Written by George J. Marlin, Director Nassau Interim Finance Authority Friday, 25 May 2012 00:00
Throughout my career, both in the public and private sector, I have supported private-public partnership projects that truly benefit the general public and do not rip-off government sponsors, ratepayers or taxpayers.
For instance, in 1996, as executive director of the Port Authority of New York and New Jersey, I initiated what was at that time the largest privatization project in New York public finance history—the $1.2 billion privatization of JFK’s International Arrivals Building. The old I.A.B., which was owned and managed by the Port Authority, was a public embarrassment. The new building, which was built by private developers and is managed by a renowned professional corporation, is a model for airports throughout the nation.
On May 3, 2012, the county announced a so-called debt reduction and sewer stabilization plan. The first paragraph in the press announcement contained this false statement: “The plan also stabilizes Nassau County’s Sewer Authority which is set to face bankruptcy in 2014, as warned by the Nassau County Interim Finance Authority (NIFA) in an October 2009 report.” NIFA never made such a statement.
Actually, this dubious claim was made by County Executive Mangano and was confirmed by Deputy County Executive Walker. The March 18, 2012 issue of Newsday reports that Mangano said: “I inherited a bankrupt sewer district….” The March 19, 2012 issue of Newsday reported: “Deputy County Executive Robert Walker told Newsday that the county’s Sewer and Storm Water Finance Authority is supposed to be bankrupt by 2014.”
I recommend the county read the official statement of any Nassau County Sewer and Storm Water Finance Authority bond offering; particularly the section, “Security For the Bonds” which states:
“The County and the Authority (as a Covered Organization), pursuant to the statute governing NIFA, are prohibited from filing any petition with any United States district court or court of bankruptcy for the composition or adjustment of municipal indebtedness without the approval of NIFA and the State Comptroller, and no such petition may be filed while NIFA bonds or notes remain outstanding.”
Hence, the county’s claim is nonsense. It is a red-herring.
As for the county’s so-called “Debt Reduction Plan,” in my 35 years as an investment banker, I have never come across such an ill-conceived plan. It is an example of bad public finance and if implemented will give private-public partnerships a bad name.
The county expects to select a private investor who will finance $850 million to pay down existing low interest cost tax-exempt sewer debt and county debt. This is a form of backdoor borrowing. Potential financial investors who invest money to Public Private Partnerships (P3s) expect annual returns of 10 percent to 15 percent. To suggest that a private operator will achieve enough efficiencies to cover most of that cost and that assessment or user-fees will increase no more than the rate of inflation—well, anyone who believes that, I have a coliseum in Hempstead I would like to sell to them. (It is my understanding that the Goldman Sachs P3 fund passed on this deal. I can appreciate why.)
To use such costly funds to pay down low interest tax-exempt county and sewer debt makes no sense. This would be like drawing down the credit line on one’s VISA card at 15 percent interest per year to pay down one’s home mortgage, which has a 4 percent annual interest rate. Sheer folly!
Contrary to press release claims, this deal will not be a win-win. The big losers will be Nassau’s non-profits (e.g., North Shore Hospital), commercial real estate owners and homeowners. They will be the big losers because their toilet flush fees (a/k/a taxes) will be overflowing.
Therefore, because in my professional judgment the Sewer-Debt Plan is an ill-conceived backdoor borrowing scheme, I will oppose the approval of the Morgan-Stanley contract.