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N.Y.-N.J. Port Authority's Disarray Prompts Calls for Major Overhaul

Detractors say the Port Authority of New York and New Jersey is too big and secretive, overcharges commuters, carries way too much debt, and shouldn’t run point for the World Trade Center redevelopment.

The bistate agency has drawn white-hot glares from the likes of the New York State comptroller’s office and credit rating agencies for cost and debt overruns, from New Jersey lawmakers who want to subpoena its officials, and recently from an independent audit report that called the authority dysfunctional and urged a top-to-bottom overhaul.

One critic even suggests balkanizing the authority.

By any measure the port’s newest executive director, Patrick Foye — its seventh chief in 10 years, including interim leaders — knows he inherited an agency in disarray. The stinging audit report from Navigant Consulting Inc. and Rothschild Inc., released three weeks ago, labeled the authority an “organization at the crossroads.”

“The consultant’s preliminary review underscores the need for the Port Authority to refocus,” Foye said, pointing to opaqueness, poorly coordinated capital planning and out-of-whack cost controls, all of which “has obscured full awareness of billions of dollars in exposure to the Port Authority.”

Moody’s Investors Service last year assigned a negative outlook to the agency’s Aa2 bond rating; Standard & Poor’s and Fitch Ratings each assign a AA-minus rating and stable outlook.

The negative outlook hovered last summer over two governors and the agency’s board of commissioners, all of whom cited the need for continued access to the capital markets in approving a series of fare and toll hikes.

New York Gov. Andrew Cuomo and New Jersey Gov. Chris Christie both called for the special audit as they signed off on the increases, which will take a big bite from the wallets of their constituencies.

The Automobile Association of America has sued over the toll hikes, while five New Jersey lawmakers filed a bill last week to empower the state Assembly’s transportation committee to subpoena Port Authority officials in relation to those increases. New York State Comptroller Thomas DiNapoli has upbraided the agency over soaring overtime costs.

Foye, who took over in October, runs an agency that has drifted from its core mission of transportation and infrastructure. Rebuilding the World Trade Center in lower Manhattan has been the agency’s focal point — some say its albatross — since the Sept. 11 terrorist attacks. The Port Authority owns the land at the Trade Center.

One longtime Port Authority observer, though, called the audit report overly harsh.

“Dysfunctional from top to bottom suggests that buses don’t get through the tunnel and to the Port Authority bus terminal,” said Jameson Doig, a professor in government at Dartmouth University and author of “Empire on the Hudson,” a history of the agency. “In general, the Port Authority is faring better than the audit suggests. True, their real problem for them is getting World Trade Center costs under control, but they were desperately trying to meet their 10-year goal for the memorial and other changes.”

According to the audit report, WTC redevelopment costs spiked from about $11 billion in 2008 to a now-estimated $14.8 billion. Also, the report said the agency underestimated about $1 billion of costs.

Doig sees the report as an attempt by New Jersey’s Christie to push for more patronage hires at the agency. The Republican governor, in office since January 2010, has said he wants to get a further grip on Port Authority operations.

“Certainly there are a number of useful ideas in the report, but there’s only so much the executive director and his staff can do when they’re confronted by these patronage appointments,” Doig said. “Some of the goals will be undermined.”

Mitchell Moss, the director of the Rudin Center for Transportation Policy and Management at New York University, believes the arrival of Foye, a former economic development administrator under Cuomo, gives the agency some stability.

“Certainly they have a chance now to modernize and streamline some of the processes built in to the Port Authority over time. The challenge today for the Port Authority is to get the World Trade Center up and running, so that it starts generating revenue,” Moss said.

The agency recently approved an agreement valued at $1.4 billion with Australian shopping center owner Westfield Group for a 50% stake in the World Trade Center’s retail space, expected to open in 2015 at the earliest. The Port Authority has agreed to provide $825 million. According to the agency, Westfield will invest $613 million. “No one is as good as Westfield, across the country, around the world. They’re a great developer,” Moss said.

Critics say managing the World Trade Center is out of the wheelhouse for an agency founded on transportation infrastructure. Other current Port Authority projects include the raising of the Bayonne Bridge, the construction of a new Goethals Bridge and replacing the original cables on the George Washington Bridge. All three crossings connect parts of New York City with New Jersey.

Jonathan Peters, a finance professor at the College of Staten Island, favors cutting up the Port Authority into subsections.

“It’s such a mammoth organization,’ he said. “You could have an airport arm, a bridge-and-tunnel arm and a port commerce arm. Let them self-fund. They’re way, way behind in port commerce. They were 20 years ahead in the 1970s, but now they’re 15 years behind. Other ports, such as Charleston and Norfolk, are preparing for superships.”

Moss said the authority’s bistate stature and bonding structure make it resistant to such unwinding. “You’re not going to see it broken up,” he said.

Peters said a World Trade Center project still with many more questions than answers frightens him. “This is kind of crazy, from a bondholder perspective,” he said. “It’s a scary thing for an organization to take on this kind of undertaking without knowing what end point there is. I see the World Trade Center problem as a national problem, but they’re using money for regional transportation-funding needs to prop up the bonds of the overall entity.”

Mysterious costs also lurk. Last week, New York State Assemblywoman Nicole Malliotakis, whose district includes the city’s Brooklyn and heavily tolled Staten Island boroughs, complained about a murky $4 billion line item in the executive budget briefing book.

As part of a $15 billion New York Works Infrastructure Investment budget appropriation, the Port Authority and the New York State Energy Research and Development Authority are listed as providing $4 billion to pay for unknown projects, categorized as “existing capital accelerated.”

“I don’t have any more information,” said Morris Peters, a spokesman for Cuomo’s budget office.

Malliotakis got no answers when she asked about the level of Port Authority exposure in the line item, other than it would involve debt.

“We’re held ransom on Staten Island with the tolls,” she said. “I can tell you we’re not going to support something unless we know where the money’s from. The Port Authority’s $20 billion in debt already. It’s one thing if it’s to fix a bridge, but as far as I know it might be for an empty building like a lot of their other real estate projects.”

The College of Staten Island’s Peters also called the Port Authority highly secretive.

“My experience is that it’s difficult getting info out of them,” he said. “If you ask for one thing, you get something else. I wanted to know how much they bill for tolling by zip code. That’s not national security information. I just wanted to know who’s paying the bridge tolls. But they wouldn’t give it to me.”

Bond rating agencies, meanwhile, are eyeballing the Port Authority for any signs of financial strain from additional burdens — notably the Moynihan Station project, which involves expanding midtown’s Pennsylvania Station into the former James Farley Post Office building across Eighth Avenue. Last fall, Cuomo announced that the Port Authority, in conjunction with two economic development groups, would absorb the train station project.

“If I were in the bondholder business, I’d be concerned about Moynihan,” Doig said.

Earlier this month, state and federal officials scaled back the first phase of work after rejecting bids for the estimated $267 million project as too high.

Looking back, Moss wishes the city, state and Port Authority had followed through on former New York deputy mayor Daniel Doctoroff’s proposal in 2002 for the city to swap the land under Kennedy and LaGuardia airports to the authority in exchange for the WTC site. Doctoroff had presented the deal to win more control for the city over the rebuilding of the site.

But then-Gov. George Pataki instead brokered a deal in which the city extended its lease of the airports until 2050 in return for a $700 million upfront payment and an increase in annual rents. The Port Authority “could have focused on what they do best. They could have owned Kennedy,” Moss said. “Dan Doctoroff had a brilliant idea. But Pataki didn’t understand the long-term benefits.”

Years later, Doctoroff called the failure a blessing for the city.

“In retrospect, it’s a good thing that didn’t happen,” he said at a Crain’s conference last summer. “The cost was significant for [rebuilding the] World Trade Center site. From the city’s perspective, we’re certainly happy the port was willing to bear that.”

The airports are a Port Authority strength. The agency last week said its airports, including Newark Liberty International in New Jersey, experienced “a banner year” in 2011, with Kennedy and Newark reporting record international passenger travel despite slow economic growth and weather disruptions.

“The Port Authority has been one of the great assets in the region,” said Moss. “They’ve had a capacity to attract top talent and get things done. They have a singular purpose, which is improving the flow of goods and people. They need to focus on their core mission, which is transportation.”



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