On the Right: Sewer lease plan: too heavy a cost

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With the federal indictment of County Executive Ed Mangano and Nassau’s protracted fiscal crisis, the Republican Party will have to flim-flam voters this year to renew their lease on County Hall in the November election.

One such scheme they might attempt to hatch is a long-term lease of Nassau’s waste water assets to a private party.

GOP hacks and those who rely on them for commissions, fees and deals might pursue this deal because they believe that the up-front money would be “revenue” that could help them balance their operating budgets; however, even that thought is flawed, as any such up-front funds are likely to be only available in small chunks over the life of the arrangement according to Generally Accepted Accounting Principles (GAAP).

This deal wouldn’t do anything to end the current abdication of financial control by elected officials to an unelected fiscal control board.

To rationalize this scam, county officials have pointed to Bayonne, N.J., a city that consummated a similar deal in 2012 with the investment banking firm, Kohlberg, Kravis Roberts to manage its municipal water works.

They have alleged this partnership has been a great success story and the city and its citizenry have reaped significant benefits.

However, a December 24, 2016 New York Times expose — “In American Towns, Private Profits from Public Works” —  revealed that while deals “like the one with Bayonne help financially desperate municipalities to make much needed repairs, they can come with a hefty price tag — not just to pay for new pipes, but also to help the investors earn a nice return…”

The Times also disclosed that such contracts “can send water bills soaring.”

And that’s exactly what happened in Bayonne.

To sell the K.K.R. proposal to the public, Bayonne officials promised a four year rate freeze and boasted they would get $150 million upfront (“free money”) to buy new pipes, to pay off debt and to offset future rate increases.

It was all (pardon the pun) a pipe dream.

Unexpected infrastructure upgrades, decline in water usage, and annual financial returns to investors of 8 percent to 15 percent pushed up water rates 28 percent and “far exceeded that of three other municipalities to which Bayonne has compared itself.”

Because the four-year freeze never materialized, angry voters turned out of office Mayor Mark Smith, who admitted to the Times that Bayonne’s water rates are now “exorbitant.”

If the Nassau GOP’s “Hail Mary” pass to save their political hides is to clone the Bayonne deal, sewer ratepayers should be prepared for similar disastrous results.

Ratepayers must understand that first and foremost there is no “free money” in this type of public–private partnership.

Upfront cash received by the county is actually borrowed money.  And investors in this form of back–door borrowing expect annual returns of 8 percent to 15 percent on the money they loaned to Nassau during the 50-year life of the agreement.

To achieve those investment returns, sewer rates would have to be raised significantly year in and year out.

In other words, the next two generations of Nassau residents would be paying ever increasing toilet flushing taxes so that the county could receive “one shot” dollars to plug the deficit hole in current operating budgets.

What’s more, before any proceeds could be funneled into the operating budget, the costly funds would have to be utilized to pay down low interest tax-exempt county and sewer debt.

This would be like drawing down the credit on your Visa card at 18 percent per year to pay down your home mortgage which has a 4 percent annual interest rate.

That’s just crazy!

The winners in such a deal would be the investment bankers and lobbyists, who would receive millions in commissions and fees and supportive pols who would receive campaign contributions.

The big losers would be ratepayers.

Not only would their sewer payments increase, they would now be fees, not property taxes, and would no longer be deductible on their income taxes.

If Nassau’s sewage treatment revenue stream is leased to wealthy Wall Street investors, voters should follow the lead of Bayonne’s residents, and oust proponents from office this November.

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