Written by Karen Gellender: email@example.com Friday, 01 June 2012 00:00When NIFA rejected the contract between Nassau County and Morgan Stanley that would have allowed for sewer privatization, many people thought that the controversial plan to sell sewage system operation and maintenance to New Jersey-based United Water (UW) was dead in the water. Not so fast, said Legislators Judy Jacobs and Delia DeRiggi-Whitton: not only is the deal not dead, they expect the Mangano administration to present a second draft of the deal for NIFA approval shortly.
At an informational meeting held on Monday, May 21, at the Plainview-Old Bethpage Public Library, Jacobs and DeRiggi-Whitton, along with fellow Democratic Legislator Dave Denenberg, attempted to explain what they perceive to be the many failings of the Mangano administration’s proposed sewer privatization plan. So far, NIFA agrees with them.
“They feel that the entire plan appears to be loaded with holes,” said Jacobs of NIFA’s stance, going on to say that the situation reminds her of a deal the county struck with the MTA in the late ’90s, when the MTA lent the county $76 million; that loan is still being paid off. According to the legislators, the county has a history of selling off assets for one-shot budget fixes, which Jacobs and other longtime legislators have attempted to oppose in the past.
In general, the plan as initially proposed entailed the county hiring Morgan Stanley to both assess the value of the county’s sewer system, and find a buyer for the system. Morgan Stanley would be compensated $5 million for this service. UW would then pay the county hundreds of millions of dollars (possible numbers range from $750 million to more than $800 million) for the ability to manage the sewer system and charge residents accordingly. UW would not own the system, but would be responsible for its operation and maintenance for a period of at least 20 years, if not longer.
DeRiggi-Whitton said she was concerned about the nature of Morgan Stanley’s involvement, before even getting into the deal with UW. First of all, how qualified is the financial giant to assess sewer systems, and where does this $5 million come from?
“So the same company is evaluating it and then finding a buyer, and in my opinion there is such a conflict of interest here,” said the legislator, going on to call it a red flag. She went on to say that Morgan Stanley found a buyer in UW three weeks after they were hired by the county, so “their $5 million worth of work was done in three weeks time.”
Furthermore, the legislators pointed out that the deal with Morgan Stanley was handled in what they saw as an underhanded manner; under the law, contracts above $25,000 must come before the legislature. Jacobs said that the Republican majority in the legislature kept their initial dealings with Morgan Stanley in increments below $25,000, so the minority legislators did not see any contract with Morgan Stanley for months after the company had already been hired. In general, the legislators were concerned about the lack of transparency concerning the entire process.
The main point that the legislators focused on during the meeting was the fact that if the deal with UW goes through (or some other permutation of it, assuming the Mangano administration makes revisions to it), sewer rates will go up.
“No one is coming in here to give this county $750 million to bring this county out of the debt that it’s in—that’s the biggest of the long shots I have ever heard of—to be repaid later on in upwards of $5 million,” said Jacobs. “There is no question that any private company is in this to make money. They are not in this to be a public entity that doesn’t make the money that the county obviously doesn’t on the sewers.”
Based on what has happened in other places where similar deals have been made, Jacobs argued that there could be a 400 percent increase in sewer bills. Denenberg did not mince words, calling this plan “a shell game to say the county isn’t raising taxes.” Instead of paying more to the county for sewer use, residents will pay UW, an entity they have no control over.
“It’s all playing with numbers, and the bottom line is, if you’re the ones who are paying, it doesn’t matter what envelope your bill comes in—it’s still coming out of your bank account,” said DeRiggi-Whitton.
Meanwhile, the two parties don’t seem to agree on how much money was allocated for sewer maintenance and upgrades before the sewer deal was even put on the table. According to Jacobs and Denenberg, the legislature initially earmarked $700 million for this maintenance in the 2007-2010 Capital Plan; all of the work was scheduled to have been done by 2013. Denenberg further elaborated that $427 million in bonds approved for this purpose have not been issued, meaning that most of the repairs and upgrades have yet to be completed.
“We definitely set aside hundreds of millions of dollars for repairs of the sewers, which were never done by the Mangano administration over the last two years,” said Jacobs.
In response to a question from Anton Newspapers, a spokesman from Mangano’s office came back with different numbers:
“The 2007 Capital Budget and 2007–2010 Capital Improvement Plan as adopted had approximately $145 million for work on sanitary sewers and the plants (this excludes the storm water system). An additional $2.3 million was available as unspent carry forward funding. After the submission of the 2007 plan, the Suozzi administration spent ~$75.8 million on sanitary sewers and the plants…through the end of last month, the current administration has spent approximately $68 million since the start of 2010 on sanitary sewers and the plants.” Anton Newspapers is currently investigating this discrepancy.
Financial issues aside, there are environmental concerns to consider. In response to a question from the library audience, legislators stated that while UW will be charging residents for its services, the county will still ultimately be responsible for any environmental violations that occur under UW management.
“That to me sounds like ‘I sold you my car, but if you get a ticket, I pay for it.’” said a concerned resident at the meeting. “They have the power to charge me for my sewer usage, but they can force me as a taxpayer to pay for their irresponsibility,” he continued while the legislators nodded their approval.
While legislators were clear that not every UW contract has ended with environmental problems, there are reasons to be concerned about environmental violations: according to the nonprofit Food and Water Watch, billions of gallons of raw and partially treated sewage poured into Lake Michigan and local streams after UW took over Milwaukee’s sewers in 1998. A state review found that UW likely violated its contract by shutting down pumps to cut costs, a practice that saved the company $515,000, but likely led to the sewage spills. In another incident, UW lost its contract in Gloucester, Mass., after bacterial contamination left residents and businesses boiling their drinking water before they could use it.
“They’re going to cut corners, they’re going to slash the work force and they’re going to try and milk this asset and get as much profit out of it as they can,” explained Mike Florio, a spokesman for the Democratic minority.
Overall, Denenberg cautioned against giving a private company a monopoly on something as essential as being able to flush your toilet without worry. “Now, I don’t know about you, but I don’t think private monopolies over public necessities is the kind of competition that we all know and love in capitalism…where there’s no competition, the free market and the idea of privatization doesn’t work,” said Denenberg.
“Hey, how did LILCO work out?”
Rich Forestano contributed to this story.