The Port Authority’s Cloudy Future: The transportation agency has mortgaged itself to the hilt to rebuild the World Trade Center, leaving few resources for its real mission.

December 7, 2012

New York’s Port Authority has become synonymous with 9/11′s Ground Zero and the rebuilding of the land which once was home to The World Trade Center. With construction well underway the first phase of the project is nearing completion. However, the PA original mission, “to purchase, construct, lease, and/or operate any terminal or transportation facility” which serves both New York and New Jersey appears to have been relegated to secondary status. The construction and managing of office buildings has become a Port Authority priority and as a consequence, funding for necessary administration of some of the nation’s largest port facilities is nowhere to be found.

And notwithstanding a lot of political and fiscal machinations, there isn’t enough money to go round.

City Journal:

New Yorkers have watched One World Trade Center gradually define the downtown skyline. The massive glass-and-steel building should reach its full height and be ready for tenants within 18 months. But to those tenants, One World Trade may come to symbolize not victory over terror but rather their own miserable commutes. Most of the white-collar workers who will stream into the tower depend on subways, buses, tunnels, and bridges to get to Manhattan. And over the past decade, the government agency in charge of much of the region’s transportation—the Port Authority of New York and New Jersey—has neglected that core responsibility in favor of rebuilding lower Manhattan.

The good news is that the World Trade Center project (technically, the first big phase of a larger, two-phase plan) is closer to completion than to commencement. Over the past three years, not only has the $3.9 billion One World Trade Center (known in the planning stages as the Freedom Tower) risen ever higher; other projects have taken shape downtown as well, including a $3.7 billion train hub, a vehicle security center to receive the trucks that will serve the new office towers, and a remade streetscape. Even a long-running dispute over who will run the 9/11 memorial and museum at the site has been solved.

Unfortunately, the Port Authority has barely begun to pay for all this rebuilding. Its share of the bill comes to $7.7 billion, which it has borrowed. And to repay that massive debt, the agency will have to divert toll revenue from bridges and tunnels and fee revenue from airports—money that won’t be available for the transportation projects that New York badly needs.

In the early twentieth century, editorialists, public officials, and good-government advocates fretted that New York’s port, facing competition from as far away as New Orleans, wasn’t reaching its potential. The chief culprit: bickering between New York and New Jersey. New York had the piers to receive ships, and New Jersey had the railways to move the ships’ cargo, but the two sides could never agree about how to invest in port assets. In early 1920, New York governor Al Smith urged lawmakers to do something. “Port development is critical,” he said. “It affects the cost of living; it affects the cost of doing business.” The New York Times agreed, arguing that “the port is a national interest, and it is economically wicked to divide it between New York and New Jersey.”

The next year, the governors of New York and New Jersey signed an agreement to create the Port of New York Authority (“New Jersey” was added and the words reordered in 1972). Realizing that they would have to work together in other ways—above all, the growing region needed transportation infrastructure, such as bridges and tunnels—the two states endowed the agency with a broad mission: “to purchase, construct, lease, and/or operate any terminal or transportation facility” within a defined district along the New York–New Jersey border. To finalize the deal, the governors had to secure congressional approval and beat back a lawsuit by New York mayor John “Red Mike” Hylan, who didn’t want some bistate agency controlling his land.

The Port Authority clocked some impressive achievements in its early decades, living up to its founders’ Progressive vision of an agency staffed with apolitical technocrats expertly building necessary transportation assets. Starting in the twenties, the Port Authority constructed the George Washington Bridge, linking New Jersey and Manhattan, as well as three smaller bridges—the Goethals, the Bayonne, and the Outerbridge Crossing—connecting Jersey to Staten Island. It also dug the Lincoln Tunnel under the Hudson and took over the operation of the existing Holland Tunnel. Beginning in the late 1940s, the Port Authority took over and expanded the region’s three airports: LaGuardia, Newark, and Idlewild (renamed John F. Kennedy a month after the president’s 1963 assassination). As more New York City workers moved to the suburbs, the authority opened a Manhattan bus terminal in 1950.

But the Port Authority began to experience mission creep in the late sixties. Early in that decade, David Rockefeller, vice chairman of Chase Manhattan Bank and brother of Governor Nelson Rockefeller, had built Chase Manhattan Plaza in lower Manhattan. Wanting other companies to join him there, he hounded his brother to spearhead office development downtown. In 1960, David Rockefeller’s Downtown–Lower Manhattan Association unveiled a $250 million plan to construct a “world center of trade” on the East River. “The Port Authority seemed the logical agency” to build the complex, the Times said, describing his reasoning, because “the World Trade Center would strengthen the economic fabric of the entire New York-northern Jersey area.”

Half a decade later, the plan was becoming reality, but it had changed significantly. The project had moved from the east side of downtown to the west, and its price had risen to $575 million ($4.1 billion in today’s dollars). It would also require government tenants, with New York State occupying up to one-fifth of it. To mollify New Jersey for making such a big investment in New York, the Port Authority would also take on responsibility for the loss-making subway system already running between the two states (today called PATH). And it became obvious why promoters wanted the Port Authority to build the World Trade Center: the agency could borrow more cheaply than corporations could, as it enjoyed tax exemptions and took in ample revenue each year from its busy bridges and tunnels.

Not just Rockefeller but other state and city wise men embraced the World Trade Center. The sixties, remember, were an era of mass-scale slum clearance and other top-down government construction schemes. That the project would demolish “one of the city’s oldest and most colorful commercial centers,” as the Times put it in 1964— a neighborhood abounding with “flower shops and nurseries, hardware stores, book stalls, food and fish markets and restaurants”—didn’t deter officials. Local merchants took their case to the U.S. Supreme Court after losing the legal battle in New York; the court refused them even a hearing.

In the end, the Port Authority exhausted its financial and political resources in building the Twin Towers, completed in the early seventies. As World Trade Center historian Angus Kress Gillespie wrote in his 1999 bookTwin Towers, “The World Trade Center was the last great project that the agency would undertake, at least in our time.” In building the complex, Gillespie concluded, the authority had “stretch[ed] the limits of its charter,” angering regular citizens and small businesspeople. The private real-estate industry, too, was upset that it now faced a huge government competitor with a tax advantage and easy borrowing terms. A group of real-estate operators worried, for example, that the Port Authority would have difficulty finding tenants for its skyscrapers and would “dump the space on the open market at reduced rents.”

Even as New Yorkers came to love the towers on their skyline, officials began realizing that the World Trade Center fit uneasily within the Port Authority’s mission. In 1983, two years after former deputy mayor John Zuccotti advised them to sell the Twin Towers and use the proceeds to improve mass transit, Governors Mario Cuomo of New York and Tom Kean of New Jersey agreed to study the question. A year later, though, the Port Authority’s consultant determined that “the Port Authority and the two States can derive the greatest value from the World Trade Center if it is retained by the Port Authority,” as the agency announced in its annual report to investors.

Unfortunately for the region’s transportation infrastructure, the consultant was right, at least about short-term cash value. By 1983, the World Trade Center was enjoying higher occupancy rates and had consequently stopped losing tens of millions of dollars every year; in fact, it had started to turn a small annual profit, about $11 million ($25.4 million in today’s dollars). Further, with an improving economy, the state could vacate some of the office space that it occupied in the towers and allow the Port Authority to take on higher-paying tenants.

So the governors agreed with the consultant. Instead of seizing the opportunity to return the Port Authority to its original mission, they used the cash to expand its activities dramatically. Worse still was that they had already found a use for any extra money that the World Trade Center generated: not to fund transportation but to “assist in the commercial revitalization of the region,” as Cuomo and Kean agreed formally in 1983. That phrase was code for spending on “regional programs” that had nothing to do with transportation between New York and New Jersey. The following year, the two states also passed legislation directing the Port Authority to develop two waterfront real-estate projects, one in Hoboken and one in Queens.

Over the ensuing three decades, the agency spent $2.1 billion on everything from development of a Yonkers industrial park to planning studies for Brooklyn’s MetroTech office park to building a rail spur to the Meadowlands sports complex in New Jersey, with some money left over for “community development” in Newark and Elizabeth (in Jersey) and Jamaica (in Queens). As the authority proudly noted in annual reports in the early eighties, it was constructing a solid-waste disposal project in Essex County, New Jersey; had opened “Teleport,” which was, in the words of Executive Director Peter Goldmark, Jr., “the world’s first satellite communications center and office park,” on Staten Island; and was building something called “Fishport,” which would “resurrect the fishing industry in the bi-state harbor.” Encouraged by the governors but not needing much encouragement, the agency had strayed far indeed from bridges and tunnels.

But in the nineties, pushed by Governor George Pataki, the Port Authority revived the decade-old plan to sell the World Trade Center. The buyer was real-estate mogul Larry Silverstein—though the arrangement was technically a 99-year lease, not an outright sale, so that Silverstein could indirectly benefit from the Port Authority’s tax breaks and other advantages. Despite the complexity of the deal, proponents of a smaller Port Authority were satisfied. “By sharpening the agency’s focus on our airports, seaports, bridges and tunnels,” said Pataki, the handover would let the Port Authority “improve services . . . and become a stronger economic engine.”

The sale took place on July 24, 2001. The world knows what happened seven weeks later.

For the first half-decade after 9/11, emotions and empire-building reigned over Ground Zero. Though pure rationality was never going to rule the rebuilding process, Pataki made some critical mistakes. One was to create a new public authority, the Lower Manhattan Development Corporation (LMDC), to oversee the rebuilding. The LMDC held design contests for Ground Zero, but it wasn’t accountable for the long-term success of the resulting plans; turning those plans into reality was the responsibility of the Port Authority and Silverstein, still landlord and tenant, respectively. This arrangement gave the LMDC little incentive to come up with a workable design.

Governor Pataki and Mayor Michael Bloomberg had considerable discretion over the money that Congress had provided to help New York rebuild. Unfortunately, they used it to approve financing for projects that had nothing to do with Ground Zero, ranging from a now-bankrupt sports museum downtown to the Bank of America Tower in midtown. Few officials, including those in the Port Authority, sounded alarms as the politicians frittered away the rebuilding funds.

Still another mistake was the ambitious “master plan” that Pataki and his advisors pushed: “Memory Foundations,” by celebrity architect Daniel Libeskind, which included a 1,776-foot “Freedom Tower,” a memorial, three smaller towers, and a new PATH station designed by a second starchitect, Santiago Calatrava. The station wouldn’t add new train lines but would feature “two counterpoised canopies over the main concourse, rising some 150 feet like skeletal birds’ wings, that could be retracted hydraulically” in pleasant weather, in the Times’s description. The projects weren’t just fanciful; they were expensive. But money was no object in showing the world that New York would rebuild.

At any rate, the costs were covered, weren’t they? Silverstein’s insurance funds—$3.5 billion or so—would take care of the Freedom Tower’s $1.1 to $1.3 billion price tag ($1.2 to $1.6 billion in today’s dollars), with plenty left over to build the other towers at the site. And federal aid and more insurance funds would pay for the $2 billion PATH station. When Pataki laid the Freedom Tower’s cornerstone on July 4, 2004, just in time for the Republican National Convention’s arrival in town, nobody was wondering what would happen if the money ran out.

It took until 2006 for Pataki, the Port Authority, and other state and local officials to admit that the entire Ground Zero plan was impracticable. The Freedom Tower, more an art project than a realistic design, worked as a slide show but not as a building. It would need a complete redesign by Norman Foster, an architect accustomed to working on real office buildings for private clients whose eyes were on the bottom line. The price tag of the PATH station was outpacing construction, too. Little was happening downtown, except for the rise of one tower, Seven World Trade Center, which Silverstein could rebuild quickly because it was outside the official government-controlled site. Pataki could see the end of his term coming; it became obvious that dwindling insurance proceeds wouldn’t cover the rising costs of rebuilding—and the governor panicked.

The solution that he approved will burden the Port Authority for decades to come. The agency would take over from Silverstein the job of building One World Trade Center and another tower adjacent to the site. Silverstein, who would retain responsibility for building the other three towers at Ground Zero, would see his rent cut significantly and would also receive substantial financial help for proceeding. For example, Four World Trade Center, which is currently being built, is going up under Silverstein’s management but with $1.2 billion in Port Authority–supported debt, as well as commitments from the authority and from New York City to lease two-thirds of the building’s space. All these commitments from the government were necessary because the projects made zero economic sense. Their rationale was, rather, political and emotional—as became clear once again in 2008, when Pataki’s successor, Eliot Spitzer, directed the authority to work even faster, and so incur still more costs, so that the memorial could open by the tenth anniversary of 9/11…

Read it all.

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