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. Poole, an MIT-trained engineer, has advised the Ronald Reagan, the George H.W. Bush, the Clinton, and the George W. Bush administrations.

Surface Transportation

In the field of surface transportation, Poole has advised the Federal Highway Administration, the Federal Transit Administration, the White House Office of Policy Development, National Economic Council, Government Accountability Office, and state DOTs in numerous states.

Poole's 1988 policy paper proposing privately financed toll lanes to relieve congestion directly inspired California's landmark private tollway law (AB 680), which authorized four pilot toll projects including the successful 91 Express Lanes in Orange County. More than 20 other states and the federal government have since enacted similar public-private partnership legislation. In 1993, Poole oversaw a study that coined the term HOT (high-occupancy toll) Lanes, a term which has become widely accepted since.

California Gov. Pete Wilson appointed Poole to the California's Commission on Transportation Investment and he also served on the Caltrans Privatization Advisory Steering Committee, where he helped oversee the implementation of AB 680.

From 2003 to 2005, he was a member of the Transportation Research Board's special committee on the long-term viability of the fuel tax for highway finance. In 2008 he served as a member of the Texas Study Committee on Private Participation in Toll Roads, appointed by Gov. Rick Perry. In 2009, he was a member of an Expert Review Panel for Washington State DOT, advising on a $1.5 billion toll mega-project. In 2010, he was a member of the transportation transition team for Florida's Governor-elect Rick Scott. He is a member of two TRB standing committees: Congestion Pricing and Managed Lanes.

Aviation

Poole is a member of the Government Accountability Office's National Aviation Studies Advisory Panel and he has testified before the House and Senate's aviation subcommittees on numerous occasions. Following the terrorist attacks of Sept. 11, 2001, Poole consulted the White House Domestic Policy Council and the leadership of the House Transportation & Infrastructure Committee.

He has also advised the Federal Aviation Administration, Office of the Secretary of Transportation, White House Office of Policy Development, National Performance Review, National Economic Council, and the National Civil Aviation Review Commission on aviation issues. Poole is a member of the Critical Infrastructure Council of the Los Angeles Economic Development Corporation and of the Air Traffic Control Association.

Poole was among the first to propose the commercialization of the U.S. air traffic control system, and his work in this field has helped shape proposals for a U.S. air traffic control corporation. A version of his corporation concept was implemented in Canada in 1996 and was more recently endorsed by several former top FAA administrators.

Poole's studies also launched a national debate on airport privatization in the United States. He advised both the FAA and local officials during the 1989-90 controversy over the proposed privatization of Albany (NY) Airport. His policy research on this issue helped inspire Congress' 1996 enactment of the Airport Privatization Pilot Program and the privatization of Indianapolis' airport management under Mayor Steve Goldsmith.

General Background

Robert Poole co-founded the Reason Foundation with Manny Klausner and Tibor Machan in 1978, and served as its president and CEO from then until the end of 2000. He was a member of the Bush-Cheney transition team in 2000. Over the years, he has advised the Reagan, George H.W. Bush, Clinton, and George W. Bush administrations on privatization and transportation policy.

Poole is credited as the first person to use the term "privatization" to refer to the contracting-out of public services and is the author of the first-ever book on privatization, Cutting Back City Hall, published by Universe Books in 1980. He is also editor of the books Instead of Regulation: Alternatives to Federal Regulatory Agencies (Lexington Books, 1981), Defending a Free Society (Lexington Books, 1984), and Unnatural Monopolies (Lexington Books, 1985). He also co-edited the book Free Minds & Free Markets: 25 Years of Reason (Pacific Research Institute, 1993).

Poole has written hundreds of articles, papers, and policy studies on privatization and transportation issues. His popular writings have appeared in national newspapers, including The New York Times, The Wall Street Journal, USA Today, Forbes, and numerous other publications. He has also been a guest on network television programs such as Good Morning America, NBC's Nightly News, ABC's World News Tonight, and the CBS Evening News. Poole writes a monthly column on transportation issues for Public Works Financing.

Poole earned his B.S. and M.S. in mechanical engineering at Massachusetts Institute of Technology (MIT) and did graduate work in operations research at New York University.