January 31, 2012 

The Honorable Chris Christie 

Governor 

State of New Jersey 

State House 

Trenton, NJ 08625 

Dear Governors: 

~PORTAUffiUBRmt'OFNY&NJ 

The Honorable Andrew M. Cuomo 

Governor 

State of New York 

State Capitol 

Albany, NY 12224 

In response to last year's toll and fare increase, on August 18, 2011, you charged the 

Board of Commissioners of the Port Authority of New York and New Jersey to undertake a 

comprehensive review and audit of the entb:e agency, covering its finances, operations, and tenyear Capital Plan. On September 19, 2@11, a Special Corrunittee of the Board was organized to 

oversee .. that directive, and thereafter it retained the international firms of Navigant Consulting, 

Inc. and Rothschild Inc. to assist in this effort. · · · · ·' 

· We present herewith the Phase l Interim Report. It is the Special Committee's infennh:at ·. 

this Repoi:t together with our subsequent final report will present a thorough assessment of the 

Port Authority's current business model, finances, and operations, as well as provide corrective· 

recommendations and measures. The findings and recommendations of the Report will be 

presented to the Port Authority's Board for consideration and appropriate action. 

We note that the Report finds an "organization at a crossroads" and indicates that the 

Port Authority needs a top-to-bottom overhaul of its management stmchlre. Navigant's 

preliminary review revealed, in their assessment, "a challenged and dysfunctional organJ.zation 

suffering from a lack of consistent leadership, a siloed underlying bureaucracy, poorly 

coordinated capital planning processes, insufficient cost controls, and a lack .of transparent and 

effective oversight of the World Trade Center program that has obscured full awareness of 

billions of dollars in exposure to the Port Authority." 

As can be seen in the Report, the World Trade Center redevelopment costs grew from an 

estimate of approximately $11 billion in 2008 to a current estimate of approximately $14.8 

billion, with the estimated net cost to the Port Authority after third-party reimbursements 

growing from approximately $6 billion to approximately $7.7. billion. 

Given that enormous burden, we are committed to taking the steps necessary to mftlgate 

the Port Authority's exposure at the World Trade Center site by: 

• Establishing new financial and management controls, and value engineering all 

possible aspects ofthe World Trade Center project. This cmcial step should help 

225 Park Avenue South 

New York, NY I 0003 

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THEPORTAUTHORnYOFNY&NJ 

Hon. Chris Christie 

Hon. Andrew M. Cuomo - 2- January 31, 2012 

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limit or mitigate the approximately $1 billion of potential incremental cost 

exposure identified in the Report; 

Maximizing the recovery of costs spent on behalf of third-party stakeholders and 

strictly limiting any new financial commitments related to increased scope and 

third-party work. As noted in the Report, the Port Authority already needs to 

recover approximately $1.6 billion from public agencies and private entities, such 

as the National September 11 Memorial & Museum; 

Leveraging private sector expertise. The Port Authority has made advances in 

this direction by forming a joint venture with the Durst Organization on Tower 1 

and actively negotiating a joint venture with Westfield on the retail components 

of the World Trade Center site. As suggested by the Report, the Port Authority 

underestimated approximately $1 billion of costs that were subsequently 

identified by the involvement of experienced, private partners. There may have 

been an opportunity to mitigate some .. ~{.these costs had they been identified 

earlier; and 

Pursuing the feasibllity of third-party capital sources to fund the commercial 

aspects of the site. Alternative methods "!.f funding. the infrastructure needs of 

the Port Authority may come from moneti~i.Dg certain assets at the World Trade 

Center site. 

The amount of debt at the end of 2001 ($9.1 billion) grew to $19.5 billion at year-end 

2011, and is expected to increase further to approximately $20.8 billion by the end of 2012. This 

significant increase in the agency's debt load will remain a burden for years to come. 

Gross compensation at the I-'ort Authority has grown in the last five years by 

approximately 19%, from $629 million to $749 million, primar)Jy as the result of "add-on" 

compensation such as overtime, unused vacation exchange and "longevity" programs. During 

this same Hrneframe, the cost of benefits for employees increased by approximately 35%, from 

$341 million to more than $458 million. · 

These findings underscore the Special Committee's objective of finding ways of 

lowering operating costs and increasing operational efficiencies across the agency. The Special 

Committee is strongly committed to bringing employee compensation and benefits in line with 

appropriate public employee benchmarks and has already asked our executive management 

team to examine the following measures: 

• Requiring contributions to l;tea1thcare. If in1plemented for all employees, these 

contributions would result in_ expected savings of approximately $103.8 million 

over the course of the next four years; 
· mE PORT AlfimC!lRJIT!{ OF NY & NJ 

Bon. Chris Christie 

Bon. Andrew M. Cuomo -3- January 31, 2012 

• Eliminating "add-on" compensation programs, such as unused vacation 

exchange and "longevity." The estimated annual savings for eliminating these 

programs for non-represented employees is approximately $9.1 million; 

• Implementing a merit driven compensation program; 

• Imposing stronger controls on overtime; and 

• Revising vacation and other compensated time policies. 

Aside from these findings and recommendations, the Report includes preliminary 

observations on the Port Authority's current $25.1 billion Capital Plan and underlying capital 

planning process. The majority of that capital, more than $18 billion, is planned for assets 

excluding the World Trade Center site, re£leeting significant state-of-good-repair and other 

needs of our core transportation assets. Yet the Report observes that the capital planning 

process does not necessarily align with the agency's.9verall priorities. Line functions promote 

projects to maintain their own asset base, while management roles and responsibility for 

oversight of the planning and project execution p~(JC~ss are not clearly defined. Furthem<ore, 

senior management lacks key performance metrics. to drive accountability for the execution of 

the Capital Plan. . i . . · 

TI1e next phase of the Special Committee's work will further the detailed review of the 

hundreds of projects in the Capital Plan. However, it is clear that the Port Authority must 

refocus its organization and processes to increase the speed of project delivery and reduce 

project costs. Already, our executive management team is focusing on various steps to achieve 

these goals, including: 

• Streamlining pre-construction approval processes; 

• Reducing "soft costs'' associated with project development; 

• Requiring financial department review of all transactions before they are brought 

to the Board; and 

• Improving communications internally to foster better collaboration and dedsionmaking for critical projects. 

These important steps, together with other improvements such as greater use of 

electronic systems to improve management of our real estate and leasing contracts, and 

improving the timely collection of revenues owed to us, will improve the value to the agency, 

and to the public, of the capital dollars we spend.· 

The above findings, along with the others in the Report, make abundantly clear 

something that we already knew: we must now move to a new era £or the Port Authotity. In 

2011, the Board had already begun this process by implementing significant changes to 
'mE PUllRT AmHOIRJfl!Y OF NY & NJ 

Hon. Chris Christie 

Hon. Andrew M. Cuomo -4- January 31, 2012 

reinvigorate the agency. For example, in the past months it has moved forward in a proactive 

way with positive changes in governance and transparency by: 

• Posting online the compensation of all employees of the Port Authority and 

committing the agency to quarterly updates; 

• Implementing the elimination o£ the non-revenue component of the Port 

Authority's E-ZPass program for certain employees and retirees; 

• Hiring the first new independent auditor for the agency in 31 years; 

• Strengtheni11g the Port Authority's internal Enterprise Risk Management System 

to allow the Board to better anticipate and mitigate potential problems; 

• Establishing an Insurance Working Group to examine the Port Authority's 

insurance practices and costs; and 

• Approving Preliminary Operating and Capital Budgets for 2012 expressly subject 

to any measures adopted by the Bpard as a result of the Special Committee's 

review. 

Beyond these recent steps and tl')e afor~rnentioned commitments, much more needs to 

be done. The Special Committee's continued re.view .will serve as the vehicle for this change, 

and as we move into Phase II with the guidance of Navigant and Rothschild, the principal 

objectives will remai11 tl1e same: to reduce costs, improve efficiencies, .and fulfill the Port 

Authority's mission as the engine for economic growth and job creation in the New York/New 

Jersey region. We lool< forward to your continued support. 

David Samson 

Chairman 

William "Pat" Schqber 

Commissioner 

Respectfully, 

THE SPECIAL COMMITTEE OF 

THE BOARD OF COMMISSIONERS 

OF THE PORT AUTHORITY OF 

NEW YORK AND NEW JERSEY 

Scott Rechler 

Vice-Chairman 

Jeffrey Lynford 

Commissioner