09/20/2011 09:30 am ET | Updated Nov 20, 2011

Nassau County Rushes To Privatize Buses And Sewer System To Fix Budget

NEW YORK -- Angela Davis is worried. Four or five times a month, whenever the 58 year old with cerebral palsy needs to visit her doctor or shop at a store in the town of Hempstead on Long Island, she rolls her wheelchair out to a waiting paratransit bus.

But for the past several months Davis has been unsure whether the paratransit bus will provide the same level of service once a private company takes over the Nassau County transportation system in 2012.

"I already pay $3.75 to ride," said Davis, who supports herself with income from Social Security. "If it goes up any more, I don't know if I'm going to be able to afford it."

The county missed a self-imposed July deadline to finalize a contract with Illinois-based Veolia Transportation for managing the transit system. Since then, contract talks have continued behind closed doors. County Executive Edward Mangano, a Republican, has released few details about protections the county will secure for the some 100,000 riders who rely on Long Island Bus, the nation's largest suburban bus provider.

Under Mangano's direction, Nassau, a county just east of New York City with a population of 1.3 million, has pushed to find budget savings by privatizing local services. Many other states and municipalities across the country will be tempted to pursue similar schemes as the economic downturn continues to take a punishing toll on municipal coffers. But the potentially rising costs for Nassau citizens may serve as a warning that privatization is no magic bullet for struggling cities and towns.

On January 1, 2012, Veolia Transportation is expected to assume control of the bus system from Metropolitan Transportation Authority, its current manager. But that transition is just the first step of a larger privitization plan. If Mangano succeeds in finding a buyer and gaining approval from the rebpublican controlled county legislature, he will also sell the county's sewage treatment system for $1.3 billion.

The county has not said whether the bus contract or the eventual sewer contract will rule out fare and rate increases or service cutbacks. A spokesman for Mangano, Brian Nevin, declined to comment on these issues.

Money problems had gotten so bad in Nassau that a state-appointed body, the Nassau Interim Finance Authority, seized control of the county's finances at the start of this year in response to a then-$176 million budget gap. Nassau County leaders hope the county can fix its money problems without further raising property taxes, already New York state's highest.

But critics charge that eventually both bus fares and sewer bills will eventually go up under the privatization scheme. The effect, they say, will be to simply create taxes by another name. And they are decrying the rapid pace with which Mangano is pursuing his plans.

"The underlying problem with the whole [bus privatization] process," said Ryan Lynch of the Tri-State Transportation Campaign, a nonprofit advocating for greater transit access, is "that there hasn't really been a process."

County officials have said little about how Veolia, which hired a lobbying firm that employs a Mangano campaign fundraiser, was picked to run the system.

With only a little over two months before Veolia takes over the system, the county has yet to hold a public hearing on the transition, Lynch said. But the contours of Veolia's service will be dictated by a budget with $34 million less from the county and the MTA, which has been subsidizing the system. Next year Nassau County plans to give the bus system $2.5 million instead of its current $9.1 million.

Veolia "can run public transit systems well if they're adequately subsidized," Lynch said, but Nassau County isn't adequately funding Long Island Bus. He called the idea that current service levels could be maintained on a budget of $106 million -- instead of the current $140 million -- "far-fetched."

Michael Setzer, a Veolia vice president who is expected to serve as CEO of the system, said that "if everything were to stay exactly the same it would take the replacement of those dollars" to maintain service at current levels into 2013.

The company had pledged there would be no immediate service or fare changes in 2012. On Monday, however, Setzer declined to repeat that promise, instead saying that more details about service in 2012 would emerge in the final bus system contract, which the county said will be finalized within days.

Veolia will run the bus system on a model that is relatively unusual in the United States. Under this "public-private operating partnership," the county will retain ownership of its buses and buildings. Veolia will make "strategic recommendations" to the county about fares, bus routes and hours, but the county will have to approve these recommendations. The company will also negotiate with the Transport Workers Union Local 252 on labor issues.

"In virtually every other case the government partner does all the strategic stuff," said Michael Setzer, a Veolia vice president who will serve as CEO of the system. "The private partner is only responsible for driving the bus and fixing it."

Patricia Bowden, the president of the union, is angry that Veolia has begun soliciting job applications for the new system and said hundreds could lose their jobs under the new management. And all current employees will need to re-apply for their jobs, which Bowden called "a union-busting tactic."

"They should have sat down to negotiate with us before my people filled out anything for them. I don't see why my members have to re-apply for their jobs when some of them have been doing it for 20 or 40 years."

Setzer replied, "Sizing the staff and hiring people for it is not a collective bargaining issue, that's a management problem."

Labor is also steamed about the much large privatization plan on the horizon, Mangano's plan to sell off Nassau's sewer system -- waste treatment plants and all -- to a private bidder.

If successful, that sale could close the county's 2012 budget gap, even leaving money left over to help with future years. But after several high-profile toll road sales by municipalities in the mid-2000s, such "asset monetization" schemes endured fierce criticism as simplistic quick fixes.

George Marlin, a director on the board of the Nassau Interim Finance Authority, has cautioned on his blog that the sewer initiative was "not a slam-dunk."

"'One shots' do not eliminate structural deficits," he said, "and excessive reliance on them is frowned upon by rating agencies and financial analysts."

NIFA said Mangano couldn't rely on the sewer plan as an integral part of his budget proposal, calling it a speculative "contingency" reliant on state approval. But the county is still moving forward with a request for qualifications to bid on the sewer system. The deadline is September 28.

Jerry Laricchiuta, president of the Civil Service Employees Association Local 830, believes Mangano is sacrificing long-term cost savings for a quick budget boost. Laricchiuta predicted that sewer rates would go up two or three times under a for-profit operator. Nassau's budget would be saved, but its citizens would pay for it.

Nassau County Comptroller George Maragos, a Republican who was elected independently of Mangano, said that even with rate increases, sewer bills in the county were "so low right now compared to New York and other counties that it would still be a good deal."

"But I think there's no question that the right operator, the private operator, can be more efficient than county government," he added.

Laricchiuta agreed that the system could be better managed, but he said that the system's rank-and-file employees shouldn't be blamed for agency missteps. He said he believes the privatization plan is part of a concerted attack by Mangano on government employee unions. Last week the county executive proposed slashing 700 jobs and warned unions that they would need to compromise on labor contracts.

"I think they're full of crap, if you want to know the truth, no pun intended," Laricchiuta said of the sewer plan. "I hate to say it, but the Republican way these days is to privatize and contract out and attack unions, especially public unions. They're just following the national GOP trend."

This article has been updated to clarify the relationship between Nassau County and Veolia. While Veolia will be making strategic recommendations for the public transit system, the county will have to approve them before they're enacted.