The viability of Nassau’s public-private partnerships — also known as P3s — has received a lot of media attention in recent months.
For readers unfamiliar with the concept, a P3 is generally defined as a “long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears a significant risk and management responsibility, and remuneration is linked to performance.”
When I was executive director of the Port Authority of New York and New Jersey, I was a big proponent of market-oriented government. I privatized various services and supervised the biggest P3 project in the nation at that time, the $2 billion redevelopment of JFK’s International Arrivals Building.
The old IAB building, managed by the Port Authority, was a national embarrassment.
The P3 brought in outside professional management and private financing to build the new structure. The project was a great success and was a big win for the millions of New Yorkers who utilize the facility annually.
One thing I learned at the Port Authority is not every P3 proposal will work.
There are developers who present proposals based on faulty financial and economic assumptions hoping to get their foot in the door and to renegotiate better terms later. And sadly uninformed or naïve government officials have fallen for rosy proposals.
It appears that Nassau County may have bought into such deals, and done so in a way that makes inappropriate use of the term “P3” (as they seem to apply it to anything they have a hard time explaining), and which gives legitimate “P3” transactions a bad name.
In 2011, the county announced it had a privatization bus deal before it actually had one.
As a result, in my judgment, the county was taken to the cleaners.
As a member of the Nassau Interim Finance Authority, I (and others) reluctantly voted for the contract in late December 2011 because county residents needed bus service on January 1, 2012.
However, I predicted the bus contract would prove not to be the panacea the county insisted it would be.
Granted, the deal looked good up front. The county’s subsidy in 2012 declined from $9 million to $3 million.
But citing operating deficits, the operator, Transdev (which has made significant campaign contributions Nassau County Executive Mangano and other elected officials) cut bus services, increased fares and procured greater subsidies from the county.
In 2012 the County subsidy was $4.6 million, $6 million in 2015 and in 2016, to avoid more service cuts, the county subsidy is projected to break $10 million.
Although the county claims the Transdev deal cost less than what the Metropolitan Transportation Authority would have charged, the bus deal has not lived up to all the claims made in 2011.
Armor Correctional Health Service, a Miami-based company, which was hired in May 2011 to provide health-care services at County jails has been a disaster.
True, Armor charged less annually than the county’s previous vendor, the county hospital; $11 million versus $16 million.
But the services provided have proven to be wholly inadequate.
In July, state Attorney General Eric Schneiderman, filed a suit against Armor claiming it “has routinely failed to address the medical needs of inmates.”
The AG stated that 12 inmates had died since Armor’s services commenced.
Reacting, Mangano has announced he will find a new operator and Nassau County Comptroller Maragos has withheld some contractual payments, despite both having been such fans of the deal that they took it upon themselves to renew the contract, which was well over $5 million and which would have required NIFA approval, without sending it to NIFA for approval. (That failure to follow the NIFA statute is likely worthy of an investigation by DA Madeline Singas.)
Nevertheless the key question is where was Nassau County oversight? Why weren’t complaints investigated?
Next there was the privatization of the sewage treatment plant.
The county boasted it would save $20 million annually; but it turns out costs will decline only $10 million.
How could the county figures be off so much?
My guess is that they do not perform proper due diligence and will buy into anything that sounds good and will produce a glowing press release on one hand, while the vendor, salivating over the possibility of a more lucrative deal, sucked it and lies in the tall grass, waiting for the chance to make enormous sums of money on the backs of sewer system users.
Despite this dismal record, the county is now pushing the aforementioned deal to “lease” (read properly: to borrow an enormous sum of money at high rates of return) Nassau’s sewer system to a private investor for up to 50 years.
I am convinced that this too will be a debacle — but more on that in a future column, as is warranted by the enormity of that potential folly.
