County mulling sewage lease

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Nassau County is in talks to enter a two-year contract with a financial adviser to study a potential public-private partnership for the county’s sewage system, which some officials believe could help mitigate the burden of 10 years of sewage debts.

A leasing arrangement would insert another entity — a private investor — as the go-between for the county and Suez Long Island Water, which now manages the day-to-day operations of Nassau’s three sewage treatment plants, 53 pumping stations and 3,000 miles of sewers. The plants at Bay Park, in East Rockaway, and Cedar Creek, on the Wantagh-Seaford border, treat 86 percent of the county’s sewage.

Brian Nevin, a spokesman for County Executive Ed Mangano, said that county leaders have never contemplated, and will not contemplate, selling the sewage system. “The county will always have oversight,” he said. Instead, the county could lease the system to the investor.

Mangano submitted a contract to the Legislature on July 25 that, if approved, would pay Manhattan-based KPMG $197,925 for the initial task of gathering financial and operational data about the impact of a possible lease. KPMG would then facilitate a transaction between Nassau County and an investor and assist with the bidding process, each of which would cost $200,000 to $360,000. By the time the firm finalized a deal with an investor, it would be paid in excess of $3 million, according to the contract.

Under a lease arrangement, Suez’s contract with the county — which does not expire for 18 years — would be assigned to the investor, as lessee. “The [sewage] system is out of money and has been running a deficit for a decade, eating away at rainy-day funds,” said Nevin, adding that the county’s sewage debt is currently at $573 million.

Its upfront proceeds from a leasing arrangement — which could be anywhere from $750 million to $1 billion — could fund capital improvements to the system and help balance the budget in the 2018 fiscal year, according to the contract. Residents and businesses in the county’s sewage district would pay those proceeds back to the investor for the duration of the lease. According to the county, an investor would add efficiencies to the sewage system and earn some of the revenue.

Mike Martino, a spokesman for Suez Long Island Water, said the company does not anticipate any change in its relationship with the county.

The potential impact of a public-private partnership on the county’s sewage rates remains unclear, and is part of what KPMG would study. According to the contract, the county would maintain ownership and continue to set sewage rates, which would be subject to the state’s 2 percent tax cap.

The Nassau Interim Finance Authority, a financial oversight group, would review the proposal if the County Legislature’s Rules Committee approved it. Norma Gonsalves, the Legislature’s presiding officer, said the contract with KMPG is still being reviewed. A hearing may be held on Sept. 12, she added, though nothing had been finalized as of press time.

While Gonsalves declined to comment on the contract, she said she is “always willing to consider any measure that serves the dual purpose of providing services to the community and saving taxpayer money.”
NIFA blocked lease proposals for the sewage system in 2011 and 2015. Jeremy Wise, general counsel for NIFA, declined to comment.

Those in opposition to a leasing arrangement have voiced concerns about potentially exorbitant rate increases, as well as how the county might spend the proceeds it would receive from the investor.

“Of course, it’s a good deal for the county, who is basically refinancing debt that it won’t have to pay back,” Dave Denenberg, co-director of Long Island Clean Air Water and Soil and a former Nassau County legislator, said in a statement. “Of course, it’s good for the investor, who will be guaranteed profits for its stockholders from our sewer bills. But the burden will fall on the residents living and doing business in the sewer district, who will have to pay the investor back with interest for the next 49 years. It was a one-shot gimmick when Mangano first brought it to the Legislature, and it’s still a one-shot gimmick now.”

Claudia Borecky, president of the North and Central Merrick Civic Association and co-director of Long Island Clean Air Water and Soil, said that a sewage lease is another way for the county to “refinanc[e] its debt in a way that will hold the residents hostage.”

Borecky said she was concerned that a large portion of northern Nassau County is not hooked up to the sewage system. “It’s not fair that only the people living in the sewer district are paying back that countywide debt,” she said.

Phil Franco, the co-chair of the Cedar Creek Oversight Committee and president of the Seaford Harbor Civic Association, said he wants to learn more details about the potential arrangement before formulating an opinion.

Julie Mansmann contributed to this story.