Is It Time to Dismantle the Port Authority of New York & New Jersey?

Is It Time to Dismantle the Port Authority of New York & New Jersey?

February 24, 2014  | Carter Templeton

BY DAVID Z. PLAVIN

Like living organisms, public authorities seem to have a finite life cycle. They come into being to serve a public purpose: to undertake and/or finance public enterprises that other general governmental entities can not or do not want to do, and/or to insulate the elected leadership from any negative consequences. With the right kind of culture and leadership, they may well avoid slow declines into a maintenance mode, or worse, get diverted to a point where structures that were once unmatchable assets may become affirmative liabilities. Certainly, some of them have the good fortune to be able to operate largely as apolitical, professional organisms. There once was a time when the Port Authority of New York & New Jersey (PANYNJ) had an international reputation as “the gold standard” of public enterprises for its independent professional staff, its facility management capabilities, and for the farsightedness of its investments in promoting the New York/New Jersey region. Unfortunately, this is no longer true. Instead, today’s port authority (PA) has become the punch line of a bad joke.

The issues we have all been reading about are a reflection of the organizational and financial structure of the PA. While politicization of the PA exacerbates the problems, now may be the time the two states need to recognize that the organization has outlived its useful life and needs to be restructured and maybe even dismantled.

To understand how we got here, a little history may be worthwhile.

In 1921, the United States Congress approved an interstate compact signed by the states of New York and New Jersey. The compact creating the Port of New York Authority recognized that the Hudson River was an artificial divider of a single regional economy that extended into both states. The new authority’s purpose was to operate the Hudson River ports and, ultimately to develop and modernize the entire port district. Over the years, the Holland and Lincoln Tunnels, the George Washington Bridge and three other interstate crossings were added. After the WWII, the cities of Newark and New York agreed to lease their airfields to the PA. Teterboro Airport, the ports of Newark and Elizabeth, the Brooklyn waterfront piers and the bus terminals were added in the 1950s. And, when the PA wanted to develop what became the World Trade Center—to generate revenues for the rest of the enterprise—a deal was made between New York and New Jersey that gave the PA the rights to build on the land occupied by H&M Railroad’s (H&M) Hudson Terminal. In exchange the PA was required to purchase and maintain the bankrupt H&M, which became known as PATH. Many other facilities and programs, small and large, round out the Port Authority’s portfolio.

One of the secrets to the Port Authority’s historic success is that the revenues of all these facilities are pooled—with the cash flow from bridges and tunnels serving to bolster the early financing of the port, new bridges and tunnels, and later the airports. In more recent years, it has been the airports and the three largest crossings whose net cash has underwritten the authority’s operations and borrowings. One might wonder, therefore, why it is that the Port Authority has “capital constraints” that make it so difficult to raise the revenues to re-build the airports and other regional infrastructure into modern, state of the art facilities.

The answer lies in the unique, historic financial structure where the combined, single revenue pool serves to support the debt that underlies the full array of the authority’s facility investments. That structure, however, holds the seeds of today’s political and organizational dysfunction. In the case of the PA’s airports, the GW Bridge and the two tunnels, each of their operating budgets contains a charge toward the operation of the broader array of Port Authority facilities and operations, most of which run at a deficit. The net revenues of the PA’s airports and the bridge and tunnel money makers must first support the operations and investments of the port, the remaining bridges and tunnels and bus terminal operations, the PATH system, the costs of rebuilding the World Trade Center, and several other smaller businesses. In addition these revenues must support the growing overhead of the organization itself, with numerous political appointees in specially created positions. Finally, the airports pay sizable amounts in rent each year to the cities of New York and Newark – all before any remaining net revenues can be applied to investing in their own facilities.

Since maintaining and rehabilitating the PA’s broad array of facilities requires a huge annual capital investment that is dependent on a sufficient net cash flow, it is not surprising that little is left for large scale new ventures. However, the only action the organization can take to supplement the natural growth in its revenues in support of that investment is to raise the tolls and fares on the interstate crossings.

This, in turn, only increases the politicization of the organization. Tolls are an enormously politically sensitive issue, especially where tolls and fares are seen as impacting New Jersey residents disproportionately. The Port cannot raise tolls without the approval of both of both governors, each of whom has the power to veto any action of the PA board.

Both governors usually approve the toll increase after much gnashing of teeth and denunciation of the Port Authority in each state capital. The PA can then proceed with investment programs negotiated to include a balance of investments in each state, along with special purpose funds, not necessarily related to the PA’s regional mandate, where each governor to decide how they should be spent.

This is just one example of why the PA cannot say ‘no’ to either state on any subject, including the larding of an immensely capable PA professional staff with blatantly political, high-level appointments to positions of less than obvious necessity. The resulting multiple, parallel chains of command is a recipe for mismanagement and gridlock. But it is also why major capital improvements to existing facilities are so difficult to fund and implement, and why it is unreasonable to expect the capable professionals in the organization to say ‘no’ to their political bosses.

To some degree, the politicization and dysfunction of the PA is not a new phenomenon. But the kind of “oversight” and political involvement that has been foisted on the organization to “make it more responsive” to the leaders of the two states is now out of control and without accountability or transparency. Even members of the PA’s own Board, once seen as stewards of the broad public interest across all parts of the region, are increasingly being asked by the governors who appoint them to function as extensions of each state’s parochial political interests.

There is no reason to believe that the current trend can be reversed. And while there has been some level of political interference in the PA’s internal decisions ever since the principle of gubernatorial veto was established in the early years of the organization, what is surprising is that the leaders of the two states were able to resist the temptation to play politics at today’s level for so much of its history. The structure of the organization and its finances almost guarantee that the politicization of the PA will continue and accelerate. The leadership necessary to change that is not making itself heard.

The structure of the enterprise also makes it difficult to dismantle the Port Authority altogether; but maybe its time has come. A regional perspective would surely be lost but it is not now much in evidence anyway, and the individual business lines could easily function without the added weight of an overhead agency. The PA’s real estate ventures, starting with the World Trade Center, would be a good place to start. They only connect to the Port’s regional development mission if they generate net revenues, which they have not done. If they make sense as investments, they should be able to survive as a spin off. Other pieces of the PA portfolio could well function along today’s lines of business, independent authorities, with public or private roles for individual facilities or groups of them, or even folding one or more of these facilities into existing enterprises in governments across the region.

Of course there remains the question of what happens to the pieces that no one would want to take, the ones that rely on the network’s revenues for their existence. A dismantling would mean acknowledging the true dimensions of their operating, financial, and investment needs—just as they are required to do everywhere else in the U.S. —which could require substantial revenue adjustments.

It may be that the result of a break up would look even uglier than today’s spectacle. To be sure, it would not stop political interference for the pieces that remain in jurisdictions where the political culture is rampant; any break up would have to be negotiated by the same two governors that brought you to where we are now. But, it will not be as easy as it has been for this type of performance to be hidden from the public eye. Meanwhile, the rest of the enterprises and the people of the region would not have to pay the price of the failure of a once great organization.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Eno Center for Transportation.

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