On Thursday, the Port Authority of New York and New Jersey approved the first internal conflict-of-interest code in the bi-state agency’s 94-year history and significantly strengthened its protections of whistleblowers. The standards are voluntary, but they establish specific guidelines that the agency’s commissioners, employees, and thousands of vendors will be expected to follow. Several of the authority’s 12 commissioners praised the new code, echoing chairman John J. Degnan, formerly a vice chairman of the Chubb Corporation and a New Jersey attorney general, who called it “a step in the right direction.”
The commissioners might well have added the words “not a moment too soon” or “the very least that the authority could do,” given the scandals that have plagued the multibillion-dollar agency that supervises New York and New Jersey’s transportation networks. Until recently, the authority’s mostly wealthy, politically well-connected commissioners, appointed by the governors of New York or New Jersey, have resisted such internal standards.
It was Kenneth Lipper, a financier and Academy Award winner appointed by New York governor Andrew Cuomo in 2013, who championed the code and lobbied his colleagues to adopt it. At a public board meeting Thursday at its plush new offices inside the World Trade Center in lower Manhattan, Lipper argued that the code would restore public confidence in the agency by eliminating both “actual conflicts of interest and the perception of conflicts,” which he said were almost as harmful to the Port Authority’s reputation as misconduct itself.
The board’s new Governance and Ethics Code has three main elements. First, it provides for the appointment of a chief ethics-compliance officer to advise board members on potential conflicts of interest. Second, it significantly strengthens protections for whistleblowers, employees, or the agency’s vendors—businesses and entities with whom the authority contracts—who report suspected fraud or malfeasance. Third, it establishes a “zero-tolerance policy” barring board members, employees, and vendors from offering or accepting “gifts or gratuities of any kind” in return for agency business or favors. From now on, Lipper said, vendors will be barred from paying or offering to pay for Port Authority business expenses. That will certainly cut down on the meetings in Paris as opposed to Bayonne.
The board’s new “recusal policy” requires that commissioners recuse themselves from voting on a matter before the board if they—or a “close family member, (i.e. spouse, or minor child, or grandchild)”—own a security or another investment interest in a company or other entity worth either $100,000 or 1 percent of their portfolio. In addition, it provides that commissioners who are partners in law, consulting, or accounting firms representing clients on a matter before the board should recuse themselves from voting, even if they’re not personally involved in representing that client. And it prohibits retiring commissioners, for a year after their service ends, from advising, representing, or doing business with anyone suing the Port Authority and, for five years after stepping down, from advising such a client on a specific matter on which they voted.
New Jersey’s infamous “Bridgegate” scandal dramatically highlighted the need for such standards. Port Authority officials are said to have conspired with aides of New Jersey governor Chris Christie in September 2013 to shut down lanes of the George Washington Bridge as punishment for a local mayor who failed to endorse Christie’s reelection. The scandal prompted Port Authority chairman David Samson, once among Christie’s closest advisers, to step down in 2014.
Earlier this month, an investigation by U.S. Attorney Paul Fishman forced the resignation of United Airlines chairman Jeff Smisek and two other senior executives at the airline. United operates its main hub at Port Authority-managed Newark Airport. The Record reported earlier that the prosecutor has allegedly uncovered a deal between Smisek and then-Port Authority chairman Samson to restart air service between Newark and Columbia, South Carolina, where Samson has a vacation home, as part of its lease negotiations with the authority. United allegedly tried to enlist Samson’s help in lowering United’s fees at Newark, which are at least 50 percent higher than what United pays at other major airports. Fishman is reportedly investigating whether there was a quid pro quo.
The Port Authority has also repeatedly mismanaged public funds. It spent over $10 billion redeveloping the World Trade Center site, including $2 billion more than projected on building the site’s new transportation hub. Wild overspending at Ground Zero helped double the Port Authority’s debt over ten years and explains why the agency increased rates at its money-making facilities—bridges, tunnels, and airports—and slashed investments in badly needed capital projects. A 2011 report by the New York State comptroller concluded that the agency exercised no oversight of dozens of expensive contracts awarded for rebuilding work and produced little or no documentation for payments made to architects, engineers, and others.
In 2014, legislators in Trenton and Albany jointly negotiated bills mandating ethics reforms at the Port Authority. Among other things, the bills would have weakened the ability of each state’s governor to make key appointments to the agency. Unsurprisingly, Governors Cuomo and Christie blocked the respective measures and directed the Port Authority to reform itself, effectively putting the agency’s fate and conduct in its own hands. A watered-down reform package is now being offered in both states, but neither legislature is expected to approve it. With lawmakers and state executives so unwilling to police the Port Authority, Lipper’s leadership in getting the authority to adopt some basic ethical standards is even more valuable.