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Nassau restarts private sewer effort

A view of the Cedar Creek Water Pollution

A view of the Cedar Creek Water Pollution Control Plant in Wantagh in 2010. Credit: Daniel Goodrich

Nassau County has restarted efforts to privatize its sewer system, a month after a state control board rejected a contract that is critical to closing the deal.

Morgan Stanley, the county's financial adviser on the sewer deal, issued a request for information on June 18 seeking a private sector investor to fund the sewer system transaction.

The document asks financiers to formally declare their interest in the deal and to offer a dollar amount they would be willing to invest, county officials said. The deadline for responses is July 11.

County Executive Edward Mangano has said Nassau would receive a payment of at least $750 million that would go toward paying down the county's $3 billion debt.

Deputy County Executive Tim Sullivan characterized the RFI as a "fact finding" effort.

"We want to see what kind of appetite there is for this type of transaction and what the market will bear," Sullivan said. "We are not procuring services and there is nothing binding us to a deal. We want to see what happens and then proceed from there."

Last month, the Nassau Interim Finance Authority, a state monitoring board in control of the county's finances, voted down a contract that would pay Morgan Stanley $5 million to manage the transaction. NIFA board members called the deal "backdoor borrowing" and said a financier would likely be unable to turn a profit under the county's model.

County Attorney John Ciampoli said the RFI would "put some flesh on the skeleton" of the deal. Morgan Stanley, which declined to comment on the RFI, is still being paid from a $24,750 contract approved by the legislature last year, Ciampoli said.

But, NIFA member George Marlin, a critic of the deal, said Nassau was wasting its time.

"Last year, the county avoided dealing with its fiscal crisis by pursuing the far-fetched [Nassau] Coliseum ballot initiative," he said referring to the Aug. 1 vote asking voters to borrow up to $400 million for a new arena. "It is my hope they do not squander this summer . . . and instead direct their time and energy to the financial operating crisis they're facing in the next couple of months."

Mangano's plan calls for New Jersey-based United Water to manage and operate the Bay Park and Cedar Creek plants, 53 sewage pumping stations and 3,000 miles of sewers.

A private investment group would sign a 50-year lease with Nassau, providing the county with the $750 million to fund the transaction plus at least $300 million for capital improvements to the plants over the next decade.

Mangano said those funds would be repaid to the investor through system efficiencies instituted by United Water and from sewer fees paid by taxpayers. Mangano pledged to freeze sewer rates through 2015 and then cap them at the inflation rate for the life of the contract.

A Morgan Stanley official familiar with the deal said last month their model assumes that ratepayers would pay an increase of 3 percent annually for the next 50 years. The model also assumes plant improvements would reduce operating expenses by 30 percent, and that additional revenue would come from tax benefits and population growth.

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