Nassau sees sewer system as moneymaker

The biggest potential game-changer for Nassau County's $310 million budget deficit has nothing to do with employee layoffs or union concessions, county officials say.

Instead, County Executive Edward Mangano and others point to what they hope will be a milestone. By the end of the year, the cash-strapped county intends to select a private operator to buy or lease its sprawling sewage treatment system.

Mangano says the transaction could bring in nearly $1 billion and, "will eliminate $400 million in county debt while offering fiscal stability to the county by providing hundreds of millions of dollars in cash flow and by strengthening the county's reserve funds."

But the proposal sparked criticism from Democrats, who fear residents will pay higher sewer fees under a private operator.

"This is a public necessity and it should be done by the public," said Legis. David Denenberg (D-Merrick), who represents the area surrounding the Cedar Creek sewage treatment plant in Seaford.

"I don't think it's very good practice to do a one-shot asset sale to deal with an annual budget deficit," added Nicole Gelinas, a fellow at the Manhattan Institute, a conservative think tank.

Mangano's effort to sell off the sewage treatment system, consisting of three plants that process a combined 137.5-million gallons of wastewater per day, comes as Nassau faces a budget deficit next year of as much as $310 million. Mangano has pledged not to raise property taxes and sales tax revenue has fallen during the recession.

Showing interest

Four private operators have responded to a request for their qualifications to take over the system, said Mangano spokesman Brian Nevin, who declined to identify the firms. The county expects to issue a formal request for proposals in mid-November, and to award a contract by Dec. 31.

The final deal could include an outright sale of the system or a lease arrangement, said county attorney John Ciampoli. Nassau has hired Morgan Stanley & Co. as its adviser on the transaction.

The $1 billion transaction, budget documents show, is anticipated to generate $500 million in revenue while the remaining $465 million would go to retire the system's debt. Documents show that the county would receive an upfront payment from a private investor. Officials said they could not estimate the size of the payment, or whether the amount would differ in a lease arrangement.

Nassau Comptroller George Maragos, who must approve the deal, said a feasibility study has not been conducted. "I have not seen sufficient documentation to support the sale," he said.

The deal also would require the approval of the county legislature and the Nassau Interim Finance Authority, a state monitoring agency that controls the county's finances.

NIFA board member George Marlin said the plan could also require approval by the State Legislature, adding that the deal is "not a slam-dunk. There is no guarantee that a transaction can or will be finalized in 2012 or anytime thereafter."

Ciampoli said the county does not need state approval.

Managed by the Department of Public Works, Nassau's sewer system is responsible for the collection, treatment and disposal of sewage for roughly 1 million residents. Beginning next year, the system will expand to include the villages of Lawrence and Cedarhurst.

The system includes three major wastewater treatment plants -- Bay Park Sewage Treatment Plant, Cedar Creek Water Pollution Control and Glen Cove Water Pollution Control Plant -- along with 53 sewage pumping stations and roughly 3,000 miles of sewers, the request for qualifications states.

More costs for residents?

Since 2008, Nassau has spent about $200 million on capital improvements and repairs to the system, including new tanks that separate waste. Many of the repairs followed complaints from local residents about odor and effluent.

Mark Salerno, a civic activist and Wantagh resident who has pushed for improvements to Cedar Creek, said a private operator might not be responsive to local residents.

"This is not a good idea," Salerno, co-chairman of the Cedar Creek Oversight Committee, said of the prospective sale. "We are finally making improvements and heading in the right direction."

While Nassau or an as-yet unidentified state entity would oversee the sewer system, critics worry the deal could mean higher fees for Nassau residents. The average county homeowner pays $225 in sewer taxes, Nevin said.

The operator of a privatized system would charge customers according to a formula based on the amount of water going into a home and out to sewers, Ciampoli said.

Widely used in other municipalities, the system is being implemented for Nassau hospitals and nonprofits, Ciampoli said. "We believe this system is much more equitable," he said.

But Denenberg argues that "taxpayers always pay more when a private operator runs a system rather than a municipality."

Mangano has said the 260 county sewer system employees would be offered opportunities to work for the new operator or moved to other positions at DPW. But Jerry Laricchiuta, president of CSEA Local 830, is skeptical. "What happens if the company goes belly-up or they go on strike?" he asked.