March ?014 

Mitchell L. Moss 

Hugh O'Neill 
Mitchell L. Moss is Director of the Rudin Center for Transportation Policy and Management 

at New York University, and Henry Hart Rice Professor of Urban Planning at NYU's Wagner 

School of Public Service. 

Hugh O'Neill is President of Appleseed, an economic development consulting firm based in 

New York City. From 1985 to 1991, he was Assistant Executive Director of the Port Authority 

of New York and New Jersey. 

'I11is report and additional information on the Rudin Center, are 

available at \N\vw.NYlfRudinCenter.com 

Executive Summary 

The Port Authority of New York and New 

Jersey has been a vital force in the physical 

and economic growth of the New York-New 

Jersey region. During the past few years, 

however, public attention has focused on the 

Port Authority's spending, management, and 

political interference in the agency's operations. 

In recent weeks, several sources have called for 

reform, restructuring, or even abolition of the 

Port Authority. 

However, the critical problem facing the 

Port Authority today is not mismanagement, 

political abuse, or rivalry between New York 

and New Jersey. The fundamental challenge 

is that the business model under which the 

Authority has operated for the past thirty years 

is no longer sustainable. For the New YorkNew Jersey region to grow over the next fifty 

years, the Port Authority must rethink not only 

how it manages its business, but also how it 

defines what that business is. 

Evolution of the Port Authority's 

Business Model 

Since the 1930's, the Port Authority's 

consolidated funding structure has allowed it 

to use surplus revenues from its 1nost profitable 

facilities (such as the George Washington 

Bridge and John F. Kennedy International 

Airport) for two important purposes: 

• To help meet the capital and operating 

needs of Port Authority facilities that don't 

generate sufficient revenue to cover their 

own costs; 

• To allow the Port Authority to invest in 

new facilities that over time will help to 

grow both its own revenues and the region's 

economy. 

While this basic framework remains in place 

today, the ways in which it is used have evolved 

over time. 

• In the late 1960's the Port Authority took 

on responsibility for rehabilitation and 

ongoing operation of the PATH system 

- a rail transit system that, as the PA and 

leaders of both states realized, would never 

cover its operating costs, let alone provide 

a return on the P A's investment. 

• In the early 1980's (and with the approval 

of both states), the Authority's mission 

expanded again, as the Port Authority 

took on a series of economic development 

projects. While it was hoped that these 

projects would be self-sufficient, they 

were not expected to generate significant 

new revenues. 

A Port Authority That Works 4 
• At the same time, the PA began to allocate 

a portion of its surplus revenues and its 

limited capital capacity to projects selected 

by the governors of the two states, many 

of which bore little or no relationship to 

the Authority's mission or its existing 

businesses. These projects were not 

required to achieve the rates of return the 

PA normally required on its own projects; 

and many of them generated no revenue 

at all. 

An Era of Growth- but 

an Eroding Base 

Throughout the 1980's and 1990's, this 

arrangement appeared to be working well, 

as the Port Authority invested in upgrading 

the PATH system, oversaw the development 

of new terminals at its airports and rail 

links to Newark and JFK, and improved the 

competitive position of the region's ports. Air 

passenger traffic at the three airports has more 

than doubled since 1980; and since 1991, the 

volume of container cargo moving through the 

region's ports has tripled. 

Fundamental changes undermined the 

assumptions on which the Authority's early1980's business model were based - in 

particular, assumptions about the Authority's 

own operating and capital needs, and its 

revenue-generating capacity. 

• Since the early 1980's, the burden that 

the PATH system's operating deficits and 

zero-return capital requirements impose 

on the Port Authority's revenue-generating 

businesses have grown larger. PATH's 

deficit in 2012 totaled $370 million; and 

during the same year Port Authority capital 

spending on PATH (excluding the cost of 

the new PATH station at the World Trade 

Center) totaled $179 million. 

• The combined operating deficits of the 

Port Authority Bus Terminal and the bus 

station at the George Washington Bridge 

have also risen to $112 million in 2012. 

• During the past fifteen years, the Port 

Authority's marine terminals have gone 

from a nearly break-even business to one 

that in 2012 had an operating deficit of 

more than $1 00 million. 

• In 2012 the World Trade Center- which 

in 2000 generated mote than $33 million 

in net revenue for the Port Authority 

- incurred a net loss of $46 million. In 

the years since the September 11 attack, 

the Port Authority has invested billions 

of dollars in rebuilding the World Trade 

Center. 

• Even as the Port Authority's financial 

foundations were eroding, the Authority 

continued to finance projects chosen by 

the governors. Between 2002 and 2012, 

the Port Authority spent more than 

A Port Authority That Works 5 
$800 million on such "regional projects." 

During the next few years, PA spending 

on zero-return state projects will increase 

even further, as a result of the Authority's 

agreement to provide $1.8 billion to fund 

the rehabilitation of state highways and 

bridges in New Jersey. 

As a result of these trends, the Port Authority 

has, year by year, become more reliant on 

the revenues generated by its money-making 

facilities- its network of interstate bridges and 

tunnels, most notably the George Washington 

Bridge, and John F. Kennedy, LaGuardia and 

Newark Liberty airports - to subsidize the 

operation of, and investment in, those that 

can't cover their costs, and to help finance state 

capital projects that provide no return to the 

Port Authority. 

The increases in bridge and tunnel tolls that 

the Authority has implemented in recent years 

are a direct result of its continuing reliance on 

its bridges, tunnels, and airports to fund its 

money-losing operations and to finance both 

its own and the states' capital projects. 

New Rules for the Port Authority 

The current leadership of the Port Authority 

deserves credit for its renewed focus on effective 

management of the Authority's operations and 

financial resources. But management reforms 

are not enough. It is essential to reconsider 

the purposes the Port Authority should serve, 

and how its limited resources can be used 

most productively. The leadership of the state 

governments and the Port Authority should 

consider these proposed guidelines: 

• The Port Authority's financial resources 

are to be used solely for facilities, services, 

projects, and programs that are clearly 

aligned with its core mission. This doesn't 

mean the Port Authority can't take on 

new projects - but those that it takes on 

should be closely aligned with the PA's core 

businesses. 

• It is no longer possible for the Port 

Authority to adequately fund its own 

facilities and services while simultaneously 

allocating hundreds of millions for nonrevenue-generating state projects. The 

governors of New York and New Jersey 

and the leadership of the Port Authority 

should agree to end the practice of using 

the Port Authority to fund zero-return 

state projects. 

• At the same time, the Port Authority 

should subject its own investment 

decisions to rigorous cost-benefit analysis. 

Any proposed projects that are not selfsustaining must be strategically justified. 

Several projects included in the Authority's 

recently approved ten-year capital plan 

- such as the proposed extension of the 

PATH system to Newark Liberty Airport 

-have yet to be evaluated on a cost-benefit 

basis. 

• To focus on protecting the health of its 

revenue-generating facilities, the Port 

A Port Authority That Works 6 
• 

• 

Authority must give heightened attention 

to its three major airports. They are essential 

not only to the Authority's financial health, 

but to the continued growth of the region's 

economy as well. The priorities should 

include: redevelopment of the Central 

Terminal at LaGuardia, modernization of 

NewarkTerminalA, runway improvements 

at JFK and LaGuardia, accelerated 

deployment of next-generation air traffic 

control technology, and ground access 

improvements at all three airports. 

While redevelopment of the World Trade 

Center must remain one of the agency's 

top priorities, most of the Port Authority's 

other commercial and industrial properties 

are peripheral to its core businesses. It may 

be time to dispose of these properties. 

The Port Authority and the two states 

need to consider the long-term future of 

the PATH system. PATH is today the only 

major rail transit system in the U.S. that 

is funded entirely through a combination 

of farebox revenues and subsidies from 

other transportation facilities, without 

any support from broader-based tax 

revenues. Without some broader base of 

support, the next decade is likely to see 

continued escalation of bridge and tunnel 

tolls and PATH fares, increased pressure 

to cannibalize revenues from other Port 

Authority businesses to further subsidize 

PATH, sharp reductions in service - or 

some combination of all three. 

• It will be difficult to pursue the policies 

proposal in this report unless the states 

agree to end the division of the Port 

Authority into separate political fiefdoms. 

1l1is will require multiple changes in 

the way the agency is run, but there is 

probably one change on which the success 

of all others depends- reintegration of full 

responsibility for management of the entire 

organization in the position of Executive 

Director. 

It should be stipulated, for example, that 

the Deputy Executive Director (even if 

nominated by the Governor of New Jersey) 

works solely for the Executive Director. 

Moreover, elected officials (of either state) 

should rely on the Executive Director 

to appoint qualified individuals to highlevel management positions at the Port 

Authority. 

The leadership of the Port Authority must 

recognize that its current business model and 

division into separate political fiefdoms are 

undermining the organization's capacity to 

fulfill its mission. It may be easier to ignore 

these problems than to fix them. But with each 

passing year, ignoring them will only make 

them worse. 

A Port Authority That Works 7 

Challenges for the Future 

The Port Authority of New York and New 

Jersey, created in 1921, is a vital force in the 

physical and economic development of the 

New York-New Jersey region. In the 1920's 

and 1930's, it built the bridges and tunnels 

that connected the two states more closely rhan 

they had ever been connected before. 

After the Second World War, it developed 

and managed the airports that made the New 

York region the nation's leading gateway for 

international air travel. In the 1950's it built 

the world's first container port, and what is 

now the world's busiest bus terminal. In the 

1960's and 1970's, it built the World Trade 

Center- and is now building it again. On both 

sides of the Hudson, hundreds of thousands of 

people depend on the infrastructure of trade 

and transportation built and managed by the 

Port Authority. 

During the past few years, the Port Authority 

has been the focus of public attention for 

other reasons, with various proposals for 

its reform, abolition, and restructuring. In 

20 II, the governors of New York and New 

Jersey criticized the agency for construction 

cost overruns at the World Trade Center, for 

poor management, for having strayed from its 

core mission, and for excessive perks awarded 

to senior managers. A report prepared by 

Navigant Consulting Inc. at the request of both 

governors characterized the Port Authority as: 

.... a challenned b and dysfunctional 

organization suH"t:ring from a lack of 

consistent leadership, a siloed underlying 

bureaucracy> poorly coordinated capital 

p.lanning processes, insufficient cosr 

controls, and a lack oF transparent and 

effCctive oversight of the \X'orld 'Tl-ade 

Center (''~rrc») program .... 1 

In the fall of2013, the reconfiguration of traffic 

lanes on the New Jersey side of the George 

Washington Bridge caused massive traffic 

jams in Fort Lee, New Jersey. This incident 

has been the impetus for investigations by 

several governmental entities. There is now 

broad recognition that the Port Authority 

(especially in New Jersey) has served as a 

source of patronage for political appointees, 

and that there are conflicts within the agency 

between those who see themselves as serving 

the interests of either New Jersey or New York, 

rather than the mutual interests of both. 

Many of the charges leveled at the Port 

Authority are justified. Cost overruns at the 

World Trade Center are serious - although 

they are in part a result of flawed planning 

decisions made by New York State in the five 

years after the September 11 attacks, before 

1. Navigant Consulting Inc., Phase I Inrerim Report, 

Presented to the Special Committee of the Board of 

Commissioners of the Port Authorirv of New York and 

NewJersey,January312012,p. 5. , 

A Port Authority That Works 9 
the Port Authority took back responsibility 

for redevelopment of the site. The longevity 

bonuses and other benefits awarded to some 

top managers were hard to justifY, given the 

agency's financial problems and the austerity 

measures that other public agencies had been 

forced to adopt. Like other large, politically 

insulated organizations, the Port Authority was 

overdue for a management shake-up. 

However, the critical problem facing the 

Port Authority today is not mismanagement, 

political abuses, or rivalries between New York 

and New Jersey. The fundamental challenge 

is that the business model under which the 

Authority has operated for the past thirty 

years is no longer sustainable. To fulfill its 

mission and to help the New York-New Jersey 

region thrive over the next fifty years, the Port 

Authority needs to rethink not only how it 

manages its business, but how it defines what 

that business is. 

A Port Authority That Works 10 
The Evolution of the 

Port Authority's Business Model 

To understand why this is the case, some 

history is in order. When the Port Authority 

was created in 1921, it was charged with 

developing facilities needed to support the flow 

of commerce in the 1,500 square-mile Port 

District; but it initially lacked the financial 

resources needed to fulfill its broadly defined 

mission. 

Within a few years, however, the rapid growth 

of automobile and truck traffic created both a 

need for and a way to finance new infrastructure. 

The agency assumed responsibility for the 

operation of the Holland Tunnel and in quick 

succession built the Goethals, Bayonne, and 

George Washington bridges as well as the 

Outerbridge Crossing. 

Starting in the 1930's, the Port Authority 

operated under the assumption that these 

facilities would generate sufficient revenue to 

enable the agency to finance the development 

of new projects, which would eventually 

become self-sustaining, and would in turn 

contribute to the financing of still other new 

investments. 

Following this model, the Authority from 

the 1930's through the 1950's undertook 

infrastructure projects that have contributed 

to the growth of the region's economy, and 

to its day-to-day functioning, including 

the Lincoln Tunnel, Idlewild (now John F. 

Kennedy) International Airport, the Elizabeth 

Marine Terminal, and the Port Authority Bus 

Terminal. 

A significant change in this model occurred in 

the 1960's, when the Port Authority developed 

the World Trade Center. In exchange for his 

sign-off on the project, New Jersey Governor 

Richard Hughes persuaded New York's 

Governor Nelson Rockefeller to have the Port 

Authority take over, rehabilitate and operate 

the privately-owned Hudson & Manhattan 

Railroad (now PATH). 

The World Trade Center represented a 

significant expansion of the Port Authority's 

scope - but it followed a well-established 

approach to financing new projects, with 

surplus revenues from existing facilities being 

used to underwrite the up-front cost of 

developing new facilities, which were expected 

to become net revenue generators in the 

future. The Port Authority's assumption of 

responsibility for the PATH system, however, 

represented a significant departure from its past 

practice. The Port Authority was not merely 

getting into another line of business - it was 

taking on an ailing rail transit network that (as 

all parties acknowledged up front) would never 

cover its operating costs, let alone provide any 

return on'the Authority,s investment. 2 

2 'The Port Aurhoritv's initial resistance to taking on this 

n~'" commitment w~s rdlccred in an insenion imo the 

Authorirv's bond covenants of a provision prohibiting 

any funi1er PA involvement (beyond PATJ--I) in rhe 

operations or financing of deficit rail transit systems. 

\'7bile this provision was dropped from new PA bond 

covcnanrs afler 1971, it rernaincd in dt"Cct until the 

1990's. 

A Port Authority That Works 11 
An Expansive Agenda 

In the late 1970's and early 1980's, under the 

leadership of former Executive Director Peter 

Goldmark, the scope of the Port Authority's 

business was expanded to include: industrial 

parks in the Bronx, Yonkers, and Elizabeth, a 

satellite communications and office complex 

on Staten Island, a new office building, and a 

waste-to-energy plant in Newark and mixeduse waterfront development projects in 

Hoboken and in Hunters Point, Queens. 

All of these projects were envisioned as new 

ways for the Port Authority to contribute to 

the revitalization of the region,s economy. 

While they were generally expected to be selfsustaining, none were expected to generate 

significant new net revenues f~:n· the Port 

Authority or to add to its capital capacity. Their 

primary purpose was economic development. 

The early 1980's also saw another major change 

at the Port Authority. As demand for World 

Trade Center office space surged, Goldmark 

saw an opportunity to replace New York State 

government agencies - which since the early 

1970's had occupied several million square feet 

of space at the Trade Center - with higherpaying private-sector tenants. But instead of 

having the Port Authority keep the additional 

rent revenues, Goldmark proposed that they 

be used to fund a "regional bank" program, 

under which the Port Authority would finance 

a series of capital projects that would be chosen 

A Port Authority That Works 12 
by the governors of New York and New Jersey. 

Both states readily accepted the proposal. 

The concept of using surplus Port Authority 

revenues to fund state projects was expanded 

a few years later, when the Authority and 

the states agreed that a portion of the new 

revenues generated by a proposed toll increase 

would also be set aside to fund "regional 

development)) projects of the governors' 

choosing. These projects - like those funded 

out of World Trade Center revenues - would 

not be required to achieve the rates of return 

rhe PA normally required on its own projects. 

In fact, they would not be required to generate 

any revenue at all. 

An Eroding Base 

For several decades the Port Authority business 

model seemed to work well. In the 1980's 

and 1990's and into the present, the agency 

recorded some notable achievements. 

• 

• 

Much like the rebuilding of New York's 

transit system {although on a much smaller 

scale), the Port Authority's commitment 

to rebuilding PATH and providing 

reliable, low-cost, trans-Hudson rail service 

contributed to the revitalization of Lower 

Manhattan, and helped make possible the 

redevelopment of the Hudson County 

waterfront. 

Major capital improvements at the region's 

airports - new and expanded terminals, 

new airport rail systems at JFK and 

Newark, and other improvements- helped 

build a foundation for continued growth 

of the region's aviation industry. Between 

1980 and 2013, air passenger traffic at 

JFK, Newark, and LaGuardia more than 

doubled - from 53.5 to 112 million 

passengers. 

• The New York-New Jersey port significantly 

improved its capacity to compete effectively 

with other U.S. ports. Improvements 

included modernized terminal facilities 

in Newark and Elizabeth, the dredging of 

the harbor to accommodate larger ships, 

a major expansion of the Howland Hook 

terminal on Staten Island, and major 

investments in intermodal rail freight 

facilities serving the port. 

• 

As a result of these improvements, the New 

York-New Jersey port was well positioned 

to take advantage of the continued growth 

of world trade. Between 1991 and 2012, 

the volume of containerized cargo moving 

through the New York-New Jersey port 

nearly tripled, from 1.87 million to 5.53 

million twenty-foot-equivalent units. 

Despite a slow start, by the mid-1980's 

the World Trade Center had become 

a solid commercial success, a major 

contributor to the revitalization of Lower 

Manhattan, and a money-maker for the 

Port Authority. 

A Port Authority 1hat Works 13 
• The two states used Port Authority 

regional development funds to finance a 

variety of worthwhile projects, including 

improvements in New Jersey Transit's 

rail infrastructure that improved the 

connectivity on NJ Transit's rail network, 

rail freight improvements in New York 

City- as well as some others of!esser merit. 

But even as the Port Authority was recording 

these and other successes, changes were 

occurring - both at the Port Authority itself 

and in the wider world in which it operates -

that undermined the assumptions on which 

the Authority's early-1980's business model 

were based - in particular, assumptions about 

the Authority's own operating and capital 

needs, and its revenue-generating capacity. 

• The burden that the PATH system's 

operating deficits and zero-return 

capital requirements impose on the Port 

Authority's revenue-generating businesses 

has, since the early 1980's, steadily grown 

larger. 

Year by year, the gap between PATH's 

costs and revenues has increased. 

Between 2000 and 2012, PATH 

operating revenues grew at an average 

annual rate of 4.5 percent, while its 

operating costs grew at an average of 

5.9 percent. As a result, the system's 

net operating deficit rose during the 

same period from $158 million to 

$370 million - an increase of 133 

percent, or an average of 7.3 percent 

annually. 

A Port Authority 1hat Works 14 
• 

Since 2011, the growth of the PATH 

deficit has been slowed by fare increases, 

with the single-ride fare rising from 

$1.75 to $2.50 as of December 

2013, with additional increases 

scheduled for December 2014 and 

2015. Nevertheless, even with these 

increases, PATH operating deficits will 

continue to impose a growing burden 

on the Port Authority's net-revenuegenerating facilities. 

Net capital investments in the PATH 

system have also risen sharply, from 

$70 million in 2002 to a high of $393 

million in 2011. Between 2002 and 

2012 the Port Authority's investments 

in PATH - excluding the cost of 

developing a new PATH station at the 

World Trade Center - cumulatively 

totaled nearly $2.1 billion. 

In addition to this eleven-year total, 

from 2010 through 2012 the Port 

Authority spent nearly $1.4 billion on 

construction of the new PATH station 

at the World Trade Center. 

The cost of operating and main raining the 

Port Authority's midtown bus terminal and 

the George Washington Bridge bus station 

has also escalated, with the combined 

deficit generated by these two facilities 

rising from about $59.5 million in 2000 

to $112 million in 2012. This deficit is 

in effect a subsidy provided by the Port 

Authority's money-making businesses to 

those who commute across the Hudson 

River by bus. 

• During the past thirty years, the maritime 

industry's shift toward ever-larger container 

ships, competition among U.S. ports, 

and heightened concerns about security 

have led the Port Authority to increase 

investments in its marine cargo terminals. 

At the same time, competition with other 

ports has constrained the agency's ability 

to. raise rents and other charges to levels 

that would cover its increased costs. As a 

result, the Authority's port business has 

gradually shifted from one that was solidly 

self-sustaining to one that now generates a 

substantial annual deficit - going from a 

net loss of $8.9 million in 2000 to a loss of 

$100.2 million in 2012- and like PATH, 

must be subsidized by the Authority's 

money-maldng businesses. 

• Several of the economic development 

projects undertaken by the Port Authority 

in the 1980's have not performed as 

well as anticipated (and a few, such as 

development of a commercial fishing 

complex at Erie Basin in Brooldyn, failed 

outright and were quicldy shut down). 

Although they represent only a small part 

of the agency's operations and budget, the 

remaining economic development projects 

A Port Authority That Works 15 
- including the Essex County Resource 

Recovery plant, the Staten Island leleport 

and the Newark Legal Center- collectively 

generated losses of nearly $I 1.3 million in 

2012. 

• In addition to taking more than 2,900 lives, 

the 2001 attack on the World Trade Center 

destroyed one of the Port Authority's most 

valuable assets. In 2000, the World Trade 

Center produced more than $33.2 million 

in net revenues for the Port Authority; in 

20 12, it generated a net operating loss of 

$46.8 million. 

The Port Authority has become increasingly 

reliant on the revenues generated by its money· 

making facilities - its network of interstate 

bridges and tunnels, most notably the George 

Washington Bridge, and John F. Kennedy, 

LaGuardia and Newark Liberty airports - to 

subsidize the operation of and investment in 

those that fail to cover their costs. Figure I 

highlights the net revenues and net losses 

generated by Port Authority facilities and 

programs in 2012; Figure 2 shows the location, 

net revenues, and losses for major PA facilities. 

A Port Authority That Works 16 
0 

0 

c:. 

0 

0 ~ ~.:A !®@IM@l!ll\\t!#N"MWMHH¥4""Miiliili1$il -Georcre Washington Bridge & Bus Station 0 • . 0 0 c:. 0 0 ""' U). 1 :: :j_ JFK lnternatio.nal • Newark Liberty lnterni'tional Goethals Bridge 0 0 q 0 q 0 g 0 N ~ "A 'S<S Outerbridge Crossing --Holland Tunnel ~Lincoln Tunn~l L IIIII LaGuardia e- ll Elizabeth Marine Term,inal '·-Greenville Yar4/NY-NJ Rail LLC 0 ""' ' Stewart International Ferry, Transpo:rration Economic Developm~nt ' I : Red Hook/Bcooklyn Port ' . . Port Jersey/PA Marine Terminal ' Howland Hook World Trade Center P9rr Newi"k PA Bus Terminal 0 0 0 0 0 0 c:. q 0 0 0 0 0 ~ 0 ~ ~ "' ~:;,g. ""' ' ' ' 0 0 q 0 .; ""' ' PATH 0 0 0 0 0 if', ""' ' 

I'-

""" 

...rJ 

... ~ ~ '-' 

F "' 

.2 

-§' 

0 

... ~ 0 ..c '-' 

2 

::l 

-< 

'-' 

. r ... 

0 

d; 

0. -< 

c 

" " u 2 

2 "" 

lJ ~ ., ~ "' "' 

F 

ori 
Figure 2: Map of Major Port Authority Facilities 

Facilities in red posted net losses, while those 

in black posted net revenues in 2012. 

Net losses/revenues in$ thousands. 

'\ 

Ste\vcnt Airpol't + ·~5A,f5 

George Washington Bridge/ 

Bus Terminal, $359,985 

Teterboro Airport + • Bathgate Industrial Park, $1,267 

$267 

Lincoln Tunnel 

hle·Ni:llk l('{i<'.l Cr:nter $48,915 

+ LaGuardia Airport, *$30,936 

':>l,:'IB 11 !•ortAuthotJtyBusTermlna!,-$10:>,550 

\ f'AlH J .. { ~ -9 

\~1403,570 

Essex Co 1 t··· Holland Tunnel, $58,890 

Rbo~•rC"" Cent-21 *--. -'* \l"orld Tr,1{:e CentN, $46, 7BO 

-$9.652 Greenville 

Port Newark Yards, 

Newark Uberty + 1m -$51,301 ./$348 M R~d Ho()kTe1rnlnal, -$_14,28'1 *$178,654 0 Ellz~beth fill Pmi jersey -'?20,405 Manne · 

Howland Hook, -$3/..?:36 

Goethals Bridge, $104,553 -...... ~1 

Terminal, $18,577 

I 

Bayonne Bridge, -$3,301 

"TelepOrt, -S 1_,302 

Outerbrldge Crossing 

$96,515 

+ JFK Airport 

*$190,391 

N 

A 

*In addition to net revenues from airport operations, JFK, LaGuardia and Newark liberty together 

provided to the Port Authority $118,896,000 in net income from passenger facility charges. '". • .... ~'~·'======'~ .......... .-'' Miles 

A Port Authority 1hat Works 18 
Paying for Zero-Return Projects 

But even as the Port Authority's financial 

foundations were eroding) it continued to 

provide free financing for projects chosen by 

the governors. Between 2002 and 2012, the 

Port Authority spent more than $800 million 

on these "regional projects." 

1he Port Authority also kept taking on 

expensive new commitments to other zeroreturn projects favored by the two states. The 

PA committed $3 billion to construction of the 

ARC rail tunnel- and spent $161 million on 

the project before it was canceled by Governor 

Christie. After the Governor insisted that the 

$3 billion previously committed to ARC be 

treated as "New Jersey's money," the Authority 

agreed to allocate $1.8 billion for rehabilitation 

of New Jersey state highways and bridges, 

including the Pulasld Skyway. 

1he problem with such projects is not that 

they lack merit - it's that the assumptions 

about the Port Authority's revenue-generating 

capabilities and capital capacity on which they 

ate based are increasingly disconnected from 

reality. 

The states' failure to acknowledge the limits 

of the agency's finances - and in particular, 

the practice of treating it as a source of free 

money - has seriously distorted the Port 

Authority's investment priorities. In its 2012 

capital budget, the PA allocated $343 million 

to state, highway, and bridge projects in New 

Jersey - substantially more than the $282 

million allocated to the agency's own network 

of tunnels, bridges, and bus terminals, and 

nearly as much as the Port Authority planned 

to invest in 2012 in all of its port facilities 

($345 million). 

The World Trade Center 

Some New Jersey officials might see the PA's 

funding of New Jersey highway and bridge 

projects as simply balancing the books against 

the agency's spending on redevelopment of the 

World Trade Center site. At first glance this 

might seem reasonable. The Port Authority 

has spent and continues to spend billions of 

dollars on rebuilding the Trade Center; in 

September 2012 Navigant estimated that by 

the time the project is completed (and after 

deducting insurance payments, federal funds 

and other reimbursements), the PA will have 

spent about $7.4 billion from its own funds on 

WTC redevelopment. 

Nevertheless, linldng the PA's spending on 

New Jersey highway and bridge projects to 

its investment in rebuilding the World Trade 

Center is misleading in several respects. 

• In contrast to these and other zero-return 

projects sought by the two states, the World 

Trade Center will generate substantial new 

revenues for the Port Authority. During the 

past few months alone, the announcement 

A Port Authority That Works 19 
that Group M is leasing 516,000 square 

feet of space in 3 World Trade Center, and 

Westfield's decision to pay $800 million 

to buy the Port Authority's share of the 

Westfield-AP joint venture that has been 

developing the WTC's retail space, have 

reaffirmed the Trade Center's status as one 

of Manhattan's most valuable commercial 

properties. Over the next several decades, 

the lease payments by Silverstein Properties 

and by tenants in 1 World Trade Center, 

combined with the PA's share of retail 

rents and other WTC-related income, will 

generate billions of dollars in revenues for 

the Port Authority. 

• It is useful to remember that the original 

interstate quid pro quo for the development 

of the World Trade Center was the 

rebuilding and ongoing operation of 

the PATH system. Based on the Port 

Authority's last ten-year capital plan, we 

estimate that between 2002 and 2020 

(a period roughly corresponding to the 

timeline for rebuilding the World Trade 

Center), the PA will have spent more than 

A Port Authority 1hat Works 20 
$4.6 billion in zero-return capital on the 

PATH train, plus mote than $1 billion in 

unfunded spending on a new World Trade 

Center PATH station. Moreover, based on 

current trends in PATH's operating costs 

and revenues, we estimate that during 

the same period the Port Authority could 

spend an additional $5 billion to cover 

PATH's operating deficit. 

In 2020, the Port Authority will have at 

the World Trade Center a great locus of 

commerce and a revenue-producing asset. 

In PATH it will have a well-maintained, 

well-run, and economically vital mass 

transit network- and a sea of red ink. New 

Jersey officials may feel that they're owed 

something in exchange for supporting 

redevelopment of the World Trade Center. 

But in fact they've already gotten it -

several times over. 

Rising Pressure on Tolls 

The combination of an eroding financial 

foundation and the states' deployment of Port 

Authority funds for their own purposes has also 

put increasing pressure on bridge and tunnel 

tolls. Since 2007, cash tolls on Port Authority 

crossings have increased by 117 percent, to 

$13 round-trip; and peak-period E-ZPass tolls 

by 120 percent, to $11 round-trip. Additional 

increases are scheduled for 2014 and 2015, 

when cash tolls will rise to $15, and peakperiod E-ZPass tolls to $12.50. Truck tolls 

have risen even more rapidly. 

Contrary to what many of the Authority's 

critics have alleged, the toll increases that 

have occurred since September 2011 were 

not driven primarily by the need to cover cost 

overruns at the World Trade Center, or by 

mismanagement. Toll increases were needed 

primarily to: 

Table 1: PA Cash and E-ZPass Tolls, 2007-2013 

A Port Authority 'That Works 21 
• Cover PATH's ever-increasing operating 

deficits and capital requirements; 

• Finance major investments in the PA's 

bridge and tunnel network; and 

• Cover the cost of zero-return state projects. 

If it is to keep future toll increases under 

control, the Port Authority will need to redefine 

its business, and recognize its limits. 

Going Forward 

The current leadership of the Port Authority 

deserves credit for its renewed focus on 

effective management of its operations and 

financial resources. But management reforms 

are not enough. It is essential to reconsider 

the purposes the Port Authority should serve, 

and how its limited resources can be used most 

productively. The leadership of the two state 

governments and the Port Authority should 

consider these proposed guidelines: 

• The Port Authority's financial resources 

should be used solely for facilities, services, 

projects, and programs that ate clearly 

aligned with its core mission. This doesn't 

mean the Port Authority can't take on new 

projects - but those it takes on should 

be closely aligned with the agency's core 

businesses. Investments in Stewart Airport 

and the former Military Ocean Terminal 

in Bayonne are a logical extension of the 

Port Authority's business - but initiatives 

such as taldng over Atlantic City Airport 

are not. 

• The assumption that the Port Authority 

could adequately fund its own facilities 

and services and at the same time throw 

off hundreds of millions or even billions of 

dollars to pay for non-revenue-generating 

state projects was appealing thirty years 

ago. But it is no longer sustainable. 

The culture of taking money from the 

Port Authority for state projects will not 

be easy to change; from 2014 through 

2023, the agency's recently-published tenyear capital plan allocates $943 million to 

these "regional" projects. Nevertheless, the 

governors ofNew York and New Jersey and 

the leadership of the Port Authority should 

agree to end this practice immediately. 

They should agree not only to foreswear 

this practice in the future - starting 

this year, they should begin to cut back 

sharply or cancel outright any outstanding 

commitments of Port Authority funds for 

state projects, including money committed 

to (but not yet spent on) New Jersey state 

highway projects. 

Without this discipline, the Port Authority's 

long-term capacity to invest adequately in 

the region's airports, ports, and interstate 

transportation facilities will be seriously 

jeopardized. 

A Port Authority cfl1at Works 22 
• At the same time, the Port Authority itself 

needs to be more disciplined in its own 

investment decisions. lhis will require 

a stronger emphasis on the financial 

feasibility of proposed projects, strong 

justification in strategic and cost-benefit 

terms for those that are not self-sustaining 

- and after projects have been approved, a 

relentless focus on controlling costs. In an 

era of limited capital capacity, it will also 

require a willingness to ensure the adequacy 

of the Port Authority's investment in the 

facilities that ate most critical both to the 

region's economy and to the agency's longterm financial strength - most notably 

the three major airports and the George 

Washington Bridge. 

Although the agency has made progress in 

this area in the last few years, its recent tenyear capital plan nevertheless includes some 

projects that warrant a serious cost -benefit 

analysis, such as the proposed extension 

of PATH from Newark Penn Station to 

Newark Liberty Airport. Improving access 

to all three of the region's major airports 

should (as discussed below) be a priority 

for the Port Authority. But there may be 

more effective, qui deer and less cosdy ways 

to achieve rhis objective. 

The agency should also continue its recent 

efforts to engage the private sector in the 

development of Port Authority facilities. 

It has done so successfully at the World 

A Port Authority 1hat Works 23 
Trade Center, and is seeking to enlist 

private partners in the redevelopment of 

the Central Terminal at LaGuardia, and in 

the construction of a new Goethals Bridge. 

• As part of its new financial discipline, the 

Port Authority should seek to limit crosssubsidization among its various lines of 

business. Perhaps most important, the 

PA (with the support of the governors) 

should adhere to a policy of using bridge 

and tunnel toll revenues only to fund 

the operating and capital needs of the 

Authority's interstate transportation 

network - bridges and tunnels, bus and 

ferry terminals and PATH. The flip side 

of this policy, however, is that no Port 

Authority revenues other than bridge and 

tunnel tolls should be used to subsidize 

PATH or other money-losing components 

of the interstate network. 

As it begins to focus mar," sharply on 

protecting the health of its revenuegenerating facilities, the Port Authority 

must give heightened attention to its 

three major airports. These facilities are 

essential not only to the Port Authority's 

financial health, but to the continued 

growth of the region's economy as well. 

They are vital to the region's role as a n1ajor 

gateway for international trade, travel, 

and tourism. Further, they are essential to 

New York City's role as a world center of 

finance, professional and creative services, 

communications and culture. Through 

JFK and Newark (and to a lesser extent 

LaGuardia), the New York-New Jersey area 

is connected by non-stop flights to more 

international cities than any other city or 

region in the U.S .. Figure 3 shows 122 

A Port Authority That Works 24 
non-U.S. cities that as of December 2011 

were served by non-stop flights from the 

three airports. 

Top priorities for the region's airports should 

include moving ahead as quicldy as possible 

with the redevelopment of the Central 

Terminal at LaGuardia, modernization of 

NewarkTerminalA, runway improvements 

at both JFK and LaGuardia and ground 

access improvements at all three airports. 

And together with the Port Authority, 

the two states and their Congressional 

delegations should make accelerated 

deployment of next-generation air traffic 

control technology - which could expand 

the effective capacity of all three airports by 

15 to 20 percent - a top priority in their 

dealings with Washington. 

• Many Port Authority cnt1cs - and over 

time, manyofthe agency's own leaders, have 

expressed the view that the Port Authority 

should not be in the business of developing 

and managing commercial real estate. 

Nevertheless, the World Trade Center 

is today one of the Port Authority's core 

businesses, and has been so for more than 

45 years. Moreover, the agency's financial 

strength over the next several decades will 

depend in part on how successful it is in 

managing the redevelopment process, and 

in returning the complex to its pre-200 1 

position as a net revenue generator for the 

Port Authority. If only for that reason (and 

there are many others that could be cited), 

redevelopment of the World 1hde Center 

must for now remain one of the P A:s top 

priorities. 

Figure 3; Cities Served by Non-Stop International Flights from 

JFK, LaGuardia, and Newark Airports 

- ~ ; •• 

•.• 

A Port Auchority 1hat Works 25 
Most of the Port Authority's other 

commercial properties, ln contrast, are 

peripheral to its core businesses. And 

although they are generally not a major 

drain on the PAs financial resources, most 

of them lose money. As Pat Foye, the 

Port Authority's Executive Director has 

suggested, it may be appropriate for the 

Port Authority to dispose of its industrial 

properties, the Essex County resource 

recovery plant, the Teleport and the 

Newark Legal Center. 

• During the next several years, the Port 

Authority and the two states need to 

consider the future of the PATH system. 

PATH is today the only major rail transit 

system in the U.S. that is funded entirely 

through a combination of fare box revenues 

and subsidies from other transportation 

facilities, without any support from 

broader-based tax revenues. Without some 

broader base of support for PATH, the 

next decade is likely to see: 

Continued escalation of bridge and 

tunnel tolls and PATH fares, at rates 

well above the rate of inflation; or 

Substantial reductions in service; 

- Increased pressure to cannibalize revenues 

from other Port Authority businesses 

in order to subsidize the PATH system, 

and to reduce investment in the PA's 

most productive assets; or 

Some combination of all three. 

A Port Authority 1hat Works 26 
• An overhaul of the Port Authority's 

business model is just the first of several 

steps that are necessary to ensure the longterm viability of the PA's airport, port, and 

trans-Hudson transportation businesses. 

One of the silver linings in the GWB 

scandal is that it has cast a sharp light on 

just how deeply dysfunctional the division 

of the Port Authority into separate political 

fiefdoms has become. 

It will be difficult to turn the agency 

around unless both states agree to end this 

division. Doing so will require multiple 

changes in the way the agency is run, but 

there is probably one change on which the 

success of all others depends- reintegration 

of full responsibility for management of 

the entire organization in the position of 

Executive Director. 1bis will require two 

changes. 

While having the Governor of New 

Jersey nominate a Deputy Executive 

Director (a practice that started only in 

1995) might continne, the governors 

and the Port Authority's Board of 

Commissioners should agree that the 

person who holds this job works for 

the Executive Director. He or she may 

be informally responsible for keeping 

an eye on Port Authority matters that 

are of particular interest to New Jersey; 

but the Deputy Executive Director 

should report only to the Executive 

Director- not to the Governor, or the 

Governor's staff, or the Port Authority 

Board Chairman. His or her job should 

be to serve as the Executive Director's 

second in command- not as a separate 

executive director for New Jersey. 

Elected officials (of either state) should 

rely on the Executive Director to 

appoint qualified individuals to high 

level positions at the Port Authority. 

Subject in a few cases to approval by the 

Board of Commissioners, the hiring of 

Port Authority managers should be left 

to the Executive Director, other top 

executives, and department directors. 

It is not enough to focus on political abuses or 

to create a "blue ribbon panel" to review the 

Port Authority's managerial structure, as some 

experts have proposed. The leadership of the 

Port Authority must recognize that its current 

business model and division into separate 

politicalfiefdoms undermine the organization's 

capacity to fulfill its mission. It may be easier 

to ignore these problems than to fix them. But 

with each passing year, ignoring them will only 

make them worse. 

A Port Authority 1hat Works 27 
March2014