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Debt and Scandal Plague the Port Authority

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Debt and Scandal Plague the Port Authority

June 15, 2016
Economy, finance, and budgets
New York
Infrastructure and energy

In this episode of the 10Blocks podcast, City Journal editor Brian Anderson interviews Steven Malanga, author of the recent City Journal article “Bloated, Broke, and Bullied,” about corruption and mismanagement at the Port Authority of New York and New Jersey.

Audio Transcript

Brian Anderson: The Port Authority of New York and New Jersey is a mess. The bi-state agency is, it seems, continuously mired in debt and scandal, strong-armed by the unions that represent its employees, the port authority lavishes outlandish pay and benefits on its workforce. Decades of corruption and mismanagement have created an unwieldy organization that desperately needs reform. Today on the 10 Blocks Podcast we talk to City Journal senior editor Steven Malanga, who is, among many other things, a senior fellow at the Manhattan Institute. Steve’s piece in the Spring 2016 issue of City Journal takes a hard look at the chaotic, debt-ridden reality of the port authority. Steve Malanga, thanks for joining us on 10 Blocks.

Steve Malanga: My pleasure.

Brian Anderson: The port authority is 95 years old this year. What was it originally formed to do?

Steve Malanga: Well, it’s part of an interstate compact which essentially means that Congress had to grant it the right to create this operating agency that operated across state lines. And the reason for that was New Jersey and New York were often in dispute about the Port of New York and New Jersey, and particularly about rail operations on the port. They couldn’t basically decide who should govern them and they were, they found themselves oftentimes in court over these issues and a federal judge finally said maybe you need to find a way to cooperate. And the port authority grew out of that and began really with what should have been a very focused, modest effort to sort out how to run the great Port of New York at that time.

Brian Anderson: The agency has tremendous debt problems because of its massive personnel costs, especially the cost of providing pensions to its retirees. How did it wind up in this position and can you say a bit about that crisis?

Steve Malanga: Yeah, well, you know the problem, first of all, with the port authority is that it has had to fund, of course, the reconstruction of Lower Manhattan, which in itself has created a big bonded debt burden. In addition to that it has very, very high compensation costs and in particular there are two reasons for this. It participates in the New York State pension system, which is a very expensive system, and in addition to that it has had a culture of overtime among its employees, its unionized employees, for years. And so many unionized employees earn significantly more than their base salary and through many different forms of compensation in addition to overtime, like extra pay for working special shifts and so forth, and as a result of that there are a lot of workers at the port authority who retire with pension benefits that are well beyond, let’s say, the typical retirement which might be 60 to 70% of your final base salary, in fact there are quite a number of employees who actually retire making a larger pension than they earned in base salary while they were working. This creates a tremendous burden on the system and it also creates, you know, a whole category of worker at the port authority that’s earning even more in pensions than the New York State workers, who do quite well. In fact, of the 300 top-paid, top pensioners in the New York State pension system, 71 of them are port authority employees. This is really extraordinary considering that port authority employees are a very small percentage of all the people receiving pensions in New York State.

Brian Anderson: Your essay draws on new data from an organization called “Open the Books” that nobody’s really seen before and it documents, I think, this remarkable largess on the part of the port authority when it comes to personnel costs.

Steve Malanga: Yes, using Freedom of Information Act requests, they obtained, and we analyzed, five years worth of salary data which include very, very specific breakdowns, if you will, base pay, overtime pay, other kinds of extra pay, and then data on retirees. And so they’re quite extraordinary. To talk about a couple of examples, for instance, on average the police sergeants who work in the port authority’s police force earn a base salary of about $102,000 a year during the periods we looked at, including 2014, the most recent period. However, their average total compensation during those years was actually $182,133 thanks to all the extra pay. Police officers, the top-paying police officers who earn a base salary of $90,000 a year, which after six years is among the highest salaries of police officers in the region, their actual average compensation at the port authority in 2014 was really $153,784. And so it goes on down the line. Electricians earning about 30 to 40% more than their base pay. Senior toll collectors earning significantly more, about $20,000 a year more than their base pay. And all of that, of course, is paid at time-and-a-half. It’s a very inefficient way of paying workers, and it helps to drag down the pension system by increasing the cost of pensions for senior workers, older workers, who tend to earn the most in overtime probably because they are looking to, what we call, spike their pensions.

Brian Anderson: In 1967 PATH train engineers won an injunction to prevent them from having to use walkie-talkies. Why? What was that all about?

Steve Malanga: Well, here’s the thing. The port authority, of course, is heavily unionized and it controls key assets in the region, including transportation assets, the airports, and so forth. And one of the things its unions have been able to do over the years is essentially not only burnish their wages, but also make sure they essentially keep their workforce growing by threatening those, you know, those assets. By going on strike, by doing work slowdowns and so forth. In that particular case, one of the cases I wrote about years ago, essentially what they were trying to do is stop the port authority from using technology to increase the efficiency of the workforce because they were more interested really in the number of workers, not the efficiency of the workforce. The overall message, when you go back and look over the years and I talk about work stoppages and negotiations in the 70s, the 80s, and the 90s, the overall message is that when you have a unionized workforce that has control over these crucial assets, they can do things like go on strike, as PATH workers did for 81 days at one point, and create chaos in the region and in the process create pressure on the management there to, you know, solve these work stoppages with higher benefits and wages, which is one of the reasons why you see some of these, you know, striking benefits deals at the port authority.

Brian Anderson: Overtime costs are out of control at the port authority. What do we know about what the employees are doing during their overtime hours?

Steve Malanga: Well, this is an interesting discussion. First of all, overtime costs at the port authority have more or less been out of control for about 30 years. It’s a regular subject of audits by outside agencies, including New York State controller’s office, and the port authority rarely says it plans to bring these costs in line. They seem completely incapable of doing that. In fact, one New Jersey paper commented that it seems like death, taxes, and overtime costs at port authority are all three things we can count on in this particular region. One thing I think that may contribute to it is that because the cost of benefits has gotten so high at the port authority, the price of hiring a new worker, which is not just the worker’s salary but the worker’s benefits also, becomes prohibitive. So instead what the port authority is doing is essentially keeping its workforce numbers down but using overtime to fill in the gaps. That’s a very expensive way of doing that, and you only do that if you’ve got yourself in a position where it’s too expensive to hire new employees because, essentially, you have granted them levels of benefits that you can’t bear. So they’re trading full-time employees for overtime, but they’re paying those overtime employees time-and-a-half and in addition to that the extra cost on the pension system - and their pension costs are rising very rapidly - the extra costs on the pension system, you know, has to be figured into, you know, this overtime mess.

Brian Anderson: Many suggestions have been made over the years for reining in costs at the port authority. You’ve just alluded to the overtime question. What would your ideal solution be? What reforms would you like to see enacted?

Steve Malanga: Well, I think there are a whole bunch of them. First of all, the port authority itself has tried, for instance, to hold down healthcare costs for workers by essentially removing healthcare costs from the collective bargaining unionization process, something they have the right to do. However, the current Governor of New York, Andrew Cuomo, who has direct control along with the Governor of New Jersey over appointment to the port authority, stepped in and essentially quashed that for political reasons. And so, you know, that’s something that we need to see in order to gain control of healthcare costs, in the same way that if you work for a private employer that employer from year to year makes adjustments to your healthcare program to kind of restrain costs and you have the option of either, you know, paying those extra costs or of leaving. Similarly I think one of the biggest mistakes the port authority ever made was participating in the New York State pension system, because of course New York State has a constitutional guarantee of all pension benefits, not only benefits earned, but benefits that a worker might accrue for work they have not done yet. That makes reforming the pension system very difficult in New York State, and I think that going forward the port authority should, for all new workers, essentially exit that pension system because the guarantees are very costly and find another way, either a separate pension system or participating in creating a new pension system for new workers to get out from under the New York State pension system and its guarantees, because the combination of the overtime and extra pay and the formulas, if you will, that pay benefits in the New York State system are just very, very burdensome on the port authority.

Brian Anderson: New York Governor Andrew Cuomo and New Jersey Governor Chris Christie are searching for a new director for the port authority. Considering the failure of past directors to solve these problems, what type of leader do you think they should be looking for?

Steve Malanga: Well, what they are trying to do is hire a more senior leader. Transform the director’s job into something called a chief executive’s job, and they think that giving that person more power might, in some way or another, improve the port authority. I think the problem is that the political meddling of the port authority and the fact that the costs of the port authority don’t appear on the budgets of either state but rather they are paid for by these giant subsidies in the form of very, very high tolls and we’re now up to $15 and $16 to cross the Hudson, and also very high fees on - at the airports, which are essentially rolled into airline fees. Those kinds of subsidies, in a sense, protect the port authority from reform. If, instead, your taxes were going up, people would be outraged. Although I think, quite frankly, the latest toll increases have also finally got people up in arms, taxpayers and residents of this area, up in arms because it’s very expensive if you are using port authority facilities these days. It’s very expensive because of the fees that are being used to pay for these benefits.

Brian Anderson: Please check out Steve Malanga’s latest article, “Bloated, Broke, and Bullied.” It’s the latest in an ongoing series we’re publishing on the Port Authority of New York and New Jersey. It’s in our Spring 2016 issue and it’s on our website at www.city-journal.org. We’d love to hear your comments about today’s episode on Twitter, @CityJournal with the hash tag #10Blocks. Lastly, if you like our show and want to hear more, please leave ratings and reviews on iTunes. Thanks for listening and thank you again, Steve, for joining us on 10 Blocks.

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Photo: DangerJacobs/iStock

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