When hiring consultants to analyze a potential contract, it's best not to put them in a situation in which recommending approval would pay them millions of dollars more than recommending against the deal.
But that's exactly what the Nassau County Legislature did Monday night when its Rules Committee agreed to pay financial adviser KPMG $270,000 over six months to determine whether a long-term lease of the county's sewer system to a private company would make sense. In exchange for such a lease, Nassau would get $600 million to $800 million, officials have estimated. If the deal went through, KPMG would get an additional payment of 0.45 percent of the lease value. On a $700 million agreement, that would be $3.15 million, or almost 12 times as much as the initial consulting fee.
The problem isn't merely that the consulting contract encourages KPMG to facilitate and support the deal rather than fairly evaluate it. It's also likely that the initial $270,000 will be wasted because members of the Nassau Interim Finance Authority, the state board overseeing the county's finances, have called such deals "backdoor borrowing," which isn't allowed and shouldn't be. Under the pact, a private company would take take all revenue from the sewer system and give the county those hundreds of millions of dollars up front. NIFA already refused to approve a consulting contract meant to facilitate a similar deal in 2012. NIFA might address the KPMG proposal in its meeting today. The board should reject it. Private management of the sewer system for a fee may well prove the system works, but such a poorly structured consulting contract in the service of such a poorly thought-out scramble for sewer cash ought to be summarily flushed.