In a meeting of directors on Thursday, the Nassau Interim Financial Authority rejected Nassau County, N.Y.’s contract with Morgan Stanley to serve as an advisor on a deal to privatize the county’s sewer authority.

Borrowing money against cash flow from a county asset is viewed as “antithetical to NIFA’s mission and against sound fiscal practice,” according to board materials from the meeting.

NIFA director George Marlin called the sewer plan a form of “backdoor borrowing” and compared it to borrowing money through a credit card at 15% interest per year to pay down a home mortgage with a 4% annual interest rate. He said it was “sheer folly.”

To prevent a fiscal crisis at the sewer authority, the county has been contemplating a public-private partnership in recent months, receiving approval from the county Legislature for the Morgan Stanley contract in April, and announcing the selection of an operator, United Water, for the sewer system earlier this month.

According to county statements, under the proposed P3 transaction, it would receive an up-front payment from a private investor as compensation for transferring operations of the system to that investor.

The investor would contract with a private operator to maintain and operate the system, subject to county oversight.

On May 3, County Executive Edward Mangano announced his “debt reduction and sewer stabilization plan,” which includes the implementation of a P3 and would bring the county an estimated $750 million in an up-front payment, eliminating one-quarter of the county’s debt.

Without NIFA’s approval, however, the deal cannot go forward. NIFA, which imposed fiscal control over the county last year, has the power to approve the county’s financial plan, all borrowings, and, in particular, any contracts.

Mangano said that comments made by NIFA board members demonstrate their “lack of understanding of public-private partnerships.”

“The NIFA board is clearly confused about the potential public-private partnership for Nassau’s sewage treatment plants — which are in a state of disrepair and face fiscal crisis. The public partnership is not a loan or a borrowing,” he said in a statement.

Mangano also released a legal opinion from Winston & Strawn LLP, which stated that the P3 transaction “would not result in the incurrence of debt by the county.”

Marlin in a statement pointed to his past support of P3 projects that “truly benefit the general public,” including the privatization of the John F. Kennedy International Airport’s arrivals Building.

He said that Mangano’s proposed P3 is an example of bad public finance and that he has never come across such an “ill-conceived plan” in his 35 years as an investment banker.

“To suggest that a private operator will achieve enough efficiencies to cover most of that cost and that assessment or user fees will increase no more than the rate of inflation — well, anyone who believes that, I have a coliseum in Hempstead I would like to sell them,” Marlin said in a reference to the aging Nassau Coliseum.

Mangano said that he intends to revisit his debt-reduction and sewer stabilization plan with NIFA.

Separately, at its meeting, NIFA approved the sale of $220 million of revenue anticipation notes, which will be issued to meet cash-flow needs.

Bank of America Merrill Lynch will be the lead underwriter and is expected to price the notes on June 7, said Nassau County’s communications director, Brian Nevin.

The notes will be secured by anticipated sales tax revenues.

Nassau County’s general obligation bonds are rated A-plus by Fitch Ratings and Standard & Poor’s, with stable outlooks.

Moody’s Investors Service assigns an A1, with a negative outlook.

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