Phase I Interim Report 

Presented to: 

The Special Committee of the Board of Commissioners of 

THE PORTAUTHORRY OF NY & NJ 

January 31, 2012 

Presented by: 

NAVIGANT 
Phase I Interim Report to the Special Committee of the Poxt Authority of New York and New Jersey 

Table of Contents 

I. EXECUTIVE SUMMARY .............................................................................................. 5 

PRELIMINARY ORGANIZATIONAL DESIGN & OPERATIONAL ASSESSMENT .................................................. 5 

INITIAL COST REVIEW OF WTC PROGRAM .................................................................................................... 6 

PRELIMINARY CAPITAL PLANNING ASSESSMENT ......................................................................................... 7 

II. NATURE OF ENGAGEMENT & SCOPE .................................................................. 7 

III. GENERAL APPROACH ................................................................................................ 9 

COMPENSATION & BENEFITS REVIEW ............................................................................................................ 9 

INITIAL COST REVIEW OF 1BE WTC PROGRAM ............................................................................................ 9 

PRELIMINARY CAPITAL PLANNING ASSESSMENT ......................................................................................... 9 

IV. BACKGROUND .............................................................................................................. 9 

V. PORT AUTHORITY OVERVIEW ............................................................................. 11 

Observations & Findings ....................................................................................................................... 13 

Preliminary Recommendations & Next Steps ....................................................................................... 15 

VI. PRELIMINARY GENERAL ORGANIZATIONAL OBSERVATIONS ............. 15 

VII. PRELIMINARY COMPENSATION AND BENEFITS ASSESSMENT ............. 18 

SCOPE ............................................................................................................................................................ 18 

METIIODOLOGY, ........................................................................ , .............. ,..· .................................................. l8 

PRELIMINARY GENERAL 0BSERVATIONS ...................... , .............................................................................. l9 

EMPLOYEE HEADCOUNT ................ , .................. ,, ...................... , , , ............ , ................................................... 20 

Observations & Findings ....................................................................................................................... 20 

Preliminary Recommendations & Next Steps ....................................................................................... 22 

COMPENSATION ............................................................................................................................................ 22 

Observations & Findings ....................................................................................................................... 23 

PreliminanJ Recommendations & Next Steps ....................................................................................... 28 

BENEFITS ....................................................................................................................................................... 29 

Observations & Findings ....................................................................................................................... 30 

Preliminary Recommendations & Next Steps ....................................................................................... 34 

REPRESENTED EMPLOYEES CONTRACT CONSIDERATIONS .......................................................................... 35 

Observations & Findings ....................................................................................................................... 35 

Preliminary Recommendations & Next Steps ....................................................................................... 36 

VIII. INITIAL COST REVIEW OF WTC PROGRAM ..................................................... 36 

BACKGROUND ............................................................................................................................................... 36 

SCOPE & METIIODOLOGY ............................................................................................................................. 37 

Observations & Findings ....................................................................................................................... 38 

Preliminary Recommendations & Next Steps ...................................................................................... .43 

IX. PRELIMINARY CAPITAL PLANNING ASSESSMENT ...................................... 44 

BACKGROUND ............................................................................................................................................... 44 

SCOPE & METHODOLOGY ............................................................................................................................. 44 

Observations & Findings ........................................................................................................ : .............. 44 

Preliminary Recommendations & Next Steps ...................................................................................... .45 

X. OVERVIEW OF PHASE II .......................................................................................... 46 

PHASE II- OillGINAL MANDATE ................................................................................................................ .46 

N/\VI CANT 2 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

PHASE II- ADDmONAL RECOMMENDATIONS ............................................................................................ 46 

XI. APPENDIX - A .............................................................................................................. 48 

XII. APPENDIX - B ............................................................................................................... 50 

XIII. APPENDIX- C .............................................................................................................. 51 

Tables 

Table 1 -Port Authority Core Functions ............................................................................................................... 12 

Table 2- Cumulative Net Income by Line Department (Inception- 2010) ...................................................... 13 

Table 3- Summary Financial Trends by Year (2001- 2011) ............................................................................... 14 

Table 4- Executive Director Tenure ...................................................................................................................... 16 

Table 5- "Actual" vs. "Authorized" Staffing Trends (2006- YTD Nov 2011) ................................................. 21 

Table 6-Total Compensation Trend (2006- 2010) ......................... : .................................................................... 22 

Table 7- Total Compensation & Benefits Trend per Active. Employee (2006 - 2010) ..................................... 23 

Table 8 -Port Authority Benchmarking Among Peers, Aviation ...................................................................... 25 

Table 9- Port Authority Benchmarking Among Peers, TB&T ........................................................................... 25 

Table 10 -Port Authority Benchmarking Among Peers, Port Commerce ........................................................ 26 

Table 11 -Port Authority Benchmarking Among Peers, PATH ............................................................. : ........... 26 

Table 12- "Add-on" Compensation for Non-Represented & Represented Employees (2010) ..................... 27 

Table 13-Existing "Add-on" Compensation Programs for Non-Represented Employees .......................... 27 

Table 14 -Trends in Employee Benefit Expenses (2006- 2010) ......................................................................... 29 

Table 15 -Breakout of Health Benefit Expenses by Employee Type (2010) ...................................................... 30 

Table 16- Port Authority Health Benefit Contribution vs. States of NY and NJ ............................................. 31 

Table 1:;:- Expected Savings from Health Care Initiatives .......................................... , ........................................ 31 

Table 18 -Paid Time Off and Cash-Out Policies of Port Authority vs. States of NY & NJ ............................. 33 

Table 19- Top 10 Overtime Recipients, Public Safety (2010) .............................................................................. 36 

Table 20- Public Safety Overtime (200j)- YTD Nov 2011) ................................................................................. 36 

Table 21- Periodic WTC EAC Comparison (Dec 2006- Current Estimate) .................................................... 37 

Table 22 -Periodic WTC EAC Comparison (Dec 2006- Nov 2008) .................................................................. 39 

Table 23- Periodic WTC EAC Comparison (Nov 2008- Current Estimate) ................................................... .40 

Table 24- WTC Current Estimate and Potential Exposure ................................................................................ 42 

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Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Figures 

Figure 1-Port Authority Key Historical Milestones ........................................................................................... 13 

Figure 2- Operating Cash Flow Available for Investment in Facilities (2001 - 2010) .................................... 14 

Figure 3- Staffing Allocation Trend (2001- YTD Nov 2011) ............................................................................. 21 

Figure 4 -Average Employee Base Salary by Public Agency & Authority (2010) ........................................... 24 

Figure 5 -Top 25 Employees Average Base Salary by Public Authority (2010) .............................................. .24 

Figure 6- Number of Non-Represented Employees by Employee Group ......... , ............................................ 28 

Figure 7- Average Cost of Vacation Day Exchange & Banking of Days, per Employee (2006 -2010) ........ 32 

N/\V I Gi\ NT 4 
Phase I Interim Report to the Special Conunittee of the Port Authority of New York and New Jersey 

I. EXECUTIVE SUMMARY 

The Port Authority of New York and New Jersey (the "Port Authority") is a complex 

organization, comprised of billions of dollars of vital infrastructure and transportation 

operations as well as significant real estate holdings. Navigant Consulting, Inc.'s ("Navigant") 

preliminary review revealed a challenged and dysfunctional organization 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 (the "WTC") program that has obscured full awareness of billions of 

dollars in exposure to the Port Authority. 

The organization is at a crucial crossroads. The Port Authority must re-affirm its core mission, 

and support it with a viable long range strategic and capital plan and an organization with 

renewed focus on operating efficiency and effectiveness, in order to sustain its relevance as a 

primary contributor to the economic growth of the region in the 21st Century. A significant 

undertaking will be required including both organizational and financial realignments to 

properly position the agency to address the challenges inherited by the recently appointed 

leadership. The following represents certain preliminary findings associated with the Phase I 

report commissioned by the Special Committee of the Board of Commissioners of the Port 

Authority at the request of the Governors of New York and New Jersey. 

PRELIMINARY ORGANIZATIONAL DESIGN & OPERATIONAL ASSESSMENT 

{- The Port Authority must co11duct a mea1ti11gjul top-to-bottom orga11izatio11al redesign 

focused 011 operati11g efficieltcies a11d rooted i11 clearly deji11ed roles a11d respo11sibilities, 

tra11sparmcy, accomttability, a11d alig11ed i1tce11tives 

• The Port Authority is a long standing bureaucracy that is inherently resistant to change, 

lacks effective collaboration between its strategic businesses, and would benefit from the 

effective development of a shared support services function. 

• Promotion within the organization is primarily based on seniority, with little evidence of 

advancement or compensation being tied to performance. As a result, the organization 

has a concentration of long tenured senior and middle management employees. 

• The magnitude of growth in size and cost of the security apparatus warrants an in depth 

review of its efficiency and relative effectiveness, as is currently being conducted. 

• Overtime and other forms of "add-on" compensation resulted in an additional $20,559 

per employee in 2010. Overtime expenses alone topped $85 million in 2010. 

• Total "add-on" compensation, when combined with all other benefits, results in 

incremental average cost per employee equivalent to approximately 70% of base salary, 

a relatively high fringe benefit rate. 

• 93% of employees make no contribution to their health care; by contrast, 100% of New 

York State and New Jersey State employees contribute to health care. 

• Total cost of compensation and benefits for the average active Port Authority employee 

is estimated to exceed $143,000 annually. 

N/\VIGANT 5 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

• In addition to the scrutiny and curtailment of rapidly growing "add-on" compensation 

and benefit costs, represented labor contracts (and the current application of related 

practices) merit a detailed review with consideration of potential modifications to work 

rules to remove impediments to productivity and efficiency gains. 

INITIAL COST REVIEW OF WTC PROGRAM 

--} WTC costs have gmwu significantly and gross costs will likely exceed approximately 

$14.8 billion, au increase of $3.8 billion since the last forecast in 2008. The Port 

Authority's net funding obligation has gmwn from approximately $6.0 billion to 

approximately $7.7 billion, before consideration of additional potential net cost 

exposures of approximately $800 million 

• The Port Authority was unable to produce supporting detail and source documents for 

the growth in cost estimates previously reported by prior Executive Directors to the 

Board of Commissioners and the Governors. Moreover, prior budgets for the WTC 

project did not include estimated tenant improvement and leasing costs associated with 

the commercial (i.e., at One yY<,Jrld Trade Center) and retail space at the WTC, thus 

understating the expected cost at completion. 

• Total project costs have grown significantly from a previously reported $11 billion to 

approximately $14.8 billion, a $3.8 billion increase since the 2008 reforecast. Moreover, 

Navigant has identified additional potential exposures of approximately $1 billion that 

must be mitigated by the Port Authority to avoid further escalation in gross program 

costs. 

• The gross cost increase of approximately $3.8 billion is primarily driven by: (i) the scope 

evolution of the WTC Transportation Hub ("Hub") in response to the mandate to open 

the National September 11 Memorial and Museum (the "Memorial") by September 11, 

2011, (ii) anticipated allowances to commercialize One World Trade Center ("1 WTC") 

and the retail spaces, (iii) projects performed by the Port Authority on behalf of thirdparties at the site (i.e., related to the Memorial, existing subway operations, the campus 

security plan, and the Performing Arts Center), as well as, (iv) increases in financing and 

insurance expenses. 

• Exposure to third-parties (where the Port Authority has performed work for other 

parties and expects to be reimbursed in the future) now total an estimated $1.6 billion 

and represent the primary area of cost escalation since the 2008 reforecast. The most 

notable exposures are seen in: (i) the proposed Memorial project (which, by some 

estimates, has grown to a total project cost of approximately $1 billio11), (ii) the $300 

million campus security plan developed by the City of New York, and (iii) the $200 

million of work required to physically support the anticipated Performing Arts Center at 

the site. Assuring the collectability of these funds, particularly in instances such as the 

Memorial where funding obligations are already in dispute, must be a key priority of the 

Port Authority. In the face of uncertainty of collections, the Port Authority should 

enforce strict controls and curtail development of non-essential third party requests. 

N 1\V I G A i'-l T 6 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

• The Port Authority has significant, additional, potential cost risks (i.e., above the $800 

million identified in the Navigant report) relating to contingent financing commitments 

associated with other WTC projects. 

• The Port Authority must implement enhanced transparency and accountability 

protocols to ensure the WTC redevelopment is completed without further cost overruns. 

Roles, responsibilities, and oversight need to be re-evaluated as the WTC program 

evolves from construction execution to that of an operating asset of the agency. 

• The post traumatic effect from September 11, including the loss of 84 employees, cannot 

be underestimated. Nonetheless, in the face of this tragedy long-tenured, dedicated, 

career service professionals provided interim stability. However, in the course of the 

next decade the Port Authority has been consumed with the additional responsibility for 

the rebuilding of the WTC. The opening of the Memorial represents an opportunity to 

restore the Port Authority's focus on its primary mission. 

PRELIMINARY CAPITAL PLANNING ASSESSMENT 

-¢- The Port Authority needs to align its capital strategy with its mission and objectives 

• Exposure to debt has more than doubled over the past ten years, from approximately 

$9.1 billion in 2001 to approximately $19.5 billion at the end of 2011, and future cash 

flow from operations alone is not sufficient to fund its ongoing capital projects. 

• The Port Authority has expanded beyond its stated mission as a transportation 

infrastructure organization and, by fate or design, has also become a major real estate 

developer and asset owner with investments that dwarf its past holdings. The Port 

Authority must structure its organization, use its internal resources, and, as appropriate, 

use its private sector prowess. 

• The capital planning and execution function lacks a clear leader, does not have 

consistent reporting mechanisms, and fails to effectively address the challenges facing 

the Port Authority. There is a lack of proper accountability for development, 

construction and asset management to the Executive Director. A full review of 

organizational design of capital planning and implementation is warranted. 

II. NATURE OF ENGAGEMENT & SCOPE 

In August 2011, in response to a Port Authority requested, and subsequently approved, toll and 

fare increase for its bridges and tunnels, and the PATH system, the Governors of New York and 

New Jersey requested a comprehensive review of the Port Authority. Consequently, in 

September 2011, the Port Authority established a Special Committee of the Board of 

Commissioners (tl1e "Special Committee") to retain independent consultants and advisors to 

conduct a full review of the Port Authority's past and current governance, and management 

practices (the "Review"). Pursuant to an agreement dated as of November 23, 2011, the Special 

Committee retained N avigant to assist the Port Authority in readying the requirements of the 

Review. The broad scope of the Review is to include but is not limited to the following: 

7 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

• A comprehensive analysis of the Port Authority's ten-year capital plan (the "2011 

Capital Plan"), in an effort to reduce the size and cost of non-revenue producing 

projects, reprioritizing existing projects and establishing new priorities, and the most 

effective way to finance the same; 

• A thorough review of the Port Authority's capital projects and spending over the past 

ten years to determine the causes and full extent of, as well as potential remedies to 

address, cost escalations of the Port Authority's projects, with a focus on the WTC site; 

• A top-to-bottom review of the Port Authority's organizational structure and 

effectiveness, staffing levels, compensation, benefits, and financial management, 

including accounting, audit, financing, consulting and other contractual practices and 

agreements, all done to further lower costs and increase efficiencies within the Port 

Authority; and 

• Establishment of a Project Management Office ("PMO") to coordinate activities 

associated with the Review. 

In addition to N avigant, the Port Authority also engaged Rothschild, Inc. ("Rothschild") to 

assist in meeting the requirements of the Review. Rothschild's focus is to advise the Port 

Authority on evaluating effective financing strategies of the existing and new capital priorities. 

N avigant' s engagement is· divided into two phases ("Phase I" and "Phase II"). 

Pursuant to the engagemenJ; t~rms with the Port Authority, the scope of Phase I consists of the , 

following: 

• Establishment and staffing of a PMO which would coordinate activities with regards to 

Navigant's scope of work in Phase I (as well as oversight, coordination, assimilation and 

integration of related work streams performed by third parties); 

• Preliminary organizational design and operational assessment focused on a review of 

compensation and benefit cost structures; 

• WTC cost review in consultation with the Special Committee; and 

• Initiation of capital projects assessment in consultation with the Special Committee. 

Pursuant to the engagement terms with the Port Authority, the scope of Phase II of Navigant's 

engagement will include the following: 

• PMO Activities - Direct oversight, coordination, assimilation and integration of Phase II 

activities from both N avigant and third party consultants or advisors as appropriate; 

• Organizational and operational assessment of the Port Authority for focus areas 

identified in consultation with the Special Committee; and 

• Completion of capital projects review in consultation with the Special Committee. 

The purpose of this report is to deliver Navigant's interim findings and recommendations with 

regards to the three identified work streams in Phase I, subject to the qualifications of Appendix 

- C. Further details on the anticipated Phase II scope of work can be found in Section X. 

N/\VIGt\NT 8 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

III. GENERAL APPROACH 

Navigant conducted an initial meeting with the Special Committee and select members of Port 

Authority management in early December 2011. At that time, an information request was 

submitted to the Port Authority addressing the specific areas identified for focus in Phase I as 

well as providing additional information that will be useful in Phase II. To date, Navigant has 

reviewed numerous documents from the Port Authority. In addition, Navigant has conducted 

many meetings and interviews with all levels of Port Authority employees as well as certain 

members of the Board of Commissioners and the Special Committee. 

COMPENSATION & BENEFITS REVIEW 

Navigant conducted initial meetings with the Port Authority's Chief Administrative Officer and 

Human Resource departments. Subsequent to the meetings, information requests were sent in 

order to facilitate the review of key documents and other pertinent information. N avigant 

reviewed multiple documents, conducted numerous in person and telephonic interviews as 

well as performed ·detailed analyses of base pay, overtime, "add-on" compensation, healthcare 

costs, and other benefit .analyses. The findings of these analyses were used in a benchmarking 

review using selected public and private peer groups. 

INITIAL COST REVIEW OF THE WTCPROGRAM 

Navigant reconstructed the historical costs of the WTC program using the chronology of 

periodic Port Authority presentations by prior Executive Directors and management to the 

Board of Commissioners, project cost reports current as of October 2011, related documents, 

and the findings of interviews to provide the Special Committee with the analysis of past 

spending at the WTC site. Furthermore, Navigant preliminarily and independently analyzed 

the Port Authority's estimated cost to complete for its reasonableness. 

PRELIMINARY CAPITAL PLANNING ASSESSMENT 

Navigant conducted meetings with key Port Authority staff involved in capital planning and 

began preliminary analysis of its organization and processes. In addition, Navigant compiled 

various reports of the Port Authority into a single database that allowed for analysis of the 

composition of the 2011 Capital Plan. Navigant also reviewed the projects in the 2011 Capital 

Plan by classification, to better understand the amount, maturity and priority of the portfolio of 

capital projects. 

IV. BACKGROUND 

The Port Authority has endured significant adversity over the last 20 years. From the WTC 

bombing in February 1993 to the September 11 terrorist attacks, the Port Authority has always 

responded swiftly. After the February 1993 bombing, the Port Authority restored the WTC to 

full function within a remarkable two month time span. However, the devastation and 

destruction of the September 11 attacks were unprecedented. The loss of life included the Port 

N/\VlCANT 9 

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Phase I Interim Report to the Special Conunittee of il1e Port Authority of New York and New Jersey 

Authority's Executive Director and 83 of its employees, causing a significant emotional toll on 

the psyche of the organization. The events of September 11 became a patriotic rallying point to 

demonstrate to the world that New York, the nation's largest city and heart of its financial 

sector, could respond and rebuild in the face of this adversity, in defiance of the intended 

intimidation and threat by the terrorist culprits. 

The Port Authority accepted the monumental and crucial responsibility of what has now 

become the symbol of the country's resolve - to rebuild the WTC. The events of September 11 

placed an unexpected and tremendous burden on the Port Authority, consuming considerable 

resources and attention in support of the redevelopment efforts. The distortive impact of this 

event has created a ripple effect that has been felt throughout the organization a decade later, 

including tumultuous changes in its leadership, intensive focus, and dedication to one of the 

largest infrastructure and development projects in the country, as well as extraordinary growth 

of its security apparatus. 

Consequently, as the scope and design of the WTC have evolved, particularly in response to the 

national symbolic objectives and security concerns that have permeated the development, the. 

required costs of rebuilding have correspondingly expanded. The objective of completing the 

Memorial by the ten-year anniversary of September 11 became a public mandate to reflect 'the 

profound national symbolism of the WTC's timely resurrection. To meet this timeline, the Port 

Authority had to incur significant costs related to the acceleration of the WTC construction 

program. The. level 6£ dedication by the Port Authority, from daily involvement of certain 

members of its Board of Commissioners, to on site construction personnel, has been 

unwavering. By the time of its completion, in addition to third party funding, the Port 

Authority will likely spend over $7.7 billion dollars of its own capital in this historic endeavor. 

The recent opening of the Memorial on September 11, 2011 marked the end of an 

extraordinarily difficult decade for the agency and the beginning of a new chapter in its history. 

Given the strong leadership evidenced by the current Governors of New York and New Jersey, 

and their appropriate and intense focus on responsible government, increased transparency, 

organizational efficiency and fiscal responsibility, the Port Authority now has a window of 

opportunity to drive the transformational changes fundamental to addressing the challenges of 

the organization. With the relatively recent appointments of a new Chairman, Vice-Chairman, 

several Commissioners, Executive Director and Deputy Executive Director, the Port Authority 

has a reinvigorated focus. 

The organization's new leadership appears intent on driving the change necessary to best 

position the Port Authority to meet the challenges of the 21st Century and to progress from its 

"business as usual" approach. A major theme in this endeavor is increased transparency and 

accountability throughout the organization. This is evident by the recent initiatives already 

undertaken by the Board of Commissioners, under the leadership of the new Chairman, 

includingbut not limited to: 

• Appointment of new, independent auditors; 

• Focus on improvements in the capital planning and project management processes; 

N/\VICANT 10 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

• Strengthening of the Port Authority's internal Enterprise Risk Management System, 

permitting early intervention by the Board of Commissioners through proactive issue 

identification; 

• Review of policies and procedures in order to address growing overtime expenditures; 

• Pursuit of benefit program reform including health care contributions, vacation 

exchange and pension design; 

• Demonstration of its commitment to full transparency through the initiation of complete 

disclosure on compensation of all employees; 

• Creation of an insurance working group to better analyze and improve upon the Port 

Authority's current risk management policies; 

• Fully embracing the top-to-bottom organizational review being facilitated by Navigant 

and Rothschild in pursuit of actionable interventions to drive operating and capital 

deployment efficiencies and developing ways to enhance the financing of its 2011 

Capital Plan; and 

• Approving preliminary operating and capital budgets for 2012 exp~essly subject to any 

measures adopted by the Board of Commissioners as a result of the Special Committee's 

review. 

This interim report is being issued in response to limited areas of initial inquiry that the Special 

Committee of the Board of Commissioners has mandated. 

V. PORT AUTHORITY OVERVIEW 

The Port Authority is a complex organization, now employing over 6,900 people and generating 

revenues of almost $4 billion. The Port Authority's current mission is defined as follows: 

"To identify and meet the critical transportation infrastructure needs of the bi-state region's businesses, 

residents, and visitors; providing the highest quality, most efficient transportation, and port commerce 

facilities and services that move people and goods within the region, providing access to the rest of the 

nation and to the world, while strengthening the economic competitiveness of the New York-New Jersetj 

Metropolitan Region". 

The Port Authority has a vast array of asset holdings segmented into aviation, port commerce, 

PATH (i.e., rail transit), tunnels I bridges I terminals, the WTC, and various real estate 

development assets as identified in Table 1. 

H/\ViCANT 11 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Table 1-Port Authority Core Functions 

.. 

AVIATION 

M::lnages & operates NY I NJ airports 

M::lnages related security apparatus 

Manages operation & rralntenance contracts for JFK & EWR 

fv1anages parking contracts 

M:mages utility and energy contracts 

Develops & maintains passenger terrrinals 

Mahtains runway infrastructure 

PORT COMMERCE 

Handles leasing & lease adninistration 

Manages related security apparatus 

Aanning & development alternatives for land use 

Oversees capital prograrrs Including waterway development 

lv'anages NY Greenville Cross Harbor RaJ! Freight Program 

lv'anages developm:mt of new MOTBY 

PATH 

lvlanages 24f7 operation of trains, passenger services and rail yards 

lvlanages related security apparatus 

1111anages aU of PATH assets & Infrastructure including railcar fleet, power, signals & corrrruter services 

Delivery of capital program 

Safety & Security program rmnagement 

Manages a~ revenue prograrrs {e.g. ,fare collection, & vendor contracts) 

TUNNB..S, BRIDGES AND TERMINALS 

Operates all Fbrt Authority tunnels, bridges & terninals 

)v1anages r~lated security _apparatus 

Traffic management of all velicular crossings, bus terrrinals and pedestrian flows 

Emergency response at all tunnels, bridges & terninal assets 

· :~Au-iage~ and staffS cash !oll collection booths and all electronic payment systerm 

M::lintenance of all TB&T infrastructure 

Delivery of capital program 

WORLD TRADE CENTER 

Development, design, construction & coordination of WTC site In accordance with rryriad of deve!oprmnt 

agreements & stakeholders {MTA, NY SOOT, Silverstein Entitles & Affiliates, 1\11etn:~rial, etc.) 

lvlanages security apparatus 

M::lnages retail and tenant leasing of 1 wrc 

Design & construction of wrc transportation HUB 

1 WTC O:mstructlon 

Vehicular Security Center 

ConYOOn Site infrastructure 

Construction of Seplerrber 11 merrorlal 

Coordinate the design and construct!on of SA towers 2,3 & 4 

Perforning Arts Center {"PAC') 

REAL ESTATE DEVB..OPMENT 

Leases & manages over 1.1 nilllon sq ft In NY & NJ 

Significant real estate owner and developer 

Works with state deve!opm:mt agencies in bringing underutilized deve!optn3nl industrial sites to shovel 

ready status 

Once online, the Fbrt Authority will manage leasable space of approximately 3 nilllon square feet as well 

as 0.5 trillion square feet of retail space at the WTC 

JFKA!rport 

LaGuardia Airport 

New ark Airport 

Stew art Airport 

Teterboro Airport 

Howland Hook lvlarine Terrrina! I Fbrt Ivory 

Brooklyn Fbrt I Red Hook 

FbrtNewark 

Fbrt Bizabeth 

FbrtJersey 

Greenvme Yard 

NY Stations 

9th Street 

14th Street 

23rd Street 

33rd Street 

Christopher Street 

WTC 

Holland Tunnel 

Lincoln Tunnel 

George Washington Bridge 

Bayonne Bridge 

Goethals Bridge 

Outerbridge Crossing 

NJ Stations 

Exchange Race 

Grove Street 

Harrison 

Hoboken 

Journal Square 

Fbrt Authority Bus Term'nal 

George Washington Bus Station 

1 World Trade Center 

HUB 

9/11 1\11etn:1rial & M.Jseum 

Central Oliller Rant 

Newark Legal & Conm.mlcation Center 

Teleport 

Essex County Resource Recovery Facility 

Bathgate hdustrial Park 

hdustrial Park at Btzabelh 

Fbrt Authority Bus Terninal Air Rights 

M:lynihan Station 

In addition to its responsibilities related to two tunnels, four bridges, five airports, six seaports, 

and the PATH system the Port Authority currently: 

• Manages over 1 million square feet of leased space in 11 facilities; 

• Manages a 100-acre high-tech business park in Staten Island; 

• Owns multiple industrial parks; 

• Owns and serves as developer of two large waterfront projects; and 

• Owns Essex County Resource Recovery (NJ's largest waste-to-energy facility). 

N/\VlCANT 12 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Once online, the Port Authority will manage leasable space of approximately 3 million square 

feet as well as 0.5 million square feet of retail space at the WTC. 

Observations & Findings 

~ The Port Authority infrastmcture continues to age and deteriomte 

The Trans-Hudson bridges and tunnels were built over 70 years ago. While many facilities at 

the airports and ports were constructed more recently, much of that infrastructure also dates 

back half a century or more (Figure 1). Going forward, the Port Authority facilities will require 

significant capital investment to maintain, secure, and enhance its assets. 

Pori Authority 

Founded 

1921 

Goethals 

llrldge 

1929 

llollandTUnn<>l 

1921 

Figure 1 - Pol't Authority Key Historical Milestones 

George 

Washington 

Bridge 

1931 

Part 

Lincoln Newark AIIIhadty 

Tunnel Airport BusTennlnal 1931 1947 1950 

LaGuardia 

Alrpo.rl 

1947 

Airport "" 

1948 

50 YEARS 

Wotld 

Trade 

Cantor 

1910 

Port 

Elitabelll 

19S2 

Broo~lyn 

Madna 

Tetrn!rlal 

1981 

EsoaxCounly 

Resource 

Comor 

1990 

1993 

WTCTerrarlst 

Bombing 

Exchange Place 

&WTC PATH 

Roo!"' ned 

2003 

,.,. 

9/11 

Terrorist 

Attiicks 

MOTilY 

2010 

NeWWTC· '"" Col!struotion 

9/11 

t!emorlal 

2011 

2011 

PoriAulhor!ly 

9D!h 

Ann!vorory 

Over the neid ten years, the Port Authority has budgeted approximately $25.1 billion for capital 

spending. Of this amount, approximately $15 billion has been earmarked for state of good 

repair, security, mandatory capital expenditures and system enhancement projects. 

~ Historically, revenue and operating cash flow has been primarily generated by Port 

Authority tunnels, bridges, and airports 

When investments in facilities are taken into consideration, PATH, Ferry Services, and Port 

Commerce have required significant allocations of funds (Table 2). 

Table 2- Cumulative Net Income by Line Department (Inception- 2010) 

lncapt!otl • 20101: 

TUtltle!s, Bridges & Terninals $ 4,544.5 $ 19,126.8 8,672.5 $ 1,650.6 $ 1,917.1 1,337.6 (77.4) ' 5,626.6 ' 8,803.8 $ 4,259.3 

PATH 5,493.4 2,250.9 5,154.9 902.0 1,611.0 812.1 (1,179.0) (5,050.1) (3,806.0) (9,299.4) 

Ferry Servk:e 134.9 1.8 44.6 2.4 10.4 13.0 (3.7) (1!4.9) (45.2) (180.1) 

Access to Regions Core ('ARC') 131.7 79.4 2.5 •. 8 (84.7) (79.4) (211.1) 

Air Terninals 13,400.7 37,243.6 22,077.3 1,907.7 5,815.5 2,231.4 (3,187.8) 8,399.6 13,258.7 (142.0) 

Pod Colll"mrce 3,617.1 4,176.0 2,574.2 217.5 1,438.3 780,4 (35.7) (798.7) 1,384.3 (2,232.7) 

Econonic I Waterfront Deve!oprrenl 480.2 1,912.1 1,689.7 25.1 269.0 25.4 (2.4) (94,7) 197.3 (282.9) 

World Trade Center 3,601.5 7,193.0 4,010.6 299.7 749.2 711.9 (1,122.9) 2,544.6 2,882.7 (718.8) 

PA hsurance Captive Entity 0.6 8.6 (11.1) 3.1 (8.0) (8.0)· 

Regional Developrmnt Ftograrrn 1,322.9 129.3 1,068.4 658.4 (1,856.0) (129.3) (1,452.1) 

O!her 1,477.1 2,062.3 497.8 1.3 1,563.1 1,564.5 87.4 

!Total $ 34,204.0 $ 73,967.2 $ 44,938.7 $ 5,0(}4.9 $ 12,881.4 6,563.1 $ (5,600.9) $ 10,187.9 $ 24,023.5 $ {10,180.6>1 

Notes: 

1) Fimmcials are provided from the date a particular Port Authority asset started to generate financial result. 

2) Passenger Facility Charges ("PFCs") were established in1992 and account for the vast majorihj ofPFCs, Grmtts & Otlter. 

3) Operating Cash Flow ("OCF") reflects Net Income I (Loss) plus D&A, Net Interest Expense, and excludes PFCs, Grants & Other, which 

are generally not considered operating in nature. 

N/\VJG/\NT 13 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

-¢-- During the last ten years, Port Authority cash flows were insufficient to fund the 

capital expenditure p1'Dgram 

In the last ten years, the total outstanding debt of the Port Authority has increased from 

approximately $9.1 billion in 2001 to approximately $19.5 billion as of December 2011, mainly in 

support of the capital program (Table 3 and Figure 2). 

Table 3- Summary Financial Trends by Year (2001- 2011) 

Fiscal Year: 

FY 2001 $ 311.4 $ 2,742.9 $ 1,894.4 $ 149.8 ' 442.8 ' 193.7 $ (153.6) $ 215.6 ' 698.7 $ 387.3 $ 9,059 

FY 2002 1,522.7 3,258.0 1,839.1 159.9 435.2 23&9 (155.1) 740.0 1,259.1 (2617) 9,335 

FY 2003 1,918.5 3,446.3 1,788.2 149.1 521.1 277.8 {172.9) 883.0 1,509.0 (409.5) 9,756 

FY 2004 1,275.2 2,864.8 1,846.4 139.9 614.2 332.8 (220.1) 151.5 878.5 (396.8) 10,961 

FY 2005 1,237.6 3,000.7 1,952.3 139.0 686.7 316.8 (256.0) 161,9 909.4 (328.1) 10,984 

FY 2006 1,589.3 3,038.5 1,974.7 140.0 724.3 319.9 (639.0) 518.6 923.8 {665.5) 12,330 

FY 2007 2,272.9 3,191.6 2,071.5 180.4 691.9 246.9 (1,301.9) 1,302.9 939.7 (1,333.3) 12,751 

FY 2008 2,375.2 3,987.4 2,282.4 183.2 715.5 496.6 (584.3) 894.1 1,521.8 (853.4) 13,037 

FY 2009 2,621.5 3,771.9 2,253.3 202.1 786.9 329.3 (646.1) 846.4 1,316.6 (1,305.0) 14,450 

FY 2010 2,966.0 3,689.7 2,411.1 190.0 865.5 499.3 {623.2) 346.8 1,088.5 (1,877.5) 16,309 

FY 2011E 3,110.0 3,815.3 2,377.1 210.6 944.1 208.7 (654.1) 728.9 1,227.6 (1,882.4) 19,502 

!Total • 21,200.3 $ 36,807.0 $ 22,690.6 ' 1,843.9 7,428.2 ' 3,460.7 $ (5,406.3) s 6,790.0 12,272.5 ' (8,927.8} $ 1s,5o2.1 I 

Notes: 

1) A significant portion of investments in facilities is attributable to the WTC. 

2) Passenger Facility Charges ("Ff~Cs") were establisl1ed in 1992 and account for the vast majority ofPFCs, Grants & Other. 

3) Operating Cash Flow ("OCF") reflects Net Income I (Loss) plus D&A Net Interest Expense and excludes PFCs, Grants & Othet,'whicli 

are generally not consideYed operating in nature. 

Figure 2- Operating Cash Flow Available for Investment in Facilities (2001- 2010) 

3,500 

3,000 -

2,500 

2,000 

1,500 

1,000 

500 

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 

-+-Investment in Facilities , ... ,,~?"'Operating Cash Flow 

' 

capital 

Gap funded 

markets by I access & other 

sources 

! ;'' ,,,... r\ -""~"-"{;:"'""""'""""""'':~·"'"~~;. 

FY2009 FY2010 FY2011 

-¢-- While future opemting cash flow is expected to be bolstered by revenue increases 

primarily from scheduled fares, fees and toll increases from tunnels, bridges and PATH, 

continued access to capital markets willlilcely be required 

Over the next ten years, the Port Authority is projecting Net Operating Revenues (i.e., defined 

by the Port Authority as gross operating revenues minus operating expenses), to grow from 

approximately $1.2 billion in 2011 to approximately $3.0 billion in 2020, a compounded annual 

growth rate of approximately 9.3%. Furthermore, the Port Authority is projecting an operating 

N/\VJ CAI'H 14 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

margin improvement of approximately 50% over the same period, driven mainly from 

scheduled fare and toll increases in 2014 and some modest growth in facility traffic. However, 

given the capital program currently presented by the Port Authority, continued borrowing in 

· the capital markets is expected to be required, with outstanding indebtedness forecasted to rise 

from $19.5 billion in 2011 to $25.2 billion by 2020. 

Pteliminary Recommendations & Next Steps 

);> Detailed contribution analyses for revenue and non-revenue producing projects need to 

be conducted on all Port Authority business segments to determine potential revenue 

enhancements and cost savings initiatives to improve cash flow. 

);> The long range forecast model assumptions should be reviewed and analyzed to better 

understand the validity of assumptions supporting expected margin improvement over 

the next ten years. 

);> Sensitivity analyses should be conducted around "best case", "worst case", and "likely 

case" scenarios for the entire portfolio of projects to understand related financial impacts 

of the 2011 Capital Plan, once finalized by the Special Committee and Board of 

Commissioners. 

>- The Port Authority should develop a comprehensive analysis of state of good .repair 

.("SGR") projects to understand capital requirements for transportation infrastructui-e 

integrity. 

>- Return on asset and/or return on invested capital concepts should be considered in 

evaluating feasibility of future capital projects, as well as the allocation of capital across 

the various operating segments. 

VI. PRELIMINARY GENERAL ORGANIZATIONAL OBSERVATIONS 

While the completion of a comprehensive review of organizational design and effectiveness will 

be addressed in Phase II, the following preliminary observations are warranted: 

~ The Port Authority has expanded its ateas of involvement in support of economic 

development over the last seveml decades, which continues to evolve 

While the Port Authority's tunnels, bridges, and airports continue to contribute the vast 

majority of cash flow within the organization, over recent decades the Port Authority has 

become a significant real estate developer and asset manager with its own expansive security 

force, a posture that warrants further evaluation as the demands of the WTC development 

approaches conclusion. For example, the Port Authority is also the owner of a resource 

recovery facility, which converts waste to energy. Furthermore, in large part as a reaction to the 

WTC bombing in February 1993, and the events of September 11, the Port Authority has 

assembled a sizeable security apparatus including a police force numbering over 1,700 

employees. 

As the Port Authority moves into the 21'1 century, it is imperative to assure alignment with 

industry trends in technology, commerce, and other areas of growth in order to ensure its 

N/\VICANT 15 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

competitive advantages to stimulate further economic development and prosperity in the 

region. 

~ The Executive Di1'ecto1' position, the defacto CEO, has tumed ove1' seven times in the 

last ten years 

With such turnover at the Executive Director level, it is difficult for any significant strategic 

initiatives, goals and objectives to be realized (Table 4). Organizations typically become 

inwardly focused and tend to run adrift in the absence of leadership continuity. 

Table 4- Executive Director Tenure 

1 Patrick J. Faye 

2 Christopher 0. Ward 

3 Anthony Shorris 

4 Kenneth J. Ringler, Jr. 

5 Joseph J. Seym::>Ur 

6 Neil D. Levin 

7 Robert E Boyle 

2011 M CUrrent 

2008- 2011 

2005-2008 

2004-2005 

2001-2004 

2001 

1997- 2001 

Additionally, review of the Port Authority organizational structures over the last ten years 

show a number of significant changes. Capital planning and project delivery, for example, had 

five different "owners" during this period. Capital planning and project delivery, a critical area 

of focus within the Port Authority, has suffered from a lack of consistency in management and · 

leadership. 

~ The non-appointed senior career services professionals of the Port Authority have an 

unusually long tenure, averaging 24 years of service 

The senior management organization is very respectful, cordial, and appears to have a high 

level of dedication and commitment to the Port Authority's mission. In addition, senior 

management possesses a critical know ledge base and skills that needs to be transferred through 

integrated training programs to junior staff. In the absence of appointed leadership continuity 

driving collaboration and accountability, it is only natural for such a long tenured work force to 

develop a self-protective culture. 

~ The Port Authority is a siloed organization 

With chronic leadership changes, bureaucratic organizations will often inadvertently reinforce 

the barriers to strategic business unit collaboration, as well as the ability to obtain operating 

efficiencies derived through shared services. Non-appointed, career service professionals often 

will adopt strategies that protect control, and perpetuation, of their functional areas of 

responsibility. The Port Authority resident culture reflects many of the characteristics 

associated with this phenomenon. Examples include the capital planning process, security 

apparatus, and the existing WTC construction organization. 

N/\VIGANT 16 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

~ The relatively recent appointments of a new Chairman, Vice Chairman, several 

Commissioners, Executive Director and Deputy Executive Director, provide the impetus 

for renewed focus and govemance in driving future Port Authority strategy 

In the aftermath of September 11, the Port Authority's mission was in large part redirected to 

the rebuilding efforts around the WTC site. The organizational toll on the Port Authority 

during the last decade cannot be underestimated. Under the previous Executive Director, trust 

and confidence between the Board of Commissioners and its executive management reportedly 

deteriorated; as a result, the Board of Commissioners adopted roles and responsibilities in daily 

operations and management atypical for a governing board. The loss in confidence was largely 

ascribable to sentiments by the Board of Commissioners that they were not being timely 

presented with meaningful and reliable information to make informed decisions. While the 

response of the Board of Commissioners may be understandable given the circumstances, its 

new leadership has recognized the importance of restoring an elevated focus on the Port 

Authority's broader vision, mission and the revitalization of its strategies, supporting policies 

and oversight as it advances to meet its challenges. 

The Port Authority would likely benefit from a meaningful organizational redesign to focus on 

its strategic business units and cost saving shared services functions. To be successful, 

entrusted appointed senior leadership needs effective command and control to manage change 

·and drive accountability throughout the organization. Career service man:ageinerif must 

'Proactively communicate reliable and relevant information in proper context so that appointed 

leadership is best positioned for effective decision making. Management and represented/nonrepresented employees must collaborate on the manner and means that will allow the Port 

Authority to operate with the highest levels of productivity and efficiency. Migration from a 

culture based on tenure to one based on meritocracy will be essential to its continued success. 

~ The Port Authority is a transportation infrastmcture asset manager and must deploy 

its capital with proper attention to preservation of infrastructure integrity 

The capital constraints of the organization may necessitate a top-down budgeting process. 

However, a comprehensive analysis of need with a standardized method of prioritizing capital 

spend is equally required. The Port Authority is an asset manager that owns and manages 

billions of dollars of infrastructure and must devote a significant portion of its capital to support 

the state of good repair of this portfolio as well as provide for new investments in the system 

with discipline. A systematic evaluation of needs must be conducted to balance the capital 

capacity constraints of the Port Authority with the imperatives of the operating businesses, 

while appropriately providing for contingencies in an aging asset base. In addition, while the 

Port Authority has made progress in identifying a hierarchy to better manage the stewardship 

of capital, effective command and control over planning processes and disciplined project 

delivery must be established. 

~ The Port Authority needs to further develop tools to drive accountability 

The Port Authority should consider aligning its key operating departments as strategic business 

units ("SBUs"). As SBU's, quantifiable metrics should be developed, measured and consistently 

N/\VIC/\NT 17 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

monitored to drive accountability in achieving the Port Authority's m1sswn and specific 

operating objectives. The Executive Director and Board of Commissioners are developing a 

"dashboard" that provides quick feedback and status of financial and operational performance, 

key initiatives, and capital program delivery. 

-¢- The Port Authority's compensation stmctures must be aligned with the mtsswn 

statement and related goals and objectives to ensure appmpriate targets are achieved 

Compensation structures need to be aligned throughout the Port Authority organization 

including management and all levels of represented and non-represented employees. 

Consideration should be given to adopting "at risk" elements of management compensation 

that are contingent upon the achievement of operating objectives. 

VII. PRELIMINARY COMPENSATION AND BENEFITS ASSESSMENT 

SCOPE 

N avigant has been asked to perform an assessment of the organizational design and operations 

of the Port Authority, with an initial focus on labor costs, including both compensation and 

benefits. Findings from Navigant's review are meant to provide a framework for 

recommendations that can ultimately be implemented as a series of parallel• •initiatives 

•· ... beginning in 2012. The scope of the labor costs assessment included .· beriehinarking 

compensation and benefits by major job categories and reviewing benefits packages against 

prevailing practice in the public and private sector. 

METHODOLOGY 

The benchmarking exercise included review of compensation and benefits for the State of New 

York and the State of New Jersey and significant public authorities in the New York City 

metropolitan region. In addition, with respect to compensation benchmarking of the Port 

Authority's four largest line departments, five to seven public sector agencies and five to ten 

private sector companies were initially identified and reviewed for as potential peer 

comparables. Key business attributes of each potential peer were carefully scrutinized (e.g., size 

of operation, number and age of facilities, operator vs. infrastructure provider, etc.). Ultimately, 

a smaller subset of peer groups was selected for each line department of the Port Authority 

based on review of these attributes (please refer to Appendix- A for details). 

To complete the initial review of compensation and benefit costs of the Port Authority, 

Navigant reviewed numerous documents (including union labor contracts), conducted multiple 

in-person and telephonic interviews and discussions, as well as performed detailed analyses of 

base pay, overtime, "add-on" compensation, healthcare costs, and other benefits analyses. 

The following provides N avigant' s preliminary observations, findings, and recommendations 

with respect to (i) employee headcount, (ii) compensation, (iii) benefits, and (iv) represented 

employee contracts. 

NAVI GANT 18 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

PRELIMINARY GENERAL 0BSERV A TIONS 

• The Port Authority's actual headcount as of November 2011 totaling 6,913 was relatively 

flat when compared to the 2001 headcount of 6,954. While the line department and staff 

services headcount levels have actually decreased, this has been offset by growth of over 

27% in the security function in an apparent protracted reaction to the events of 

September 11. 

• The overall organizational structure of the Port Authority is heavily concentrated in 

senior and middle management. This structural characteristic in large part is driven by 

the long-tenured nature of the employee workforce that has been promoted based on 

seniority and not necessarily merit. In part, the broad middle management of the 

organization is attributable to the large number of highly skilled engineers required to 

support its asset management and development responsibilities. As a byproduct of this 

historical trend, comparison of the average compensation of the Port Authority to its 

peer group reveals that the Port Authority, when evaluating average employee 

compensation costs, is at the top of average pay ranges. 

• However, further analysis reveals that the average compensation of the most senior, as 

well as the top 25 positions within line departments is at the median or below the peer 

group. Thus, the fact that the average employee compensation r~si<;l.es at or above the 

Port Authority's peer group is ascribable to the very broad middle and senior 

management group of the organization, and not the compensation of the most senior 

personnel. 

• From 2006 to 2010, total gross compensation at the Port Authority grew from $629.3 

million to approximately $749.3, respectively. Of this amount, base salaries grew from 

$507.6 million to $581.1 million, a compounded annual growth rate of only 2.7%. 

However, other amounts of compensation, (i.e., "add-on" compensation) such as pay 

associated with the vacation exchange program and certain longevity programs grew by 

compounded annual growth rates of 10.6% and 5.5%, respectively. Overtime, the largest 

percentage of "add -on" compensation represents 23% of the total base pay for 

represented employees. Moreover, "add-on" compensation and benefits for all active 

employees when combined and taken as a percentage of base salary is approximately 

70%. These "add-on" compensation costs are relatively rapid growing and tend to 

obfuscate actual total costs per employee being absorbed by the Port Authority. 

• Benefits have increased approximately 35%, from $340.7 million in 2006 to over $458.8 

million in 2010, driven by growth in healthcare and the population of retirees that drives 

up pension costs and other post employment benefits ("OPEB"). When combined, 

compensation and benefits per active employee grew to an estimated $143,060 by 2010. 

• In an effort to reduce these high costs, the Board of Commissioners is actively pursuing 

policy changes related to healthcare contributions, vacation policies, as well as "add-on" 

N/\VICi\NT 19 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

compensation and incentive programs. Current initiatives being evaluated include, but 

are not limited, to: 

o Increase in health care benefit contributions, which if implemented would result 

in expected savings over the next four years of approximately $103.8 million. 

o Elimination of longevity and unused vacation exchange days payout for nonrepresented employees; based on preliminary review of payroll files, annual 

costs for these programs were approximately $9.1 million in 2010. 

• It is important to note that the represented labor force, at approximately 68% of total, is 

the largest part of the Port Authority employee base. The Board of Commissioners 

recognizes it will be critical to work collaboratively with both represented and nonrepresented employees to improve efficiency and productivity. In furtherance of that 

objective, expired union contracts are being carefully evaluated not only for unit labor 

costs and benefits, but also with particular focus on work rule modifications that would 

be constructive in advancing the efficiency and effectiveness of the Port Authority's 

operations, prior to collective bargaining negotiations. 

Phase II of Navigant's engagement, which is expected to be completed by late June 2012, will 

include an organizational design review and specific recommendations to further enhance the 

. actions of the Board of Commissioners. The following interim report is in response to the 

Special Committee's requested areas of initial focus and provides Navigant's preliminary 

observations, findings, and recommendations with respect to (i) employee head count trends, (ii) 

compensation benchmarking, (iii) benefits benchmarking, and (iv) represented employee's 

contract considerations. 

EMPLOYEE HEAD COUNT 

The total employee headcount has remained relatively flat over the last decade (from 6,954 in 

2001 to 6,913 as of November 2011). 

Observations & Findings 

{-- Headcountmix has shifted from line departments and staff services to public safety 

From 2001 to 2010, line department headcount declined by 4.3% (from 3,279 to 3,139) and staff 

services, engineering & other headcount declined by 11.9% (from 2,296 to 2,022) (Figure 3). 

However, public safety headcount increased by 27.1% (from 1,379 to 1,752). The growth in 

public safety is in response to September 11 and heightened security efforts throughout the Port 

Authority organization. 

N/\VI CANT 20 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Figure 3- Staffing Allocation Trend (2001- YTD Nov 2011) 

2001 

YTDNov 

2011 

2,000 

1,379 

373 

4,000 6,000 

Total 

'{Headcount: 

6,954 

Total 

Headcount: 

6,913 

8,000 

lifUne Departments ; --Public Safety & Security oStaff Services, Engineering & Other 

-9- Port Authority manages headcount to "authorized" vs. "actual" 

Managing headcount to an annually budgeted, authorized number (approximately 7,200 in 

2006) can result in delayed intervention in a recessionary environment. The Port Authority's 

actual headcount increased from 6,918 to 7,200, or 4.0%, during the recession of 2008 and 2009 

before ultimately declining in 2010. The Port Authority would have benefited from an 1··, - . .• 

expedited review and timely adjustment to authoriz(;'d headcount going into the recession . .- - .:: ~ ; 1 ' • • • ., 

However, the adjustment to authorized headcount was not made until 2009, and the actual 

headcount reduction was not implemented until2010, primarily through retirement incentives 

(Table 5). 

Table 5- "Actual" vs. "Authorized" Staffing Trends (2006- YTD Nov 2011) 

t''<"c; '~"'"'" ".,>""'='--"'-=:"-'}'"-,' ~,\-o ,1c-,J':::.4:; __ "" ,_ 'Ll"'~"o'oo; ' -- , ' ~--- ' ,- -NOV 

[# ~ In qoirs:'~~~;pt ie~~ciJnfi~=~~)~-"'t:: ~,~~ lc~ ,-~~~, ~~~~,:; ,~zOost ~ o:" ~QO'C', ~~2oOa~:~,; 20o9, ":' ~ ·~o1o~.~; ~ -~o11, 

Total Year End Actual Headcount 61935 6,918 7,200 7,163 6,848 6,913 

YO Y Change (#) (31) (17) ® (37) @ 65 

Total Authorized Staffing 71181 7,128 71127 6,977 6,977 6,777 

YO Y Change (#) (13) (53) (1) ({1§!1}! (200) 

·Actual ·Workfor.ce Greater Than I (Less.Than') Auth. (246) (210) 73 186 (129) 136 : 

%Variance (4%) (3%) 1% 3% (2%) 2% 

-9- Productivity levels at Aviation, Tunnels, Bridges and Terminals, and Port Commerce 

appem· to have incteased since 2001, while PATH appears to have decreased 

The slight headcount reduction and increased traffic at Aviation, TB&T, and Port Commerce 

suggests a level of productivity increase, and likely reflects a combination of technology and the 

fixed aspect nature of individual facility labor requirements. PATH was the only line 

deparhnent where actual headcount increased during this period, while traffic essentially 

remained flat, implying lower productivity. 

N/\VICANT 21 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

~ Redundant support services exist in multiple areas of the organization 

A number of areas exist within the Port Authority where certain functions are partially 

replicated in both line departments as well as administrative departments (e.g., elements of 

Human Resources, Risk Management, Finance, Technology, Planning & Development, Real 

Estate and Security). 

Preliminary Recommendations & Next Steps 

» Focus on real-time, actual, as well as authorized, headcount to more proactively manage 

size of labor force. 

» The significant headcount increase in public safety & security should be further 

analyzed in the context of a special security report being prepared by The Chertoff 

Group. 

}> Identify useful productivity metrics to determine appropriate staffing levels for nonrepresented and represented employees. 

» Review redundant areas of support services to determine the most effective 

organizational design and identify opportunities for cost savings. 

COMPENSATION -.r· 

Since 2006, the total gross compensation increased.fr~in $629.3 million to $749.3 million (before 

capitalized labor), a compounded annual growth rate increase of 3.6%. As a percentage of 

revenue, it has essentially remained flat at 21%. In the same period, base salary has increased 

from $507.6 million to $581.1 million, a compounded annual growth rate increase of 2.7%. 

However, longevity and unused vacation exchange days payout grew at a compounded annual 

growth rate of 5.5% and 10.6%, respectively (Table 6). 

Table 6- Total Compensation Trend (2006- 2010) 

Revenue 

Employee Compensation 

Base 

Notes: 

Overlirra 

Longevity 

Unused Days Payout 

Other Additional Corrp. 

Gross Compensation, before Accruals 

As a %of Revenue 

Accrued Payroll and Other Accrued (1) 

Total Compensation, Gross 

As a % of Revenue 

capitalized Labor, Corrpensalion (2) 

Total Compensation, Net (on P&L) 

As a %of Revenue 

$3,038,538 

507,623 

86,763 

11,863 

8,851 

193 

$3,191,626 $3,527,552 $3,552,243 

524,927 546,431 575,957 

96,025 103,234 88,560 

12,290 12,800 14,942 

10,567 9,869 12,218 

(1) Amounts earned by employees during a given year that are not expected to paid during the same year. 

(2) Labor costs in supporf of capital project spending. 

N/\VI GANT 

$3,634,023 3.6% 

581,099 2.7% 

85,376 ~0.3% 

15,514 5.5% 

14,626 .10.6% 

22 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

In 2010, the average compensation of Port Authority employees, excluding costs of benefits, was 

$105,416 (base salary of $84,857 plus "add-on" compensation of $20,559). "Add-on" 

compensation is comprised of overtime, longevity payments, unused vacation exchange days 

payout, and other compensation together comprising approximately 24% of base salary (Table 

7). 

Table 7- Total Compensation & Benefits Trend per Active Employee (2006- 2010) 

Revenue ($in GOO's) 

Average 8np!oyee Compensation 

Base 

Overtime 

Longevity 

Unused Days Payout 

other Additional Corrp. 

Total Average Compensation (1) 

Total Employee Comp. as a% of Revenue 

Average Health Benefit per Errployee (2) 

3,038,538 

$73,197 

12,511 

1,711 

Average Pension, OPES, & Other Benefits Cost per Errployee {3) -'-...:""';;.----,~~--,.;;cc;:;,;--..C~~--i::i' Total Compensation & Benefits per E"mployee 

Total Compensation & Benefits Expense per Employee 

Notes: 

1) Calculated before the allocation of capitalized labor and payrol!.accr,uals 

3.6% 

3.0% 

~0.1% 

2) Primarily comprised ofhealtlt i11surance, but also include; "visiol1, ·d~lttal, life, mid long-term disability insurance, for active employees only. 

3) Calculated taking tlte total Pension, OPEB & Other Benefits cost a11d applyiug a pro-rata percentage based on active employees versus both 

active and retired. 

Other additional compensation is comprised of retroactive payments, one-time payments (i.e., 

those made annually in a lump sum, such as grievance awards, attendance incentives, uniform 

allowances and lump sum merit increases), and miscellaneous payments such as short term 

disability payments. 

The health related benefit costs per employee (excluding retirees) were $23,380 (for detail see 

Table 15). Pension, OPEB, and other benefits combined to approximately $14,264 (active 

employee estimate, assuming same costs per active vs. per retired). In the aggregate, the 

estimated, average, total cost of compensation and benefits for a Port Authority employee was 

$143,060 (Table 7). In total, approximately 70% of base salary is comprised of "add-on" 

compensation and benefits (active employees only). 

Observations & findings 

-?- The avemge base salary for Port Authority's employees, as well as the salaries of the 

top 25 employees, are amongst the highest 1·elative to peer group 

Except for New York Power Authority, the average base salary of $84,857 for the Port Authority 

is higher than New York and New Jersey state employees and other peer group public 

authorities in the metropolitan region (Figure 4). 

N/\VIGANT 23 
Phase I Interim Report to the Special Committee of the Port Autho1·ity of New York and New Jersey 

Figure 4- Average Employee Base Salary by Public Agency & Authority (2010) 

$100,000 

$90,000 $87,725 

$80,000 

$70,000 

$60,000 

$50,000 

$40,000 

$30,000 

$20,000 

$10,000 

$-

Furthermore, the average of the top 25 base salaries of $226,934 at the Port Authority is the 

highest when compared to the average top 25 salaries of all other public authorities in the 

metropolitan region (Figure 5). 

Figure 5- Top 25 Employees Average Base Salary by Public Authority (2010) 

$250,000 $226,934 

$213,161 

$200,000 

$150,000 

$100,000 .. 

$50,000 

$-

While the Port Authority seems to be compensated higher than other public peers, it is 

important to note the complexity of the Port Authority's operations (i.e., operating in transit, 

construction, asset management, etc.) in comparison to other organizations, such as New Jersey 

Transit (i.e., only operating in transit). Likewise, the Port Authority believes, due to the 

complex natnre of the organization, many employees tend to be highly educated and 

specialized (i.e., engineers, career professionals), therefore commanding higher compensation. 

In this regard, the New York Power Authority exhibits a similar employee profile (primarily 

engineering staff), yielding higher compensation, on par with the Port Authority. 

N/\VICANT 24 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

~ The average of the top 25 base salaries, as well as the salanJ for the senior position, at 

the Port Authority's four largest line departments compared to the Port Authority's 

peer group (both public authorities and private sector companies) reflects that the Port 

Authority is competitive and tends to fall in the median range 

The average salary for Aviation line department employees is highest among its peer group, 

even when compared to the private sector. However, the most senior position, as well as the 

top 25 salaries, falls between those of their public sector peers, and are significantly below the 

Port Authority's private sector peers (Table 8). 

Table 8- Port Authority Benchmarking Among Peers, Aviation 

Chicago O'hare (Chicago) 

3 Public Los Angeles World Airports (LA) $60,623 GM $326,856 

4 Private BAA Airports Lirrited (UK) $59,625 CB) $1,504,661 

5 Private Aeroports de Paris (France) $51,020 Chairman & CEO $480,926 

6 Public Hartsfield-Jackson (~tlanta) NA NA $221,000 

The average salary of Tunnels, Bridges & Terminals ("TB&T") employees ranks second among 

its peer group. Average compensation for the top 25 highest paid employees, as well as the top 

position, align in a similar fashion to the average salaries for all employees, and appears to be 

within range of its peers (Table 9). · 

Table 9- Port Authority Benchmarking Among Peers, TB&T 

Port Authorrry of NYNJ, lB&T (NYC) 

3 Public MfA Bridge & Tunnel Authority (NYC) R-esident 

4 Public New York Thruway Authorrry (Albany) Executive Director 

5 Ftivate Cofiroute (France) CB) 

6 Public Delaware River Port Authority (Philadelphia) NA NA 

7 Private Macquarie Atlas Roads Group (Australia) NA NA 

Average salaries for employees of the Port Commerce line department are second highest in 

comparison to the peer group, and the highest excluding North Queensland Port Corp. (a 

private sector company). However, average salaries for the top 25 highest paid employees, as 

well as the most senior individual, fall much lower than any of their peers (Table 10). 

N/\ViCt\NT 25 
Phase I Interim Repm"t to the Special Committee of the Port Authority of New York and New Jersey 

Table 10 -Port Authority Benchmarking Among Peers, Port Commerce 

2 $90,954 $144,510 Director $216,320 

3 Private Fbrt of Taraunga (New Zealand) $85,926 $206,100 EE#1 $558,807 

4 Public Fbrt of Long Beach (LA) $64,176 $160,851 Executive Director $336,692 

5 Public Fbrt of Los Angeles (LA) $61,140 $235,706 General tv1anager $307,751 

6 Public Fbrt of Corpus Christie (1X) NA NA NA 

Average salaries for employees of PATH are competitive to the peer group and PATH's 

compensation is very competitive with the MTA, the operator of the New York City subway 

system. Due to fare structure, size of operation, and geographical reach, private sector 

companies were excluded from the peer group (Table 11). 

2 

3 

4 

5 

6 

Public 

F\.Jblic 

Public 

Public 

Public 

Public 

Table 11- Port Authority Benchmarking Among Peers, PATH 

MfA (NYC) $72,514 $173,902 R-esident $229,000 

PA TI-l (NYC) $71,654 $141,424 Director and GM $215,020 

01icago Transit Authority (Chic8go) $61,772 $152,248 President $198,000 

f\A::lssachussets Bay Trans.)\pth. (NV\) NA $121,887 General Counsel $170,523 

SE Penn Transit Authority (Phfladelphia) NA NA NA NA 

Fbrt Authority Transit Corp. (Philadelphia) NA NA NA NA 

~ Overtime, longevity, and unused vacation exchange days payout and other 

compensation increase base pay by approximately 25% 

In 2010, average "add-on" compensation per recipient was $22,866 with an average of $20,559 

per employee (6,157 employees received some form of "add-on" compensation in a total 

headcount of 6,848 employees). The Port Authority's "add-on" compensation is a long 

established practice and is a material contributing cost in overall compensation (Table 12). 

Over the years, the Port Authority has utilized "add-on" compensation programs, excluding 

overtime, as incentives (i.e., retention, merit and productivity) to supplement base pay of nonrepresented employees. For example, the "Longevity IIB" program was authorized in 2008 by 

the Executive Director for non-represented staff with 25 or more years of service in recognition 

of satisfactory performance and contribution to the Port Authority over time. While 

management received little or no increase in base pay, total compensation did indeed increase 

as a result of the program. Longevity I was a targeted retention program offered in 2003, for the 

purpose of retaining certain key executives post September 11 for at least three years. At 

inception, the program was expected to last only three or four years and was not intended to 

become a permanent feature of the compensation plan. 

N/\VIGAI'H 26 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Table 12- "Add-on" Compensation for Non-Represented & Represented Employees (2010) 

Unused Vacation Exchange Days 

Total Headcount (2) 

Recipients as a% of Total Headcount 

Add-on Camp. per Employee 

Notes: 

2,193 

63% 

$7,212 

4,655 

100% 

$26,847 

6,848 

90% 

$20,559 

1) Total Recipients does not equal the sum of the parts above; many employees receive multiple types of "add-on" compensation and ·wotlld be 

double counted by simple sum alone. 

2) Total headcount is a year-end number and can be less tlmn total recipients, since headcount fluctuates during the year. 

100% of the represented employees have material elements of "add-on" compensation, largely 

ascribable to cumulative terms and work rules embedded in union contracts. Approximately 

60% of non-represented employees also benefit from these programs (Table 13). Most of these 

programs emerged over the course of the last decade (see Appendix - B for detailed 

descriptions of various compensation programs). Ongoing costs will be further evaluated 

during Phase II. 

Table 13- Existing" Add-on" Compensation Programs for Non-Represented Employees 

. Rfogram - • 'Rrogram' , - , , , Year of ·, Active~ 

,,-' ' T)rpe' '; ,'- Dilscr.iptio'n · i ·. ,--,, ,;': ,., , ',lncep~iori' Participants 

Merit • FICA Benefit1 1969 14 

• Contractual Death Benefit 1989 1 

• Management Excused Days 2001 17 

• High Potential Program 2008 204 

• High Potential Program 2009 296 

Career Service • Service Incentive Confidential Clerical 1993 43 

• Longevity Police Superior n/a 22 

• Career Service Plan 40+ 2003 5 

• Career Service Plan 25+ Longevity II 2008 642 

Retention • Death Garrble - GTLII 2001 24 

• WTC Retention Program 2000 47 

• Parity I Retention Program- Longevity I 2003 3 

Productivity • Vacation Exchange 1975 533 

• Cumulative Retirement Days - Police n/a 22 

Superiors Only 

Note: 

1) Benefit program initiated in lieu of a base salanJ increase in 1969 tltat allowed for additional pay equal to t11e amount of FICA liability ill 

that year. Currently, there are 14 eligible employees. 

N/\VICANT 27 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

-<?- The organizational structure of non-represented employees of the Port Authority is a 

diamond shape, reflecting a very broad middle and upper management with limited 

span of control 

The general practice of promoting employees based on seniority has resulted in a diamond 

shaped organizational structure for non-represented employees, with approximately 60% (1,340 

out of 2,216 employees) classified in the highest four salary band categories (i.e., Service A, 

Senior Executive Management, Executive Management, and Middle Management). 

Furthermore, a majority of these employees are also in the top third of the salary range within 

their respective categories (Figure 6). 

Figure 6- Number of Non-Represented Employees by Employee Group 

,~------------------------------------------------------------------------------------------------------------------------, 

t 24 fi22J Service A ~ 

f 144 Fg;'+JJ?:£YifYt'-}f{jj;_:;';?] B (Senioc Exec Mgmt) j 

! 652 fl;HI;~tJfl~f~£~jlf~~i2Y]i~f.i(:;);~g~'tJf~~R'~~l§;;~?;:'l';J*?I~I0:~~g B(ExocMgmtJ ! 

[,~) L .............. 520._tiii£,L')l\l;!~~~~\ljjii'~)~(Mi'".~.M.~mt! ............. ! "~:~l 26 II DS-11 (SpeclallzOO, Ta:h) 

'~j 409 ---; E/EDP(Englneers) 

]$] 3 I ECT {PATH Clerical) 

~~ liiili.tBII Exempt Ploo F • 

/Jl! 7 • a MT (PATH Mgmt) 

i__ ~ 2 t ET (PATI-1 Engi[Jee(sj 

~~ J 3 I FMN(PATHFie'd&.pervlsar) 

22 lilil'l FP(PollcaCap!Blll) 

48 IIIII NCL(Non-RepPACietiC<ll) 

-~-~~-,:~Ef!!WBeM~~,~~:;!-::,-

The Human Resources department plans to propose a new compensation program for 

management and engineering staff to increase mobility and encourage lateral moves across the 

organization while simultaneously flattening the compensation bands. 

-<?- The existing performance merit increase program of the Port Authority is not effective in 

rewarding, retaining, and motivating high perfonners 

Traditionally, the Port Authority has lacked effective performance review processes, as well as 

reward programs for high performers. The existing performance merit increases do not 

distinguish between high, average, or poor performers and have essentially become a form of 

cost of living adjustment. Typically, the difference between merit increases for a high performer 

vs. an average performer has been 1.5% to 2.0% of base salary, thus not providing much 

incentive. Accordingly, the Port Authority has, from time-to-time, relied on some form of "addon" compensation to replace ineffective and insufficient performance merit increases. 

Preliminan; Recommendations & Next Steps 

J> Evaluate the costs of pension, OPEB, and other benefits for active vs. retired employees 

and require a segregation of these benefits. 

N/\VIC/INT 28 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

)> Eliminate the "FICA Benefit" (FICA is the Port Authority term used for additional pay, 

apart from base pay, equal to the amount of their FICA liability) and "Longevity" 

programs for non-represented employees. The annual savings, based on 2010 costs, 

from eliminating longevity and unused vacation exchange days "add-on" compensation 

for non-represented employees would be approximately $9.1 million. 

)> The Special Committee of the Board of Commissioners should consider eliminating all 

other remaining "add-on" compensation as shown in Table 13 for non-represented 

employees. 

)> Implement an incentive driven compensation program that ties meaningful rewards to 

achievement of performance objectives, targets, and key initiatives. 

J> Overtime reduction should become a policy focus of the Port Authority. 

J> Conduct a departmental review of proper span of control for management personnel 

and re-evaluate tenure vs. merit based pay policies. 

};> Work rules established under collective bargaining agreements should be re-evaluated 

and collaborative efforts between management and union representatives should 

address impediments to enhanced productivity and efficiency. 

J> Evaluate the financial impact of the Human Resource department's proposed new 

compensation program and implement as indicated. 

BENEFITS 

Since 2006, the overall employee benefits expense (including both active and retired employees) 

has increased 35% (from $340.7 million to $458.8 million) even though actual head count has 

decreased by 1.3% (from 6,935 to 6,848 employees). This trend is largely due to continued rising 

costs of health insurance, and a growing population of retirees that drive increases in 

healthcare, OPEB, and pension expenses (Table 14). 

Table 14-Trends in Employee Benefit Expenses (2006- 2010) 

Revenue $3,038,538 $3,191,626 $3,527,552 $3,552,243 $3,634,023 3.6% 

Employee Benefits 

Health (2) 183,089 201,490 218,221 240,650 256,818 7.0% 

Pension 89,623 88,992 90,447 88,368 123,249 6.6% 

OPES 24,938 33,496 17,695 24,058 34,665 6.8% 

Other (S.S and Other Insurance) 

Total Employee Benefits 

Total Employee Benefits as a% of Revenue 11% 12% 11% 11% 13% 

Note: 

1) Represents only active employees as of December 31st; however, be11ejits include amounts for retirees as well. 

2) Primarily comprised of health insurance, but also includes vision, dental, life, and long-term disability insurance. 

Unfortunately, rampant cost escalation in the area of benefits has been a common experience in 

the public sector. Both Governor Cuomo and Governor Christie have proposed multiple 

initiatives designed to: (i) stop the apparent abuse of sick and vacation benefits or supplemental 

compensation, (ii) curtail the rapid rise in health care benefits by mandating greater employee 

N/\VIC;\NT 29 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

contribution, and (iii) address underfunding and eliminate abuses in pension practices. The 

following are some of the policy reforms being promoted by the States of New Jersey and New 

Y ark that should be supported and/or emulated by the Port Authority. 

• Create new health plans that would offer fewer benefits at lower prices, including at 

least one high-deductible plan. 

• All public employees would pay a percentage of their health care premiums in a tiered 

system based on salaries. 

• In New Jersey, police and firefighters would contribute an additional 1.5% of their 

salaries toward pensions, for a total of 10% and non-uniformed public workers would 

contribute an additional2.0% of their salaries, for a total of 7.5%. 

• In New Jersey, phase out the practice of distributing cash payouts for sick days. 

• In New Jersey, limiting cash payouts for unused vacation exchange days. 

• In New York, introduction of Tier 6 to the pension system to ease long term costs (seep. 

34 for detail). 

Observations & Findi1igs 

-} Only 7% of the Port Authority's active employees provide contributions towards their 

healthcare costs; they contribute at rates well below the market nann, and they have 

access to health plans .that offer more benefits than New York and New Jersey state 

employees 

For 2010, total medical insurance (health and dental) expense was $147.5 million for total active 

employees (Table 15). Port Authority employee contributions totaled less than 1% at $1.5 

million of aggregate employee contributions, with less than 10% of employees currently 

contributing, compared to 100% of employees contributing for the States of New York and New 

Jersey (Table 16). 

Table 15 -Breakout of Health Benefit Expenses by Employee Type (2010) 

Dental 4,757 

Total Medical Insurance $51,612 

Employee Coiltributions 1,475 

As a % ofT otal Cost 2.9% 

Life Insurance 4,426 8,219 12,645 

L T Disabllily 

Total Health Related Benefits 

Year-end Headcount 2,193 4,655 6,848 7,314 14,162 

Total Cost per Employee $25.553 $22,357 $13,223 

N/\VJCAf'-IT 30 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Table 16- Port Authority Health Benefit Contribution vs. States of NY and NJ 

" New Jirsey State , 

Benefits 1st, 2005 

10% (single) and 18% 

(dependent) of 

preniurm for those 

hired post-July 1st, 

2005 

below: 12% (single} CSEA & PEF 

and 27% (dependent) Unions 

Pay grade 10 and 

above: 16% (single) 

and 31% (dependent) 

preniums based on 

annual salary and 

coverage levels 

In addition, the Port Authority's employees enjoy access to health plans that offer superior 

benefits, with lower deductibles and lower out-of-pocket costs, in comparison to the state 

agencies of New York and New Jersey. 

{- Tite Human Resource department is ready to propose to the Board of Commissioners 

initiatives to reduce healthcare costs for both active represented and non-represented 

employees 

The largest, controllable benefit expenses at the Port Authority are those related to providing 

healthcare related benefits for both active and retired employees. The Human Resource 

department's new initiative would require every employee of the organization to contribute (up 

to 35% but not less than 1.5% of salary) towards their health care premiums in a tiered system ' • · 

based on salaries; In addition, the Port Authority plans to offer HMO, PPO, and· High 

Deductible plan options to reduce overall plan costs as well as lower the cost to employees. The 

expected savings over the course of the next four years is approximately $103.8 million. 

Reduced health plan benefits will have direct effect on other post-employment benefit costs for 

retirees as well (Table 17). 

Table 17- Expected Savings from Health Care Initiatives 

Non-Represented 

Represented 

Total Savings from Rate Changes 

Health Plan Redesign 

. Selection of UHC "Choice Rus Fro" Ran 

Alternative Lower Cost Options 

Passive Dental PPO 

Total Savings from Redesign 

Total Expected Savings from Initiatives _ _;:;,;;:~ _ _;:;,;;:~-_;~~-_;~~-,;:;,;:;;;;;:;;d 

N/\VJCANT 31 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

-¢>- The vacation exchange program and "banking of days" has led to significant costs 

Since 2006, the cost of cashing out vacation days has increased 64%, from $8.9 million to $14.6 

million, mainly from non-represented employees (from $7,100 per employee in 2006 to $11,400 

per employee in 2010). Furthermore, the true cost of these payments is a multiple of the initial 

payout costs since they are included in the calculation for the determination of pension 

payments if they are incurred during the "pensionable period" (i.e., three years prior to 

retirement) (Figure 7). 

Figure 7- Average Cost of Vacation Day Exchange & Banking of Days, per Employee (2006 -

2010) 

$12,000 2,000 

$10,000 

1,500 

$8,000 

$6,000 1,000 

$4,000 

500 

$0 

2006 2007 2008 2009 2010 

· All PA Employees ($) .....,.... Represented EE's ($) 

!5fd)P,g~,.:--,·l Non-represented EE's ($} -----Number of Recipients 

A review of paid-time-off and cash-out policies of the Port Authority vs. the States of New York 

and New Jersey reveals that the Port Authority offers less of a vacation allowance, is more 

liberal on cash exchange of unused vacation exchange days, and does not allow cash payout or 

accrual of sick days (Table 18). 

32 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Table 18 -Paid Time Off and Cash-Out Policies of Port Authority vs. States of NY & NJ 

r=c-c-=-~--J ,t_ ~ - ~ ~~, _ "~-"-0 o5'Y->t> ,, , ~ ,~- ~: ;;;;c~ r~ ~, • = , " , W::-c.c: ,_ ~ _ ~ J'~ , ,; "• " <,x~ • 

Paid Vacation • After 1 year, 17 days • After 1 year: 10-18 • After 1 year, 26 d8ys • After 1 year, 31 days • After 1 year, 30 days 

Days increasing to a days (depending on 

Paid Sick Days 

Vacation 

Carryover 

Vacation 

Payout upon 

Separation 

Vacation 

Exchange (1) 

. 

Note: 

. 

maxim.Jm of 35 days union group) 

after 30 years (43 • After 5-26 years: 27-

days max for Senior 39 days (depending on 

Executives) union group) 

• &rployees can take • &rployees can take 

sick days based on a slckdays based on a 

calculation dependent calculation dependent 

on tenure. In no case on tenure. In no case 

can errployees receive can employees receive 

cash for these days or 

1 

cash for these days or 

accrue them accrue them 

I • A rraxirrum of 10 days • Up to one year of 

per year, with no rmre allotln3nt 

than 1 year current • PATH allows no 

allowance in total carryover 

carryover (2years for 

pre-9/11 hires) 

• 1 year's allow a nee i" One year of allowance 

max payout, if hired or no lirrit in a few 

after 9/11 (see above circumstances (see 

for allowances) above for allowances) 

• 2 year's allowance • PATH allows no 

max payout, if hired I payout 

before 9/11 (see 

above for allowances) , 

• If perfect attendance 

and 30 days or rrore 

al!ow ance, can 

exchange all but15 

days 

• If perfect attedance 

and fewer than 30 

days allowance, can 

exchange a!! but 10 

days 

• Payments are blpensionable 

w eekly and il 

• Varies greatly based 

on Union 

• PATH allows no 

exchange 

• Payrrents are made In 

lurrp surrs and not 

pensionable 

increasing to a 

rraxiiTJJm of 38 days 

after 35 years 

• 200 hour rrux sick 

bank, payout available 

upon retiremmt 

• Banked sick leave can 

be used to offset the 

cost of rmnthly 

insurance preniums 

upon retirerrent 

• 40 days rrax 

• 30 day max payout 

and 200 hours max 

sick bank 

• Brployees up to Grade 

24 can exchange 3 or 

6 days for $500 or 

$1,000 credit to offset 

health insurance costs 

increasing to a 

rraxirrum of 43 days 

after 35 years 

• 200 hour rrax sick 

bank, payout available 

upon retirermnt 

• Banked sick leave can 

be used to offset the 

cost of m::mthly 

insurance preniums 

upon retirerrnnt 

• 40days max 

• 30 day max payout 

and 200 hours max 

sick bank 

&rployees up to 

Grade 24 can 

exchange 3 or 6 days 

for $500 or $1,000 c 

credit to offset health 

insurance costs 

1) Vacation days, when exchange, are considered unused vacation exclumge days compensation. 

N/\VtCANT 

increasing to a 

maxiiTJJm of 43 days 

after 20 years 

• $15,000 max sick 

payout upon retiremmt 

• No lirrit 

• 1 year's allowance 

rrax payout and 

$15,000 rmx sick 

payout upon retirerrent 

{see above for 

allowances) 

• NIA 

33 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

~ The Port Authority has made certain modifications to the vacation allowance and 

policies for cashing out unused vacation exchange days, and is contemplating 

additional actions to conform closely to New Jersey's policy reform 

The Port Authority's vacation exchange policy was extended for 2012; however, it was amended 

with the following changes: 

• Neither the Executive Director nor Deputy Executive Director will be eligible. 

• Employees with at least 30 days of vacation allowance can exchange all but 15 days. 

• Employees with fewer than 30 days can exchange all but ten days. 

• Attendance requirements to be eligible for this exchange remain unchanged. 

In addition, the Port Authority's Human Resource department has proposed (but has not yet 

implemented) a revised vacation allowance, effective January 1, 2012, that would provide a 

maximum of 27 vacation days for general non-represented employees and 30 for senior 

executive management (down from 35 days and 42 days, respectively). However, this revision 

will only apply to new hires going forward and all employees already at or past the 27 and 30 

vacation day milestones will be grandfathered in and retain their current allotment. 

Furthermore, in 2013, the Human Resource department recommends vacation exchange 

payments be made in lump-sum, rather than bi-weekly, which would mean that these · 

payments will no longer be "pensionable". 

~ The State of New York has proposed a new bill to introduce a Tier 6 into the pension 

system in an attempt to significantly cut back long-term expenses to employers and 

mitigate abuse by their employees 

If passed, the bill would add a new pension tier for all new employees of the New York State 

and local governments, as well as those covered by New York City pensions. The Port 

Authority's full-time employees are required to join one of two cost-sharing defined benefit 

pensions plans, the New York State and Local Employees' Retirement System or the New York 

State and Local Police and Fire Retirement System. Key changes in this tier relate to increasing 

employee contributions and retirement ages, disallowing overtime as part of base salary, setting 

stronger anti-salary-spiking mechanisms, and eliminating provisions around the cashing out of 

sick days for additional service credit upon retirement. 

Preliminary Recommendations & Next Steps 

)>- Implement reforms, as proposed by the Port Authority, requiring contribution from all 

non-represented and represented employees and offering health plans with less 

expansive and costly coverage. 

J>- Uniformly apply shortened vacation schedules to all employees (i.e., not only to new 

hires going forward). 

J>- Significantly reduce allowed vacation exchange days or eliminate the program for all 

employees of tl1e Port Authority. 

N/\VICMH 34 
Phase I Interim Report to the Special C~mmittee of the Port Authority of New York and New Jersey 

}- Eliminate the delineation between employees for cashing in vacation days upon 

separation so that all employees have the value of one year of vacation allowance as a 

maximum (i.e., eliminating the extra year of allowance for employees hired before 

September 11). 

}- Endorse the current proposed bill that allows the inclusion of a Tier 6 into the New York 

State pension system for both civilian and police and fireman that would have a 

significant positive impact on the long-term pension cost. 

}- Evaluate the feasibility of changing the structure of the existing pension plan, ultimately 

pursuing defined contribution plans in place of defined benefit programs. 

REPRESENTED EMPLOYEES CONTRACT CONSIDERATIONS 

The Port Authority union contracts cover approximately 4,691 personnel, or 68%, of the Port 

Authority's 6,913 actual employees. The vast majority of these contracts has either expired or 

will expire in 2012. Navigant conducted a preliminary review of key terms and conditions of 

six primary union contracts related to salary, health and life insurance benefits, vacation and 

p~id time off, other compensation incentives, as well as historical past practices often used to 

establish implied benefits. In addition, work rules that could have an impact on impeding 

. , pt,oductivity or by driving additional compensation (i.e., overtime and related benefits) were 

. considered. 

Observations & Findings 

~ Complex work rnles subject to inconsistent application can often lead to excessive 

overtime and compensation for certain represented employees 

In 2010, the Port Authority's total overtime expenses were $85.4 million. Approximately 95% 

($80.4 million) was earned by represented employees and 42% ($33.6 million of $80.4 million) 

was related to public safety. The top ten overtime earners in public safety averaged 105.4% of 

their base salary. The Port Authority implemented a number of initiatives to reduce overtime in 

Public Safety and it appeared that the Port Authority was making a good progress in 2009 and 

2010, after peaking in 2008. However, this positive trend was reversed by November 2011 as 

overtime had increased 23% over the prior full year (up to $41.4 million from $33.6 million). 

Police work rules are complicated and appear to create significant staffing challenges and 

inefficiency (e.g., alteration from regularly scheduled duty tours, or regularly assigned facility 

automatically results in an extra four hours of pay in addition to pay at straight time rate for the 

full tour) (Table 19 and Table 20). 

N/\VIC,ANT 35 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Table 19- Top 10 Overtime Recipients, Public Safety (2010) 

F\:lllce Sergearll $103,964 $132,286 127.2% 

2 Fblice Sergeant 103,964 129,043 124.1% 

3 Fblice Sergear1t 107,911 126,338 117.1% 

4 FU!ice Sergear~t 107,911 123,884 114.Bo/o 

5 Fblice lieutenant 124,098 112,467 90.6% 

6 F\llice Sergeant 103,964 104,916 100.9% 

7 Fblice Sergear~! 100,960 104,687 103.7% 

Fbllce Sergeant 103,964 102,340 98.4% 

9 Police Sergeant 99,375 100,405 101.0% 

10 Fblice lieutenant 

Table 20- Public Safety Overtime (2006- YTD Nov 2011) 

. ' ~. R o " 

2006 $44,075,892 NA 1,577 $27,949 NA 

2007 $49,781,632 12.9% 1,633 $30,485 9.1% 

2008 $52,663,459 5.8% 1,857 $28,359 (7.0%) 

2009 $38,364,269 (27.2%) 1,777 $21,589 (23.9%) 

2010 $33,644,953 (12.3%.) 1,723 $19,527 (9.6%) 

YTD Nov 2011 $41,405,876 23.1% 1,688 $24,530 25.!?% 

Preliminary Recommendations & Next Steps 

VIII. 

)> Conduct analysis necessary to evaluate the current work rules as applied and practiced 

with the assistance of special labor counsel and establish priorities; in collaboration with 

represented labor, to focus on improved efficiency and productivity. 

)> Work rules and contractual obligations should be evaluated and potentially modified to 

effectively manage the police department productivity and efficiency and to control 

overtime. 

)> Evaluate effectiveness of command and control function of public safety & security in 

light of what appears to be chronic excessive overtime, as well as other apparent 

inefficiencies. 

)> Carefully consider findings of the pending Chertoff Report in evaluating current costs 

and practices relative to the effectiveness of the security apparatus. 

INITIAL COST REVIEW OF WTC PROGRAM 

BACKGROUND 

From June to November 2008, the Port Authority conducted a comprehensive analysis to 

determine what the true scope and design of the WTC Program was expected to be, including 

the related impact of the mandate to complete the Memorial by September 11, 2011. As a result 

of this effort, the Port Authority was required to materially alter the phasing of construction, 

redesign major elements of the WTC program resulting in an increase in cost, as well as balance 

the needs· of a variety of disparate functions and stakeholders (both public and private). 

Furthermore, given the high level of integration of the various projects at the site, the Port 

Authority was often required to perform significant work for other agencies and third parties in 

an effort to deliver on expectations. As the WTC program has evolved, the Port Authority has 

N/\VJGANT 36 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

also absorbed the increased costs of financing and insuring the projects at the site, at no minor 

expense. In addition, efforts to accurately reflect the cost of marketing, leasing and improving 

the retail and office elements of the site with the input of the Port Authority's commercial 

partners were not made until recently, further increasing the estimated cost of the WTC 

program. It is important to note, however, that these total project costs are off-set, in part, by 

anticipated reimbursements from certain parties and sources of outside the Port Authority, 

including the Federal Transit Administration and insurance carriers, among others. 

SCOPE & METHODOLOGY 

Navigant reviewed numerous documents and conducted in excess of 50 hours of interviews 

witl1 members of the WTC construction staff, select management of the Port Authority and 

other persons with direct knowledge of the history of construction at the site. From this 

foundation, Navigant reconstructed the historical costs of the WTC program using the 

chronology of periodic presentations by prior Executive Directors and management to the 

Board of Commissioners, project cost reports current through October 2011, related documents, 

and other communications of the Port Authority (Table 21). 

Table 21- Periodic WTC EAC Comparison (Dec 2006 :-Current Estimate) 

Project Title: 

WTC Transportation Hub $ 1,921 $ 2,442 $ 3,200 $ 3,291 $ 3,440 $ 3,737 

1 World Trade Center 2,478 2,877 3,100 3,190 3,190 3,949 

9/11 M>rmrial (PA) 785 195 195 195 195 195 

Vehicular Security Center 1 472 478 633 667 667 698 

Site Infrastructure 1,048 1,255 1,525 1,563 1,661 1,965 

WfCRetail 1,337 1,301 1,450 1,550 1,550 1,722 

Streets and Utilities 254 254 274 274 334 

Oxllandt St. #1 Stallon 150 150 150 

Perforning Arts Center 182 

9/11 M>rmrial (3rd Party) 833 

Contingency 600 600 352 352 

Additional Rnance Expense 352 

NYPD Carrpus Ran 300 

NY SOOT 20 

Reconstructing the WTC program historical costs and the interim Estimates at Completion (the 

"EAC") tlwough various sources was necessary because the Port Authority's staff were unable 

to produce supporting detail and source documents, for any of the presentations, prior to 

February 2011, that traced historical cost growth previously reported by prior Executive 

Directors to the Board of Commissioners and, at times, the Governor of New York. To assess 

the reasonableness of the EAC of the WTC program, Navigant evaluated the record of each 

component project to identify the level of cost risk associated with delivering the project within 

current expectations. 

N/\VJCAI'JT 37 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Taken together, Navigant's analysis reveals that cost growth at the WTC is primarily caused by: 

(i) the commitment to open the Memorial by September 11, 2001, (ii) work for third-parties that 

was required due to the inter-related nature of struch1res at the site (e.g., portions of the 

Performing Arts Center ("PAC") foundation that are integral to underground infrastructure 

including the Vehicle Security Center ("VSC") ), and (iii) the omission in prior budgets of 

allowances for the marketing, leasing and tenant improvements for the commercial office and 

retail space at 1 WTC and Retail projects. 

These findings are summarized in an EAC prepared by Navigant through a review of project 

cost reports, documented change orders and allowances for known exposures represented in 

the records of the Port Authority (the "Current Estimate"). In addition, the Current Estimate 

was subjected to a qualitative risk analysis. Navigant identified areas of cost risk through 

project cost reports, relevant documents and probability assessed these items through 

interviews with knowledgeable project participants. From this basis, Navigant developed a 

range of possible scenarios and selected a probable outcome to report incremental risk or 

potential exposure to the Current Estimate. 

Observations & Findings 

{> The evolution of design and the challenges the Port Authority faced to deliver the 

Memorial by September 11, 2011 resulted in the November 2008 reforecast from $8 

billion to $11 billion 

In December 2006, the program for the WTC was estimated at approximately $8 billion. In 

November 2008, as a result of a focused effort by the Port Authority to understand the evolution 

of the project, the impact of the commitment to open the Memorial plaza by September 11, 2011, 

and to systematically reforecast the WTC program, the EAC was increased to approximately 

$11 billion (the "November 2008 Forecast"). The November 2008 Forecast revealed that the 

approximately $3 billion increase was largely due to impacts from changes in scope and the 

evolution of design. An integral component of the design evolution was the coordination 

amongst the program stakeholders to timely deliver the subterranean structures and 

infrastructure prior to certain key dates and within expected costs. Accordingly, the largest 

variances occurred in the more complex projects at the site, including: (i) the WTC Hub at 

approximately $1.3 billion, (ii) 1 WTC at approximately $0.6 billion, and (iii) below grade site 

infrastructure at approximately $0.5 billion (Table 22). 

N/\VlCJt\NT 38 
Note: 

(1) 

Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Table 22- Periodic WTC EAC Comparison (Dec 2006- Nov 2008) 

Project Title: 

WfC Transportation Hub $ 1,921 $ 3,200 $ 1,279 66.6% 

1 World Trade Center 2,478 3,100 622 25.1% 

9/11 Metrorial (PA) 785 195 (590) -75.2% 

Vehicular Security Center 1 472 633 161 34.2% 

Site Infrastructure 1,048 1,525 477 45.5% 

WTCRetail 1,337 1,450 113 8.5% 

Streets and Utilities 254 254 0.0% 

Contingency 600 600 0.0% 

I Total $ 8,041 $ 10,957 $ 2,916 36.3%1 

Reirrbursements I Funding (4,490) (5,016) (526) 11.7% 

I Net Program Cos I to the Port Authority $ 3,551 $ 5,941 $ 2,390 67.3%1 

Positive variance reflects increased costs. 

~ Site-wide coordination in the accelerated development of the WTC program has 

required the Port Authority to perfonn work for other agencies and entities resulting in 

further expansion in the scope that increased the $11 billion reforecast to a Current 

· Estimate of $14.8 billion 

The Current Estimate for the WTC program is approximately $14.8 billion. This increase of 

approximately $3.8 billion since the November 2008 Forecast was not primarily driven by cost 

growth in the original scope of the WTC program. Rather, this increase stems from additional 

projects being performed by the Port Authority on behalf of other agencies and parties 

(approximately $1.57 billion). In large part, this work was necessary to advance inter-related 

elements of the site and assure the opening of the Memorial by September 11, 2011. 

Simultaneously, the Port Authority has begun to refine the program associated with the 

commercialization of the site. A recently developed budget for the leasing and operation of the 

Retail and 1 WTC projects performed in conjunction with the Port Authority's operating 

partners, The Durst Organization Inc. ("Durst") and Westfield Group ("WDC"}, reflected an 

increase of approximately $1 billion in the Current Estimate. Lastly, additional and typical 

finance and insurance expenses on a more costly program occurring over a longer duration of 

approximately $0.6 billion are included in the Current Estimate. The balance of the increase is 

driven by scope changes related to site-wide infrastructure (approximately $0.3 billion), and 

project execution costs (approximately $0.3 billion). These impacts occur throughout various 

components of the program. The following table presents the variance in costs from November 

2008 to the Current Estimate by individual project (Table 23). 

NJ\VI C;\NT 39 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Table 23- Periodic WTC EAC Comparison (Nov 2008- Current Estimate) 

Project Title: 

WTC Transportation Hub $ 3,200 $ 3,737 $ 537 ~) 16.8% 

1 World Trade Center 3,100 3,949 849 (3) 27.4% 

9/11 Me roo rial (PA) 195 195 0.0% 

Vehicular Security Center 1 633 698 65 (4) 10.3% 

Site lnf rastructure 1,525 1,965 440 (5) 28.9% 

WTCRetail 1,450 1,722 272 (6) 18.8% 

Streets and Utilities 254 334 80 (7) 31.5% 

Cortlandt St. #1 Station 150 150 0.0% 

Performing Arts Center 182 182 (B) 0.0% 

9/11 Me~mrial (3rd Party) 833 833 0.0% 

Contingency 600 352 (248) -41.3% 

Additional Finance Expense 352 352 0.0% 

NYPD Campus Ran 300 300 0.0% 

NY SOOT 

Notes: 

(1) Positive variance reflects increased costs. 

(2) Superstructure concrete and steel (-$150 million), trade contractor perfornmnce (~200 million), and financial expense (-$100 million). 

(3) Redevelopment budget for commercialization (-$700 million) and financial expense (~$100 million). 

(4) Financial expense and schedule acceleration (-$65 million). 

(5) Site-wide infrastructure scope (~$300 million) and Redevelopment requiremwts at PMF!Commercial'Parking (-$100 million). 

(6) Redevelopment budget for commercialization (-$275 million). 

(7) Clturclt St. (~$50 million). 

(8) Budget to bring structure to grade. 

~ Third-party funding commitments and various sources of extemal capital have, or are 

expected to, limit the Port Authority's cost for the WTC program to $7.7 billion before 

accounting for further risk exposure identified itt Navigant's review 

The Port Authority is performing a set of projects for other agencies and entities for which it has 

contractual or oral commitments for reimbursement. For example, the Current Estimate 

includes: the Cortlandt St. Station development being performed at the request of the MTA, 

work in process for the 9/11 Memorial Foundation (the "Memorial Foundation"), certain subgrade work that will benefit the PAC and similar infrastructure commitments for other 

agencies. Given the Current Estimate, the Port Authority's net cost for the WTC program 

would be approximately $7.7 billion, representing approximately $14.8 billion of total gross 

costs, less approximately $7.1 billion in reimbursements by third parties and funding provided 

by insurance proceeds, public funds and private sources. 

Delivery of the WTC program at this net cost assumes full reimbursement of third party 

funding commitments. The reimbursement of these funding commitments is subject to ongoing 

discussions with various stakeholders and may be subject to dispute and collection risk. To 

N/\V!CANT 40 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

mitigate the financial impact of nonperformance by other stakeholders, the Port Authority may 

choose to establish certain financial reserves. 

In addition, subject to the requirements of existing contractual agreements, the Port Authority 

may elect to curtail development of third-party elements and limit the exposure of the Port 

Authority to only that project scope necessary for the overall advancement of the program. For 

example, the Port Authority has significant third party stakeholder exposure on the Memorial. 

While the Port Authority's original financial commitment was estimated at $195 million out of a 

total project cost of $500 million, the design and scope of the project have evolved such that 

some estimates indicate the project may now cost approximately $1 billion. The Memorial 

Foundation and the Port Authority are already disputing significant costs related to the 

construction impacts of the Memorial, and total exposure to the Port Authority is now 

estimated at approximately $300 million. The Memorial Foundation is relying heavily on 

private fundraising efforts in a recessionary environment, calling into question the Pmt 

Authority's ability to collect on funds both committed and expended for the benefit of the 

Memorial Foundation. Consistent with the approach outlined above, the Port Authority has 

elected to significantly reduce the construction personnel deployed on the museum portion of 

the Memorial project and limit the agency's exposure, ensuring that only certain construction 

continues prior to the resolution of the cost reimbursement dispute. 

~ Navigant's review of the reasonableness oj the Current Estimate suggests the potential 

for incremental cost exposure to the Port Authority of $0.8 billion or $8.5 billion of total 

funding by the Port Authority for completion of the WTC program 

The Current Estimate has been prepared consistent with industry protocols; however, based on 

a preliminary risk analysis there may be potential total project cost exposure of approximately 

$1 billion. This potential for program level cost growth may increase the net obligation (i.e., 

after expected reimbursements from third parties) of the Port Authority by $0.8 billion, to $8.5 

billion in total expenditures funded by the Port Authority for completion of the WTC program. 

The principal drivers of tl1e potential program level increase are: (i) anticipated costs, and the 

associated impact on contingency, stemming from continued evolution of the Retail project 

(approximately $0.4 billion); (ii) cost of work for third parties, most notably for the New York 

Police Department ("NYPD") and scope changes to Cortlandt Street Station (approximately $0.2 

billion) both expected to be reimbursed by third parties as previously described; and (iii) soft 

cost escalation, extra work, and delay mitigation costs in the completion of the Hub 

(approximately $0.2 billion). The remaining approximately $0.2 billion is comprised of 

miscellaneous elements, such as incremental finance expense, additional design and 

coordination for site infrastructure work, trade contractor financial deficiency, and design costs 

in the VSC (Table 24). Again, tactics for the mitigation of a portion of these risks include 

enforcement of reimbursement commitments, establishing reserves or curtailing certain work 

within the program. 

N/\VIC.JMH 41 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Table 24- WTC Current Estimate and Potential Exposure 

Project Titles: 

WTC Transportation Hub 

1 World Trade Center 

9/11 fo/ermrial (PA) 

Vehicular Security Center 1 

Site Infrastructure 

WTCRetail 

New Frojects 

Streets and Utiltties ($334) 

Cortlandt St. #1 Station ($150) 

Performing Arts Center ($182) 

9/11 fo/eroorial (3rd Party) ($833) 

Other Costs 

3rd Party Stakeholder- Add'l F\ltential Exposure: 

NYPD Cempus Ran 

NY SOOT 

Note: 

(1) Potential for underfunded contingenctj. 

(2) Potential acceleration costs. 

(3) Potential scope changes for Chiller Plant, VSC and Security. 

(4) Potential exposure to contractor non-performance. 

(5) Potential cost growth for Streets, Cortlmtdt Station and PAC. 

3,737 213 (1) 6% 

3,949 10 (1) 0.3% 

195 

698 10 (2) 1% 

1,965 210 (3) 11% 

1,722 452 (1) 26% 

1,499 87 (4) 6% 

352 

-9- The Port Authority may have other cost risk in the form of contingent liabilities 

Based on the Port Authority's bond offering statement disclosures, it appears the Port Authority 

has made certain financial obligations in connection with certain WTC site bond financings of 

up to $600 million of gross credit support on other projects at the WTC site, $400 million of 

which are reimbursable by the State of New York and New York City, leaving $200 million of 

net exposure. In addition, in November 2011, $1.2 billion of Liberty Bonds were issued to 

finance the private development at the Tower 4 site. The Port Authority, in addition to being a 

future major tenant at the building, has agreed to provide credit support for this financing 

through a complex arrangement of interest rate support, rent deferrals, and rent-free periods. 

Estimating the outcome of these arrangements is speculative, as multiple events need to 

transpire for the obligations of the Port Authority to be triggered, therefore, Navigant has not 

included a provision for these figures in the Current Estimate or in any potential exposures. 

Further research and analyses relating to the underlying contracts that document these 

commitments will be conducted in Phase II of Navigant' s work. 

N/\VJCANT 42 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Preliminmy Recommendations & Next Steps 

);> Identify a single candidate reporting to the Executive Director with the sole 

responsibility to manage the successful construction, completion, and commercialization 

oftheWTC. 

);> Reevaluate the roles, responsibilities, requisite experience, and appointments of the 

WTC Sub-committee as the WTC evolves from a focus on construction execution to asset 

management. 

);> Perform a comprehensive forensic construction cost audit of the entire WTC program to 

validate the costs expended, the Current Estimate and to identify any additional 

exposure items. 

);> Conduct a focused review of the development budget associated with asset 

management and the future operations of the 1 WTC and the Retail project that involves 

all constituents. 

);> Pursue reimbursement from third parties for completed work and any pending 

commitments for work conducted in good faith. 

);> Prior to committing to, or initiating, any additional work requests from other agencies 

and parties, secure contractual evidence of funding commitments as well as 

reimbursement capacity. 

);> Assess the contingent liabilities of the Port Authority and risk-assess same in the EAC 

for the WTC progrm;n. ·· . · · 

);> Unless intended to create construction efficiencies or produce direct cost reductions, 

freeze design to the extent possible. 

);> Prepare a comprehensive risk register, probability assess beneficial or adverse outcomes 

on a continuous basis to increase the accuracy of the EAC based on contemporaneous 

information. 

);> Evaluate current WTC related insurance programs for cost effectiveness and 

counterparty credit risk for existing coverage. 

);> Perform sensitivity analysis on optimistic, pessimistic and probable case scenarios to 

understand cost impacts on the EAC and in particular the adequacy of contingency. 

);> Integrate development and construction budgets, providing a holistic reporting of the 

WTC progra:tn in a standardized format on a monthly basis to the Executive Director 

and Board of Commissioners. 

);> In light of the influence of the WTC on the capital needs and execution resources of the 

Port Authority, perform a detailed impact evaluation analysis on the 2011 Capital Plan. 

);> Evaluate potential monetization of the income producing elements of WTC as an 

alternative form of capital for the Port Authority. 

N/\ViGi\NT 43 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

IX. PRELIMINARY CAPITAL PLANNING ASSESSMENT 

BACKGROUND 

The 2011 Capital Plan is comprised of more than 900 projects totaling approximately $25.1 

billion. Of this, approximately $18.2 billion is planned for the Port Authority's assets excluding 

the WTC site (approximately $6.9 billion). Of note, while addressing the capital needs of the 

WTC site in the period from 2002 - 2010, the Port Authority invested approximately $13 billion 

in its other assets. 

SCOPE & METHODOLOGY 

Continuing from the work conducted on the WTC, Navigant performed a preliminary review of 

the composition of 2011 Capital Plan and the capital planning process. 

Navigant considered documents and conducted interviews with select management of the Port 

Authority. In addition, Navigant prepared a database of all projects in the 2011 Capital Plan 

and attended meetings of the Capital Planning Oversight Committee (the "CPOC"). 

Observations & Findings 

~ The Port Authority needs to assure that the long-range capital strategy aligns with its 

mission and objectives 

The Board of Commissioners recognizes that, in light of the demands of the WTC and the 

impact of the recessionary environment, the Port Authority does not strategically allocate 

capital by business unit or in concert with the overall objectives of the organization. Rather, line 

functions promote projects that maintain a particular asset base and fit within an internally 

mandated budget constraint. Many of the projects in the 2011 Capital Plan are in initial 

planning stages and are approved in their entirety when the total scope, budget and potential 

impacts are not yet mature. This approach further constrains the ability of the Port Authority to 

reassess priorities and alignment with a dynamic capital strategy. The Port Authority needs to 

assure that the strategy for the allocation of capital aligns with the mission and objectives of the 

organization for the 21'' century. In Phase II, Navigant will evaluate with the Special 

Committee the actions necessary to re-position the capital strategy of the agency for the coming 

decade. 

~ The initial review of the capital planning and execution pmcess indicates that roles and 

responsibilities may not be clearly defined 

The current management oversight of the execution of the Capital Plan is performed by the 

CPOC. While CPOC is conceptually a sound approach, the execution falls short of industry 

practice as it lacks a clear leader, is managed by committee, does not have consistent reporting 

mechanisms or a communication protocol, and is unfocused without an agreed-upon 

materiality threshold for items under discussion. In addition, the observed inconsistency in the 

command and control structure did aggravate the timely communication of challenges by the 

N/\VICANT 44 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Executive Director to the Board of Commissioners. Lack of accountability of development, 

construction and asset management functional leaders to the Executive Director exacerbates this 

condition. A review of the organizational design of the capital planning and execution 

functions within the Port Authority will be an area of focus in Phase II of Navigant's work. 

-9- Pelfonnance metrics limited to budget compliance can impede an effective capital 

project planning and execution process 

The most successful organizations create a capital plan, construct a conforming budget and 

monitor progress against key performance metrics, where budget compliance is just one of 

several measures. The Port Authority should consider expanding the methods by which it 

monitors project performance and create the opportunity to proactively address areas of underperformance. To maximize effectiveness, such an initiative would require change management 

within the organization as a comprehensive definition of execution would become the measure 

of performance. Phase II of Navigant's work will address this organizational concept. 

Preliminary Recommendations & Next Steps 

)> Phase II should include, but not be limited to: 

o An evaluation of the formation of a Capital Projects Office that reports directly to 

the Executive Director. This office would be responsible for the development 

and execution cif the ,capital plan and , effective communication of same. 

Navigant anticipates that a Capital Projects Office would be led by a single, 

senior executive. 

o An analysis of the unconstrained needs of the Port Authority against the 2011 

Capital Plan to identify areas of potential risk. 

o A review of recent execution performance against the previous capital plan 

developed in 2007 and updated :in 2008 .. 

o An assessment of proposed projects :in the 2011 Capital Plan for, non-income 

producing assets to evaluate the benefit of same; this does not include projects 

intended for safety and security of infrastructure assets. 

o A study of the feasibility of monetizing non-core assets to provide an alternative 

form of capital for the funding of transportation infrastructure. 

)> Establish a task force to develop a long-range capital strategy that aligns with the Port 

Authority's evolving mission and objectives. 

)> Institute a systematic method for prioritiz:ing project needs within constra:ined capital 

capacity and conduct annual assessments. 

)> Develop a protocol to measure and assess execution progress against performance 

metrics; address areas of under-performance against goals. 

)> Continue critical review of all projects in the 2011 Capital Plan. 

N/\ViCANT 45 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

X. OVERVIEW OF PHASE II 

PHASE II- ORIGINAL MANDATE 

In conjunction with the Review, Phase II of Navigant's engagement is expected to be completed 

and the report delivered by end of June 2012. Pursuant to Navigant' s existing engagement and 

as discussed with the Special Committee during the interview process, Phase II will include (as 

refined by mutual agreement): 

Project Management Office 

• Oversight and coordination of organizational review and operational assessment. 

• Oversight and coordination of finalization of WTC cost review. 

• Coordination of ten-year Capital Plan Review through Rothschild. 

Organizational Design and Operational Improvement 

• Review business segment operating budget. 

• Review Contract Service expense category to reduce costs. 

• Review Material, Equipment and Other expense categories to reduce costs. 

• Summarize findings and rec.ciiillilendatioris into a strategic framework. 

Finalization of WTC Cost Review 

• Review of avoidance costs. 

• Assessment of accuracy of design and construction cost-to-complete, including timeline 

of completion. 

• Identify key drivers of variances in project costs and record lessons learned for 

mitigation in future endeavors. 

Capital Projects Assessment 

• Complete preliminary rank order prioritization. 

• Complete scorecards for designated capital projects with support of Port Authority 

personnel. 

• Establish a dynamic evaluation methodology for ongoing update of capital projects and 

planning processes. 

• Identification of considerations with regard to financing implications and alternatives. 

PHASE II- ADDITIONAL RECOMMENDATIONS 

Areas of importance for further review have been identified and recommended in the Phase I 

report that are not included in the engagement scope and terms of the original Phase II mandate 

of N avigant' s consulting arrangement. A preliminary list of those groups by related work 

stream is detailed below: 

NJ\VJCJMH 46 
Phase I Interim Report to the Special Committee of the Port Authority of New York and New Jersey 

Organizational Design and Operational Assessment 

• Facilitate the Board of Commissioners' evaluation of the Port Authority's vision, 

mission, and strategy to meet the challenges of the 21st century. 

• Develop and recommend pay for performance incentive systems. 

• Assist the Board of Commissioners in its evaluation of the Port Authority's overtime and 

"add-on" compensation policies. 

• Conduct detailed analysis of union contract work rules (in conjunction with special 

counsel and business segment managers), the current application of same, and the 

potential corrective actions to remove impediments to productivity and efficiency, and 

establish a foundation of focus on expired union contract terms and develop specific 

recommendations for incorporation in same. 

• Review, analyze, and recommend consolidation of certain duplicate shared service 

functions, identify the expected annual cost savings and develop a detailed 

implementation plan supporting same. 

• Review OPEB and make recommendations regarding potential benefit modifications for 

retirees. 

• Assist in the development of executive "dashboard" to reliably and timely report status 

of key financial and operational performance metrics. 

• Identify key revenue enhancements, including lessee pass-through cost collection, 

opportunities and ·assist in the ·development and implementation of enforcement 

strategies. 

WTC Cost Review 

• Perform a comprehensive forensic construction cost audit of the entire WTC program to 

validate the costs expended, to identify additional exposure items, and provide potential 

mitigation strategies. 

• Evaluate contractor exposures including status of current claims. 

• Develop and implement strategies with regards to reimbursements from third parties 

for completed work and any pending commitments for work conducted in good faith. 

• Evaluate WTC related insurance programs for cost effectiveness and counterparty credit 

risk. 

• Integrate development and construction budgets, providing a holistic reporting of the 

WTC program in a standardized format on a monthly basis to the Executive Director 

and Board of Commissioners. 

Capital Projects Assessment 

• Develop a mechanism to more reliably determine levels of state of good repair necessary 

to ensure Port Authority infrastructure integrity. 

• Implement a comprehensive reorganization of the capital planning and execution 

function, identifying key leaders, roles, responsibilities, processes, and mechanisms for 

tracking progress on cost, risk management as well as delivery. 

• Perform a study of the feasibility of monetizing non-core assets to provide an alternative 

form of capital for the funding of transportation infrastructure. 

N!\VI CANT 47 
XI. APPENDIX- A 

DEFINED PEER GROUP 

. Public · .·. Private'.Sedoi' 

(i.e., State Agencies, etc.) . (inCL PubliclyTtaded Co.) 

Public· Authorities arid State Agencies ·. ' .. ·.· · .. 

1) New York Power Authority • NA: Private Sector peers were "l"l:ot applicable" given this • Key attributes include 

2) Metropolitan Transit Authority (MTA) group was focused on public authOrities and .. agencies in the agency with jurisdicti

3) New Jersey Turnpike Authority New York and New Jersey regiori. · Jersey metro regions 

4) New York Thruway Authority • Must have responsibi

5) New York City Department of Transportation 

real estate, or econom

former) 

6) New York City Government • H possible, focus shou

7) New York State Government DO NOT receive tax r

8) New Jersey State Government 

Tunnels, BridgeS & Terminals .. 

9) MTA Bridge & Tunnel Authority (NY City) 1) Macquarie Atlas Roads Group (Australia) . Key attributes of peer

10) Bay Area Toll Authority (San Francisco, CA) 2) Cofiroute (Germany, France, UK, USA) bridges and tunnels (

11) Delaware River Port Authority of PA & NJ • Operation of toll road

12) New York Thruway Authority (NY State) operations are highly 

• Older assets at a peer 

Authority's assets (i.e

. Delaware River Port A

was selected due to it 

to New Jersey, as wel

PATH Rail System . ..... 

. 

. 

.·· .· .·· 

1) Massachusetts Bay Transportation Authority (Boston, MA) • NA: Private sector peers are not comparable due to: • Key attributes of peer

2) Southeastern Pennsylvania Transportation Authority >- Different fare structure (not flat-fee; instead, based on structure and the abs

(Philadelphia, P A) distance traveled) taxpayer subsidies, w

3) Delaware River Port Authority ofPA & NJ (Western NJ) >- Compensation systems in foreign companies is different high traffic volume 

4) MTA (NY City) than in the U.S., namely for the PA, which limits • Age of assets were co

5) Chicago Transit Authority comparability staff of maintenance 

Private ownership of rail systems does not occur in the • Delaware River Port 

u.s. was selected due to i

·--

NJ\V!GANT 
Public . Private sector 

. etc.) .• (inch Publicly Traded Co.) 

. Privately O'Wlled and operated commuter rail systems in to New Jersey, as wel

Tokyo, Hong Kong, Berlin and Taiwan were identified but 

eliminated from peer group for reasons noted above . 

AViation • .. ' .. .. . ' ·.· ... ' ... •' ·.· 

1) Chicago O'Hare International Airport (ORD) 1) Aeroports de Paris (France) " Key attributes of peer

' 

2) Los Angeles World Airports (LAW A) 2) BAA Airports (United Kingdom) intemational passeng

3) Hartsfield-jackson Atlanta International Airport (ATL) cities, and focused ex

operations (not includ

baggage handling, or 

services). 

" If possible, peers shou

whether commercial 

Port Commerce .· ........ ·.·.· .... · . .. ····· . .. ' · ...... · . . . . 

1) Port of Los Angeles (California) 1) Port of Tauranga Ltd (New Zealand)- NZSE: POT • Key attributes of peer

2) Port of Long Beach (California) 2) North Queensland Ports Corporation Limited (Northeastern on port infrastructure 

3) Port of Corpus Christie (Texas) Australia), a Government Owned Corporation capital investment in 

with similar geograph

Note: The defining characteristics of GOCs are that they have a comparable. 

distinct legal form and they are established to operate in • Port operations like s

commercial affairs. 'While they may also have public policy towage services, amo

objectives, GOCs have financial objectives to satisfy shareholders performed by Port Au

vvith ROI and dividends. (Source: Wikipedia, citation needed) a basis of comparison 

N/\VIGANT 
XII. APPENDIX-B 

Yes Yes 

Yes Yes 

!(Retention Program-2003) 

Yes 

Longevity I!A. 

(40+ Yr Career Service Plan) Yes 

Longevity liB 

(25+ Yr career Service Plan) 

Yes 

Longevity FP 

(Police Superior Longevity) 

Yes 

1 Cumulative Retirement Days Yes 

Note: 

EXAMPLES OF "ADD-ON" COMPENSATION 

an offset and in lieu of a base salary increase in 1·969, this program a!lowed employees to opt for additional 

base pay, equal to the arrount of their FICA liability in year. Currently 14 employees remain who receive this 

a program, initially authorized by the Board iii Apri11976, current employees with perfect attendance rnay op

exchange their upconing year's vacation for cash to be paid in bi-weekly Employees can exchang

I vacation days from their annual allotment. Service A employees had no attendance requiretrent up to 2012. 

Originally authorized in 1993, this is a career service payment for non-represented clerical staff to encourage re

reward sustained satisfactory perforrrance. After .5 years the errployee receives an annual incentive payment 

increments, which increases every 5 years to a of $2500 after 40 years of service. 

a retention mechanism, in 20021ier 1 errployees were provided with additional life insurance coverage to ad

reduction in benefit that could occur for beneficiaries of lier 1 employees currently eligible for retirement, but wh

continue tow ark at the Port Authority. The earnings offset the imputed value of that additional life insurance. 

retention incentive payment offered in 2003, at the then Executive Director's discretion, for the purpo

key executives post 9·11 for at least three years. Pay is currently received by three key executives. 

career service payment authorized in 2003 for non-represented staff not on a longevity schedule and having 

Payment in recognition of their four decades of sustained satisfactory perforrrance and contribution 

payment authorized in 2008 for non-represented staff with 25 or rr.ore years of service in rec

I sustained satisfactory perforrrance and contribution to the Agency over time. Longevity !lA, the 40-year plus lo

up into this program same year. 

to Police Superiors in recognition of their years of experience. Police Superior longevity is a flat r

j Detective Lieutenant longevity and years of police service, starting with one year of police service and currentl

service with a current annual rate of $20,020. 

incentive for Police Superiors to rraintain perfect attendance throughout their careers. 

(1) Descriptions hcroe been provided by the Port Autlwrity HR department for various programs listed above. 

N/\VJGANT 
XIII. APPENDIX-C 

NA VIGANT REPORT QUALIFICATIONS AND DISCLAJMER 

THIS CONFIDENTIAL REPORT HAS BEEN PREPARED FOR THE SPECIAL COMMITTEE OF THE BOARD OF COMMISSIONERS OF THE PORT AUT

WITH NAVIGANT'S PHASE I WORK PURSUANT TO THE AGREEMENT, DATED AS OF NOVEMBER 23, 2011, BY AND BETWEEN NAVIGANT AND 

THIS REPORT CONTAINS INFORMATION RELATED TO THE PORT AUTHORITY AND IS BEING PROVIDED ON A STRICTLY CONFIDENTIAL BASIS

REPORT IS NOT TO BE USED FOR ANY OTHER PURPOSE AND, EXCEPT AS MAY BE REQUIRED BY LAW OR ANY OTHER REGULATORY OR GOV

HAVING JURISDICTION OVER THE PORT AUTHORITY, CANNOT BE DISTRIBUTED WITHOUT THE WRITTEN CONSENT OF NAVIGANT AND MA

RELIED UPON BY ANY THIRD PARTIES WITHOUT NAVIGANT'S PRIOR WRITTEN CONSENT. 

DUE TO TIME AND OTHER LIMITATIONS, THIS REPORT HAS BEEN PREPARED UTILIZING LIMITED DUE DILIGENCE. IT IS BASED ON ASSUMP

ESTIMATES MADE BY THE MANAGEMENT OF THE PORT AUTHORITY, INFORMATION PROVIDED TO NAVIGANT BY PORT AUTHORITY PE

PROVIDED BY INDUSTRY SOURCES, AND, IN SOME CASES, ASSUMPTIONS MADE BY NAVIGANT, WHICH MAY NOT HAVE BEEN REVIEWED 

MANAGEMENT. ANY HISTORICAL FINANCIAL INFORMATION OR OTHER INFORMATION GIVEN TO, AND SUBSEQUENTLY PRESENTED BY 

RELIABLE. ANY FINANCIAL STATEMENTS OR OTHER DATA CONTAINED HEREIN, INCLUDING ANY FORECASTS, ARE THE FINANCIAL STATEM

MANAGEMENT, NOT NAVIGANT. NAVIGANT HAS NOT SUBJECTED THE INFORMATION CONTAINED HEREIN TO AN EXAMINATION IN ACCOR

ACCEPTED AUDITING OR ATTESTATION STANDARDS OR THE STATEMENTS ON STANDARDS FOR PROSPECTIVE FINANCIAL INFORMATIO

FURTHER, THE WORK INVOLVED DID NOT INCLUDE A DETAILED REVIEW OF ANY TRANSACTIONS, AND CANNOT BE EXPECTED 

IRREGULARITIES OR ILLEGAL ACTS, INCLUDING FRAUD OR DEFALCATIONS THAT MAY EXIST. ACCORDINGLY, NAVIGANT CANNOT AND 

OPINION OR ANY OTHER FORM OF ASSURANCE ON THE FINANCIAL INFORMATION AND DOES NOT ASSUME RESPONSIBILITY FOR THE ACC

OF THE HISTORICAL AND FORECASTED FINANCIAL DATA, INFORMATION AND ASSESSMENTS UPON WHICH THIS REPORT IS PRESENTED. 

IN ADDITION BUT NOT IN ANY WAYS LIMITING THE FOREGOING, IT SHOULD BE NOTED THAT THE SOURCE OF ALL FINANCIAL IN

INFORMATION RELATING TO THE PORT AUTHORITY CONTAINED IN THE TABLES, FIGURES AND BODY OF THIS REPORT WAS INFORMATION 

BY PORT AUTHORITY PERSONNEL. 

IT MUST BE RECOGNIZED THAT ANY PROJECTIONS OF RESULTS OR BENEFITS SET FORTH IN THE ATTACHED MATERIALS ARE NECESSA

INHERENTLY UNCERTAIN, AND NO WARRANTY OR REPRESENTATIONS, EXPRESSED OR IMPLIED, IS GIVEN THAT THE RESULTS OR BENEF

PROJECTIONS WILL BE ACHIEVED OR REALIZED. 

NAVIGANT IS NEITHER A LAW FIRM NORA CERTIFIED PUBLIC ACCOUNTING FIRM. ACCORDINGLY, THE INFORMATION CONTAINED HEREIN 

AND SHOUW NOT BE RELIED UPON AS LEGAL, AUDITING OR ACCOUNTING ADVICE. 

N/\V!GANT