Sins Of Omission
Mangano, in his budget and four-year fiscal plan—the only public document semi-available to the taxpayers who will ultimately be footing the bill, and also the first whiff many got of the sewage scheme—makes a strong case for the sewer-privatization deal and the hiring of Wall Street behemoth Morgan Stanley to guide it under a section called “Relevant Precedents”:
“Many other US governments have successfully pursued similar P3 transactions,” it reads, referring to public-private partnerships. “For example, on July 26, 2010, the City of Indianapolis approved the $1.7 billion acquisition of the City’s Waterworks and Wastewater Systems by Citizens Energy Group. The acquisition of the largest municipal water and wastewater acquisition to date in the United States. Morgan Stanley served as the sole financial advisor and exclusive senior manager to Citizens Energy Group on this transaction, including serving as senior manager on Citizens Energy Group’s 1.0 billion transaction to finance the acquisition, capital improvements and working capital.”
Yet the Press has discovered that this very example used by Team Mangano is in reality markedly different from what they are planning to do here in Nassau County. Firstly, Citizens Energy Group is a “public charitable trust that operates like a not-for-profit,” according to a press release it issued to announce the transaction, not a private company that seeks to make a profit.
Secondly, what the fiscal plan—which was submitted to the legislature and reviewed by NIFA—fails to mention, at all, is that this behemoth financial transaction in Indianapolis was done more as an emergency action in order to wrestle the municipality’s sewage system from a private company, which happens to be the foreign company, Veolia—the complete opposite of what Mangano is proposing.
Indianapolis city officials were so happy to get rid of Veolia they issued press releases with glowing remarks about the takeover—including that residents will realize more than $60 million in annual savings.
“Today marks a great day for our community,” said Indianapolis Mayor Greg Ballard. “This historic transfer will make Indianapolis a better place to live and do business by making our rivers and streams cleaner, bringing more consistency to these vital utilities, and saving utility customers money through rates that will be lower than they otherwise would have been. This transfer will benefit our community for generations.”
The public trust even agreed to pay Veolia $29 million for an early termination of the contract just to get them out. Residents later fought the payment, alleging fraud and falsified documents to regulators.
Mangano’s plan also touts Morgan Stanley’s role as advisor in the recently closed transaction of privatizing Indianapolis’ parking system. Yet if it’s anything like the Morgan Stanley deal hatched in Chicago—another scheme left unmentioned in Mangano’s fiscal documents—Nassau residents will be screaming mercy after just a couple flushes.
The city “gave up billions of dollars in revenue when it announced in 2008 that it leased Morgan Stanley its 36,000 parking meters, the third-largest U.S. system, for $1.15 billion to balance its budget,” reads an August 2010 article from Bloomberg News detailing the arrangement.
“Chicago drivers will pay a Morgan Stanley-led partnership at least $11.6 billion to park at city meters over the next 75 years, 10 times what Mayor Richard Daley got when he leased the system to investors in 2008,” it states.
“[Morgan Stanley] brought in a private operator,” explains Sclar. “Then they bond out their money, the money they put [out]—they get their money right back. They sell all these bonds. And you’ve got all these entities, pension funds and other things that are looking for a return. When interest rates are now down to 1 percent and less, all of a sudden they say, ‘We can pay 3, 4, 5 percent.’ It becomes a very attractive offer. So the bondholders come in and they get the bonds.
“But then what happens—let’s say the city of Chicago needs to close down a street,” he continues. “They say, ‘No, no, no, you just closed that, put a strain on a block of our revenue out of business, you have to pay us for the lost revenue.’… Let’s say they don’t plow the streets fast enough in a snowstorm.
“So what happens in [Nassau’s] case is, the bondholders now have a claim against Nassau County—essentially because they’re supposed to deliver this revenue stream from these sewers, and if the county does anything that interferes with that.”