal to a private investor. The investor would provide Nassau with an upfront payment of $650 million to $1 billion — meant primarily to retire $500 million in county sewer debt — and in exchange, would run the system and collect fees from customers.

While many large municipalities across the nation have privatized major services, Nassau has been among the region’s most aggressive practitioners. Suffolk County has used the method — notably in turning over operation of its health clinics to a nonprofit — but not to the same degree.

Experts on these public-private partnerships say such agreements can be beneficial to municipalities, but shouldn’t be initiated solely as a way to save money.

“Cost is one reason, but it’s not the best reason,” said Robert Puentes, president of the Eno Center for Transportation, a Washington, D.C.-based think tank that focuses on public-private partnerships. “You enter into these agreements because you’re trying to deliver services faster, better or with more innovation.”

Speaking generally, Puentes said privatizing a service such as jail medical care diverges from the ideal model, which relies on a built-in revenue stream, such as a toll road, to provide profits for investors. Without that, he said, a provider must rely on cost-cutting to generate a return.

“The private sector is going to need to be compensated for their investment. Their interests are actually very clear: They’re looking to make money, and they’re not very shy about it,” Puentes said.

Porter Wheeler, who studies public-private partnership policy at George Mason University in Virginia, said contracts should be negotiated carefully to provide safeguards for municipalities, whether the primary goal is savings or better service quality.

“The question is, what were the goals?” Wheeler said. “You need to be careful that you have realistic assumptions and expectations about what you’re going to get.”

The Mangano administration didn’t respond to requests for comment for this story. But it has consistently defended its public-private partnerships.

In his state-of-the-county address in March, Mangano, a Republican who took office in 2010, said the deals used “private-sector, nontaxpayer dollars to create public improvements and continue public programs.”

“Public-private partnerships for our bus system, sewage treatment plant operations and health care at the jail are saving tens of millions of dollars each and every year,” he announced.

Aides to Mangano have said they turned to Armor for inmate health care after Nassau University Medical Center, the public hospital that previously handled the duty, rebuffed the county’s request to cut costs.

They say Transdev has made technological improvements to the bus system that have improved on-time performance — and that Nassau has saved nearly $20 million a year compared with the increase in the county subsidy the MTA had requested in order to continue providing service.

Of the sewer management contract, the administration says Suez has skills and resources to run the system that the county no longer could match. Mangano cites at least $10 million in annual savings due to Suez’s contractual obligation to cover a portion of personnel costs.

The county legislature’s GOP leadership also focused on the positive elements of the deals.

“Nassau County entered into these public-private partnerships with the dual purpose of preserving services and saving money for the taxpayers, and we continue to save tens of millions annually,” Presiding Officer Norma Gonsalves (R-East Meadow) said in a statement.

But Minority Leader Kevan Abrahams (D-Freeport) said the problems some of the contracts have had stem from the administration “rushing into” them to meet urgent cost-saving goals. Nassau since 2011 has had its finances controlled by a state oversight board, the Nassau Interim Finance Authority, and has faced annual budget deficits that have sometimes exceeded $100 million.

“They don’t spend the proper time to be able to analyze and revise proposals to make sure we’re getting the best bang for taxpayer bucks,” said Abrahams, who opposed the Armor contract but supported the Transdev and Suez pacts.

NIFA chairman Adam Barsky declined to comment. Previous chairmen had signed off on the privatizations, though board member Chris Wright has been a longtime critic of the practice.

NIFA has yet to consider the new sewer lease adviser contract, but Wright said, “ideas as bad as those under consideration fail completely, well before the need to consider the terms of contracts to study them.”

Inmate medical care

Nassau has paid Miami-based Armor about $11 million annually since 2011, compared with the $16 million the county’s public hospital had charged in the last year it provided the service.

As Newsday reported in July, county lawmakers approved Armor’s initial contract despite warnings that the company had been sued numerous times for negligent care in jails across the country.

At the time of the approval, the Mangano administration countered that the number of suits against the private company, which was then in 13 jails, did not suggest poor care. They said NUMC had been sued more often, on a per-inmate basis, from its work at the county jail.

“Prisoners sue,” Elizabeth Loconsolo, a deputy Nassau County attorney who helped negotiate the Armor contract, told a legislative committee in 2011. “Some lawsuits may have merit and many may not.”

Armor’s original two-year contract was renewed for two more years in 2013. The company made nearly $12,000 in political contributions to county candidates and political party committees between 2010 and 2014, including $9,500 to Mangano, $850 to the Nassau GOP committee and $500 to Gonsalves, according to state Board of Elections records.

By last year, when Armor’s most-recent two-year renewal was executed, complaints about the company’s performance in Nassau had intensified.

The state Commission of Correction over the last year found that three inmate deaths since 2014 “may have been prevented” with adequate care. The families of Nassau inmates who died in custody since mid-2011 have filed four federal lawsuits against the county and Armor, alleging that negligent care led to the deaths.

“While we certainly understand that you can look for cost savings in a lot of public services, there is a constitutional standard that has to be maintained in respect to health care for those who are incarcerated,” said Jason Starr, Long Island director of the New York Civil Liberties Union, whose organization began expressing concerns about Armor during its first years in Nassau, after hearing from inmates through a hotline it had set up.

“Incarcerated folks are out of sight, in many ways, and that’s why it might be easier — and less of a political risk — if you’re looking where you can find cost savings, versus something that might be more visible or engender a more-robust resistance,” Starr said.

Schneiderman’s July lawsuit alleges that Armor “failed to meet numerous performance standards required under the contract, and yet it repeatedly billed Nassau County in full for the services provided.” The suit also accused Armor of being slow to respond, or not responding at all, to inmates’ requests for medical assistance and of failing to provide timely or continuous access to prescription medication.

“Neglecting the duty to provide adequate care not only defrauds taxpayers, it compromises the health and safety of inmates, with sometimes fatal consequences,” Schneiderman said in a statement announcing the suit.

Armor has called any allegation of inadequate care “simply false.” In a statement, company spokeswoman Yeleny Suarez encouraged a reporter to tour the county jail in East Meadow to “personally witness the medical issues our dedicated and skilled team face on a daily basis.”

But the lawsuit noted that county officials had not enforced already existing contract performance measures that would hold Armor accountable to minimal care standards.

Before the suit, Mangano had solicited new bids for inmate health care, and he recently moved to hire a nonprofit “correctional health care monitor.”

Finally, Armor, under mounting criticism, announced on Aug. 23 that it wouldn’t submit a bid for the new contract, but would remain in the jail in coming months as a new vendor is selected and put in place.

The bus system

After relying for decades on the MTA to run its public buses, the county in 2011 faced a difficult decision: triple its $9 million annual subsidy to the MTA or the state agency would cut the number of bus routes in half.

Mangano’s solution was to find a private operator to run the system: Illinois-based Transdev, then known as Veolia. The administration said the deal, which went into effect on Jan. 1, 2012 — and has been renewed to stretch through 2021 — gave the county more control over service levels for less cost. In the first year, Nassau’s subsidy fell to less than $3 million.

But the private operator, which runs transit systems in numerous large American cities, and serves 100,000 customers in Nassau, kept the authority to raise fares and cut routes to balance its budget, which has ranged from $114 million to $127 million. The system is funded largely through fare revenue and state and federal aid.

Transdev has made $37,990 in political contributions to Nassau candidates and committees since 2012, including $15,000 to the Nassau GOP, $13,990 to Mangano, $5,000 to the Nassau Democrats, $2,500 to GOP County Comptroller George Maragos and $1,500 to Abrahams, state records show.

Almost from the start of the deal, NICE has complained of deficits that made it necessary to cut some routes and raise fares. Customer service surveys showed decreased satisfaction rates from 2012 to 2013, and rider advocates began calling for increased aid from the county.

“We’ve definitely seen a decline in service,” said Aaron Watkins-Lopez, an organizer for the nonprofit Long Island Bus Riders’ Union and a member of the Nassau Bus Transit Committee, the NICE governing board.

NICE, he said, has “a bigger deficit every year, and for what?”

In late 2014, the county boosted its subsidy by $2 million, to $4.6 million. But NICE still ran a deficit and, months later, the county kicked in another $1.5 million for the 2015 budget, bringing its contribution to more than $6 million. The operator had threatened more fare hikes and drastic service cuts.

That staved off immediate cuts. However, NICE’s 2016 budget projected a $7.5 million deficit, prompting an announcement in January that 11 routes would be cut. In response, Mangano and county legislators agreed to use a surplus in county sales tax revenue to boost the subsidy by another $3 million.

All but two of the eliminated routes were restored — although when NICE approved its budget in April, it announced that riders on some of the restored routes would have to make phone reservations two hours in advance.

Despite NICE’s chronic shortfalls, and the county’s increasing subsidies, NICE and county officials say the privatization is saving Nassau tens of millions of dollars annually compared with what the MTA would have needed to maintain the same service over time.

Moreover, NICE officials say they have initiated millions of dollars in upgrades in recent years, after a 2015 Maragos audit that said the system had no way of tracking on-time performance of its buses.

As evidence that service is improving, bus officials cite a 2015 rider on-time survey in which NICE scored 87 out of 100 points, and they say an $8 million project to install real-time monitoring equipment on buses is almost complete. A new smartphone app allows riders to track buses and pay fares.

“Today, NICE is actually at the forefront of measuring on-time performance and providing real-time information to customers,” system spokesman Andy Kraus said in a statement, noting use of the app. “It believes it is one of the most active suburban bus systems in using smartphone technology for customer information and convenience.”

But Watkins-Lopez said NICE’s route cuts have stranded some riders, and that the privatization has allowed county leaders to insulate themselves from criticism.

“The county is using these . . . [public-private partnerships] as a way to say, ‘We’re not in charge of this,’ ” Watkins-Lopez said, also noting the problems with the jail medical contract. “It’s because of a lack of accountability within the county and with these companies that we’re seeing this deterioration.”

Sewer system

By 2014, Nassau leaders acknowledged that, due to decades of neglect, they no longer had the ability to properly maintain the county’s three major wastewater treatment plants, 53 pumping stations and 3,000 miles of sewers. The county legislature that year unanimously approved a 20-year management contract with Suez North America, then known as United Water.

Nassau pays the company about $60 million a year.

Since 2012, when the New Jersey-based company first was considered for the contract, it and its employee political action committee have made $39,300 in campaign contributions to Nassau candidates and party committees, including $21,000 to Mangano, $12,500 to Nassau Democrats and $5,000 to the county GOP.

Suez took over on Jan. 1, 2015, and the administration estimated that Nassau would see $233 million in total savings over the life of the contract. Most of that was to come from moving a majority of the approximately 300 unionized sewer system workers off the county payroll, either to work for Suez or to other county departments or divisions.

Civil service rules have slowed that process, since many employees had job titles that couldn’t easily be replicated elsewhere in county government. As a result, Suez is managing a system still largely staffed by public employees.

But Mangano notes that the county is seeing savings anyway, through the contractually guaranteed annual payment of at least $10 million by the company to cover the salaries and benefits of workers still on the public payroll. The county has maintained authority over sewer rates.

Independent legislative budget officials said recently that the combined sewer and storm water district cost $2.1 million more to run during the first year of the Suez contract than the year before. The administration blamed unrelated storm-water costs for the lack of savings.

“Simply put, residents would have paid $10 million more without the public-private partnership, which guarantees these savings,” Mangano said.

At a legislative meeting earlier this year, Jerry Laricchiuta, president of the Civil Service Employees Association, which represents public sewer workers, said the “deal’s not going too good.”

In a subsequent interview, Laricchiuta said the union has battled with the company over collective bargaining issues such as employee seniority and how time off is awarded.

“One of the problems you have here is this is unique, it’s never been done before,” Laricchiuta said. “You have a private entity managing public workers. It’s completely confusing to a lot of people.”

Trisha Kearney, a civic leader in Bay Park, home of the county’s largest sewage treatment plant, said she supported the Suez contract because the county appeared unable to keep up with routine plant maintenance that prevents odors and discharge of pollutants into local waterways.

Suez, she said, has “done a reasonable job” running the plants, “but where they fall down is communication.”

Kearney said it is sometimes difficult to directly reach on-site managers at the plant and that the company has yet to institute regular resident feedback surveys, as promised.

“Their corporate approach certainly doesn’t blend well with the community,” Kearney said. “They’re a large corporation, not a county employee that’s going to hear from an elected official.”

Michael Martino, a Suez spokesman who previously worked as an aide to Mangano, said in a statement that the company has met with the community regularly. Complaints about odor are at “historic lows” and “environmental performance has been exemplary,” Martino said.

“The plants are running better than they have in many years,” Martino said.

In terms of the environment, the company has delivered, said Adrienne Esposito, executive director of the nonprofit advocacy group Citizens Campaign for the Environment. She said state-issued violations for discharge of pollutants were reduced during the first year of the contract from a regular occurrence to “a small number of minor violations that, upon more testing, were anomalies. Pretty much a clean bill of health.”

“We supported private management as a method to get cleaner bays and a safer environment, and that’s what happened,” Esposito said.


Deals in which Nassau County hired private companies to perform large-scale county services:

Jail medical care

Vendor: Armor Correctional Health Services, Miami

Contract effective: May 2011

Expires: 2017

Annual county payment to vendor: $11 million

Annual savings:* $5 million to $7 million

Status: After criticism of Armor’s performance, the administration of Nassau County Executive Edward Mangano is seeking new bids for provide the service. Armor has said it will not bid to retain the work.


Vendor: Trandsdev, of Lombard, Ill.

Contract effective: January 2012

Expires: 2021

Annual county payment to vendor: $2.6 million to roughly $9 million, counting an additional $3 million this year to restore some routes

Annual savings:* $6 million, initially, compared with county payments to the Metropolitan Transportation Authority, the previous operator. The county subsidy has risen subsequently to nearly the $9.1 million Nassau had paid the MTA

Status: NICE has had chronic budget shortfalls, prompting Nassau to increase its subsidy to stem route reductions.

Sewer system management

Vendor: Suez North America, Paramus, N.J.

Contract effective: January 2015

Expires: 2034

Annual county payment to vendor: $57.4 million in first year, increasing each year by the rate of inflation

Annual savings:* at least $10 million, through a contractual pledge by company to cover some public employee costs

Status: County is studying a possible decades-long lease of its entire sewer system to a private investor. The investor could rework or cancel the contract with Suez.

*County executive estimates

Source: Nassau County

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