Soundings

Judith Miller
Commissioner Candor
Kenneth Lipper brings truth-telling to the Port Authority.
Summer 2014
Photo by Pavel Ko

Like well-behaved children in Victorian times, commissioners at the Port Authority of New York and New Jersey are expected to be seen and not heard. For most of its 93-year history, in fact, the Port Authority’s 12 commissioners, who oversee New York and New Jersey’s transportation networks, have resisted airing their often profound differences in public. But this spring, Kenneth Lipper, whom New York governor Andrew Cuomo appointed to the board last year, went off the reservation.

At a rare public meeting in late April, Lipper denounced the Port Authority’s plan to provide $1.2 billion in loan guarantees to help developer Larry Silverstein finance the construction of 3 World Trade Center (or Tower 3), an 80-story building, on the 16-acre site. Demanding that the Port Authority finance instead a new bus terminal for the 65 million commuters who pass through its gates, Lipper denounced the plan to provide guarantees to Silverstein as “Alice in Wonderland” and “obscene.” After Lipper’s dramatic statements, Scott Rechler, the Port Authority’s vice chairman and a fellow Cuomo appointee who renegotiated the Tower 3 deal in 2010 to secure better terms for the authority, announced that the board would not move forward with making a commitment to Silverstein.

Lipper’s denunciation surprised not only Silverstein but also veteran Port Authority watchers. “He’s a hero,” declared Richard Ravitch, a past chairman of the Metropolitan Transportation Authority and fellow critic of the deal. “He did what very few people do—he stood up and spoke out. He did what was right.” Stephen Berger, a former Port Authority director who now heads Odyssey Investment Partners, a money-management firm, agrees. “Ken Lipper is willing to say that the emperor has no clothes,” said Berger. “The Port Authority needs that right now.”

Critics accused Lipper of political grandstanding. “He demagogued the issue,” said a former senior Port Authority official, speaking on condition that he not be identified. “And Cuomo’s lack of support for Scott Rechler, his other appointee and the authority’s acting chairman, is also troubling,” he added. “This way lies even greater dysfunction for the Port Authority.”

Such complaints don’t trouble Lipper, who has weathered far harsher criticism, along with major financial setbacks and bitter controversy. A poor kid from the South Bronx, he attended both Columbia and Harvard Law School on scholarships, and made a small fortune as a partner at Lehman Brothers and a managing director at Salomon Brothers before he was 40. Once a rising star not only in New York politics but also in Hollywood, Lipper won an Oscar in 1999 for The Last Days, a Holocaust documentary he coproduced with Steven Spielberg.

Five years later, Lipper’s $4 billion hedge-fund empire collapsed. Edward Strafaci, a portfolio manager at his firm from its start, pleaded guilty to securities fraud in 2004 and went to jail for six years. Several of Lipper’s high-profile clients sued him for negligent supervision of his employees. Over nearly a decade, Lipper battled 22 lawsuits, investigations, and arbitrations, refusing to settle.

Effectively barred from senior posts in finance, politics, and film, Lipper became executive vice president and chairman of the acquisitions committee of Cushman & Wakefield, the giant real-estate firm, in 2004 and stayed until 2010, near the end of his legal battles. Vindication came the next year, when a New York judge cleared Lipper of wrongdoing, ruling that he had not engaged in “negligence, malfeasance, or a violation of law.” Lipper had gone through $24 million in legal fees, but the court awarded him $14 million in a settlement, and he got another $7 million from an insurance-company policy.

He now looks back with pained, if bemused, detachment on the days when so many associates turned their backs on him. “I just wanted to work,” he told Crain’s last year. “I was willing to work behind the counter cutting lox; I applied to Russ and Daughters,” he said, referring to the iconic emporium on the Lower East Side that serves high-end smoked fish, caviar, and Jewish specialty items. But even Mark Russ Federman, the owner and an old friend, turned him down. “Mark said I should try other options first,” Lipper told me, “because he suspected I would cut the lox with a heavy hand.” Friends say the ordeal was searing for him. “You learn who your friends are,” Lipper said over lunch. The fight, he added, made him stronger and more empathetic, gave him “perspective,” and reinforced his determination to fight for what he believes in.

Lipper said he didn’t know why Cuomo selected him to be one of the six appointees the New York governor makes to the Port Authority board. He assumed his post a few months before the New Jersey “Bridgegate” scandal erupted, raising questions about whether Republican governor Chris Christie, a potential presidential candidate, knew that some of his Port Authority appointees had apparently abused their authority by slowing traffic on the George Washington Bridge last September to punish a New Jersey mayor who hadn’t endorsed Christie for reelection. The scandal prompted resignations at the authority and focused public scrutiny on its lack of transparency. It also put Lipper back in the spotlight. “Ken Lipper has ridden the horse of public outrage to prominence,” said urbanist Mitchell L. Moss, director of New York University’s Rudin Center for Transportation. The Rudin Center published a study in April that cast harsh light on the growing deficits at the authority’s PATH railroad, the roughly $2 billion in cost overruns at the Trade Center, and the siphoning off of some $800 million of transportation funds for pet projects by the governors of both states between 2002 and 2012.

Lipper said he didn’t know whether Governor Cuomo was aware of his long-standing opposition to Tower 3 when he appointed him, though the governor shouldn’t have been too surprised. Even as Mayor Koch’s deputy mayor for budget, taxation, and economic development in the mid-1980s, Lipper had urged the Port Authority to sell the World Trade Center, arguing that it was “inconsistent” with the authority’s mission. Today, Lipper’s emphasis on what he calls a “back-to-basics” approach seems well suited to the times.

Lipper began criticizing the Port Authority almost as soon as the New York senate confirmed his appointment. Challenging what he saw as wasteful projects and calling for “zero tolerance” for misuse of public funds, he pushed to open the authority’s normally closed meetings to the public and questioned the propriety of holding meetings in Paris, instead of, Lipper says, Bayonne. And while the Port Authority has launched a yearlong bus study to determine how to meet the city’s expanding transportation needs, Lipper has already signaled his determination to push for a new or an expanded terminal. It’s “unacceptable,” he says, that this year’s $28 billion capital budget contains no money for the already maxed-out bus station.

Despite his aggressive reputation, Lipper says he knows that “compromise and collegiality” enabled the Port Authority to accomplish what it has up to now. Disbanding the Port Authority, as New York Democratic senator Chuck Schumer has suggested, would be “disastrous” for the region, he believes. As for Tower 3, Lipper added, he had “no doubt” that it would be built—by the private sector. “We’ve given the World Trade Center $7.7 billion—an Olympic-size jump start,” Lipper said, and Larry Silverstein would “get it done.” And so he has. In June, a new plan for financing the long-stalled tower was unveiled, using mostly private funds and $150 million in insurance proceeds paid to the Port Authority after the original towers’ destruction. “We called the developer’s bluff,” Lipper said, “and voilà, the impossible private money appeared. Magic.”

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