Reinventing the Port Authority of New York & New Jersey

Policy Study

Reinventing the Port Authority of New York & New Jersey

The Port Authority of New York & New Jersey was established in 1921 to create a sustainable, de- politicized way to provide and manage bi-state transportation infrastructure. At the time, the highly centralized, Progressive-Era public authority model was state-of-the-art. Nearly a century later, however, the model’s three key limitations have become evident: politicized decision-making, money-losing facilities, and declining financial viability.

Several studies have urged that the PA divest its real-estate and “economic development” assets and reform its governance. These changes are certainly worthwhile, but do not go far enough. Crucially, they fail to address the way the agency finances its system. By treating airports, bridges, and tunnels as cash cows to subsidize its other lines of business, the PA has ended up with mediocre airports, congested and inadequate bridges and tunnels, money-losing sea ports, a pathetic bus terminal, and the worst heavy-rail transit system in the nation.

The PA needs more dramatic reform, and understanding why is based on a fundamental fact: Major transportation infrastructure requires ongoing investment: adding capacity as needed, renewing and replacing aging facilities, and keeping pace with the latest technologies. That is simply not possible until the PA abandons its decades-long practice of common-pool funding and extensive cross-subsidies, and moves instead toward infrastructure facilities funded by dedicated revenue streams and facility-specific accountability. The mechanism to do so is long-term public-private partnerships (P3s), which today mobilize hundreds of billions of new capital for infrastructure around the world.

The end game is that the PA would no longer own or operate transportation infrastructure. Instead, it would plan and regulate an array of concession companies that would be held accountable for performance through bond covenants and terms embedded in their long-term agreements.

The P3 model would produce major benefits. These include added runway capacity at Kennedy and Newark Airports, the reconstruction and expansion of aging bridges and tunnels, more-productive seaports, a greatly reformed PATH (Port Authority Trans-Hudson) rapid-transit system, and a sensible replacement of the PABT (Port Authority Bus Terminal).

The transition could take place over several decades. The PA would first divest the current non- transportation properties and begin setting aside funds to retire (defease) its existing bonds. Upfront payments for long-term leases of individual airports, bridges, tunnels, and ports would provide the needed revenues. Since the value of the PA assets exceeds the agency’s bonded indebtedness, the PA could invest some of the lease proceeds in new trans-Hudson rail and truck tunnels. Public pension funds, which have already begun to make serious infrastructure investments in the past decade, should be a key investor in the new P3 concessions.

The Port Authority of New York & New Jersey is America’s largest single provider of metro-area transportation infrastructure. The New York-New Jersey Port Authority Compact established the agency in 1921, and the original purpose was to improve the region’s seaports. But the broad language of the Compact enabled the agency to build toll bridges and tunnels between the two states, and in the 1940s, to operate the region’s three major commercial airports. The PA expanded again in 1962, taking over a money-losing heavy rail transit line that was renamed PATH, and launching the World Trade Center real-estate development in lower Manhattan.

The Progressive-Era architects of public authorities like the PA set out to replace the often sordid politics of public procurement with independent public agencies. These agencies would be led by apolitical technocrats—professional engineers, managers, and administrators. That has proved to be a vain hope, as politicized decisions in recent decades have thrust the PA into an array of “economic development” projects in New York and New Jersey, and the agency has diverted funds to rebuild the Pulaski Skyway, entirely within New Jersey.

The agency’s financial condition is deteriorating. It is also a defendant in a long-running lawsuit by the regional affiliate of the American Automobile Association, which challenges the PA’s diversion of revenue from bridge and toll increases to help reconstruct the World Trade Center, instead of using it for bi-state transportation projects.

In light of these developments, outside organizations, and indeed the PA leadership, have called for reforms. The goal is generally to return the agency to its core transportation mission by divesting real estate assets and taking a more business-like approach to its transportation assets.

The question is whether these reforms go far enough. I think not. The PA needs to undertake more fundamental change, and a review of its history helps explain why.

Read the full report.

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation.