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Reinventing the Port Authority

Podcast

Reinventing the Port Authority

February 15, 2017
Infrastructure and energy
New York

Robert Poole (of the Reason Foundation) joins Aaron Renn to discuss the Port Authority of New York and New Jersey.

The Port Authority was originally founded to manage the region’s transportation infrastructure, but the agency has long been plagued by politicized decision making, money-losing facilities, and declining financial viability.

Poole is the author of a new report commissioned by the Manhattan Institute, Reinventing the Port Authority of New York and New Jersey.

Check out City Journal’s coverage of the Port Authority of New York and New Jersey below.

Audio Transcript

Aaron Renn: Hello, this is Aaron Renn, contributing editor at City Journal.  As you know, we have been doing a lot of articles, both in recent issues and forthcoming, on the future of the Port Authority of New York and New Jersey.  And to talk more on that topic, I'm pleased to be here today with Robert Poole.  He is Director of Transportation Policy and Searle Freedom Trust Fellow at the Reason Foundation, actually cofounded the Reason Foundation, is one of America's most eminent and innovative transportation experts.  So, Bob, thank you very much for joining us.  I appreciate it.

Robert Poole: Glad to be here, Aaron.

Aaron Renn: What is the Port Authority?

Robert Poole: Well, the Port Authority is almost a hundred years old, it's a big institution that was created to improve the ports of New York and New Jersey and the associated transportation.  Over the years it evolved into running the three major airports, the building and running the bridges and tunnels across the Hudson River between New Jersey and New York, a mass transit system that loses a ton of money, a Port Authority Bus Terminal that is apparently in very poor shape and miscellaneous so-called economic development projects that lose money and are done as political favors to the governors of the two states, so it's really kind of gotten out of control from what it was originally intended to be.

Aaron Renn: What do you think is the core problem with the Port Authority?

Robert Poole: Well, the core problem is what the Port Authority considers its strength, and that is that all the money that they raise from revenue-producing enterprises, whether they make profits or losses, the airports, the tunnels and bridges, the ports, all goes into a common pot and they issue revenue bonds based on - they call that system financing.  What that has meant over the years is that the airports and the bridges and tunnels become cash cows and everything else sucks up the money and is available for politicians to play with.  And that is, it turns out, this so-called strength turns out to be the Achilles heel of the Port Authority.  It is the weakness that drives all sorts of uneconomic behavior that wastes money, and for which there is a big opportunity cost because New York's major airports are not world class - they should be - the ports are not competitive in the way that they should be, and the bridges and tunnels, or many of them, are nearing the end of their useful lives and there's no provisions to replace them or modernize them, so the core assets are being neglected in order for the politicians to spend all kinds of money on other things.

Aaron Renn: So that's primarily things like the PATH system, or the World Trade Center, and things like that.

Robert Poole: Right, right.  Well, the World Trade Center, before it was destroyed by terrorists, actually was making money.  But they should not have diversified into real estate.  There was no good reason to do that.  Commercial, the private sector could've done that.  And they only got permission to do the World Trade Center by being willing to take over the money-losing rail transit system that became PATH between New Jersey and the tip of Manhattan.

Aaron Renn: So what should we do about the Port Authority?

Robert Poole: Basically we should take away their cash cow business.  And that means, my recommendation would be to make each of the enterprises self-supporting.  In other words, the tolls that toll payers pay would be used for the facilities that they use, to make them better and more capacious.  The charges that airlines and passengers pay at the airports would be used to make better airports, and so forth.  The seaports would be forced to be self-supporting instead of losing some money and you get rid of the ones that are hopeless basket cases, which is several of them.  So you do that and you no longer have a huge pot of cash available for politicians to play games with.  You force the system to be responsible by taking away, cutting off the water, basically.

Aaron Renn: What would you do with some of the money-losing assets like PATH?

Robert Poole: Yeah, well the PATH train is a good example of it's not subject to the same discipline that any other rail transit system in the country is because it gets all of the money, other than the small amount that comes from the fare box, comes from the people who pay tolls to cross the river in cars and it does not get federal transit grants like all other transit systems do, or state grants, or local taxpayer support of any kind.  So one thought recommended in one of the reports that I have reviewed is that give it to New Jersey Transit.  It serves New Jersey commuters.  If New Jersey Transit took it over, they are already eligible, they get federal transit grants, state transit money, and they could even create local taxing districts around their stations because of potential benefits from people, from merchants having transit access.  So there are solutions to that.  I don't have any magic way to make it a profitable enterprise, but if it became a normal rail transit system, it wouldn't need to be sucking up huge amounts of money from people who pay tolls for lousy service on the highways.

Aaron Renn: Well that maybe highlights the key problem with reforming the Port Authority, because you've got a political challenge there.

Robert Poole: Absolutely.

Aaron Renn: New Jersey Transit already has huge problems.

Robert Poole: Right, right.

Aaron Renn: There are very high fares on their commuter rail system, underinvested in capital, New Jersey's highway trust fund is broke, the state's got big financial issues, so how could you possibly convince the State of New Jersey to take over this asset?

Robert Poole: That, you're right.  That would be a tough sell given the reality of those problems.  Another possibility would be to take a lesson from Hong Kong.  The Hong Kong Mass Transit Railway is profitable because it is a combination of real estate and rail transit.  There's huge value to being connected to a mass transit system that carries large numbers of people.  So one possibility would be, as part of divesting the World Trade Center, to make whoever would buy a big chunk of that take over the transit system that feeds people to work there, to shop there, to be tourists there, and have that be part of the system.  I haven't done numbers to see how that would work out, but a deal of that sort might be possible in order take over that four billion dollar station that is now part of the rebuilt World Trade Center.  That's a plum asset for somebody but you'd have to take on the transit line itself in order to get it and the building that it's part of.

Aaron Renn: What role do you think privatization might play in this, especially in things like airports which have been privatized around the world?

Robert Poole: Yeah.  Most of the major airports in the world, certainly in Europe and many of them in South America, have been privatized in the last 20 years and they've all been improved by privatization.  The only one in the United States, really, is the San Juan Airport in Puerto Rico, which is undergoing a major refurbishment.  If you make the airports self-supporting, they could be long-term leased, as was done with San Juan International in Puerto Rico, as is done in most of Latin America, and is becoming a world model.  Most of the privatizations in Europe are not full ownership, they are long-term concessions.  And you could raise a lot of money and pay off the amount of bonds that effectively have been used for the airports by leasing them out for 50, 75 years, at market values.  Given what airports are going for these days, those airports are worth tens of, tens of - probably twenties - scores of billions of dollars, altogether, Newark, LaGuardia, and Kennedy.

Aaron Renn: One of the ideas might be, especially for these bridges and tunnels, to sell them to different people so that you have different agencies that are in competition with each other.

Robert Poole: That's an excellent suggestion, I think.  And that's one of the things that, one of the problems that I have with the Port Authority.  It was the progressive era concept that everything should be one giant enterprise that was centrally managed.  And when Margaret Thatcher first started privatizing British infrastructure, she privatized the entire British Airports Authority, the three London airports and the two Scottish airports, because it had always been one system.  Well, they found out after awhile that that really wasn't the best model, and so in the last decade, Stansted and Gatwick airports have been sold off, leaving just - the former BAA is now just Heathrow - and those airports now are forced to compete with one another, and they are making large investments in improving their facilities, and both Heathrow and Gatwick are pleading for permission to build a new runway to add capacity.  Because they're - particularly Heathrow is woefully short.  It's like at 98 percent of its capacity and has really no room for growth.

Aaron Renn: If we did split these up and, you know, create competition within bridges and tunnels, or within the airports, is there a danger that that might cause externalities or undermine other important policy goals?  So maybe people are driving extra, causing extra congestion on the street, to get to the bridge that's a little cheaper than the other one, or maybe polluting the air a little more or something like that.

Robert Poole: Right, right.

Aaron Renn: Are there any tradeoffs that you make in that situation?

Robert Poole: There are certainly potential problems of the sort you are raising, but the beauty of these long-term concession agreements is that governments who have competing companies bid for the right to refurbish and run a particular enterprise can put in performance requirements.  And if you want to have a certain level of policies on emissions, for example, those can be a standard condition for all the bridges and tunnels, so that there's not that kind of invidious competition to, as a race to the bottom, so to speak.  But you would probably want to leave the pricing, be free, because the traffic characteristics may well be somewhat different among the different bridges and tunnels and it's best to let the market sort out what pricing scheme really works the best to manage the traffic.  It's certainly in the interest of the concession company that gets a particular facility to maximize its revenue, consistent with providing good, reliable service.  And so it's better not to have administered prices as opposed to market prices in those cases.

Aaron Renn: I want to make my last question about the Port Authority Bus Terminal.  You mentioned the PATH station at World Trade Center.  That's basically a subway station, not even in the top ten busiest in the City of New York, that was four billion dollars to redo.

Robert Poole: Right, outrageous.

Aaron Renn: The Port Authority has had a lot of challenges with cost overruns and extremely high budgets on projects.  And a lot of what they've done is already baked.  Okay, the bridges are built.

Robert Poole: Right.

Aaron Renn: That PATH station is built.  But one that they need to figure out what to do with, potentially their next big project, is the Port Authority Bus Terminal in Midtown.  Apparently it's structurally deficient, it needs to be replaced, and their estimated cost right now, very preliminary estimate, ten billion dollars.  Which seems beyond ludicrous.

Robert Poole: Yes.

Aaron Renn: Do you have any thoughts about what the future of that one ought to be?  Because it seems like the one that's most in play right now.

Robert Poole: Yes, the future of that ought to be a public private partnership in which you go to the private sector, to real estate developers, basically.  Port Authority owns quite a bit of land, property, right adjacent to the Port Authority Bus Terminal.  There's real estate value capture there, so someone could have, get the rights to develop that real estate in exchange for building a modern, not a, you know, an extravaganza like the PATH station in the World Trade Center, but just a normal bus terminal with modern concessions.  You know, restaurants and shops, dry cleaners and things that would serve people who use the buses.  But that would not, could not conceivably be probably more than a billion dollars as a piece of the overall real estate development, which would be a plum for anybody to be able to develop in that particular spot on the West Side of Manhattan.

Aaron Renn: Robert Poole, thank you very much for joining us today.

Robert Poole: Glad to do it.

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