Three Ways to Improve the Port Authority's Capital Plan
Last month the Port Authority of New York and New Jersey (Port Authority) released its $32 billion, 10-year capital plan. Following an external audit ordered by the governors of both states in 2012, as well as appeals for governance restructuring in the wake of the 2013 Bridgegate scandal, the agency has engaged in reform efforts that will require more time to evaluate. And though many governance concerns remain unresolved, capital planning has improved to some degree: the agency has progressed from having no multiyear capital plan as recently as 2007 to a new 10-year capital planning process established in 2011 and now updated.
Despite an increase in transparency and public accountability in the evolving process, the updated plan remains deficient in three ways:
- The Port Authority lacks a publicly-available needs assessment that identifies spending required to bring facilities to a state of good repair (SGR);
- The agency lacks a set of criteria to set priorities among numerous potential enhancements and expansions; and
- The first two deficiencies facilitate a misguided desire of the governors to allocate capital resources between “New Jersey” projects and “New York” projects without regard to their regional benefits.
Port Authority 2017-2026 Capital Plan
The latest capital plan allocates $32 billion over the 2017 to 2026 period.1 The scale of the plan is determined by the level of resources expected to be available. The largest single source is pay-as-you-go capital investment, $11.3 billion or 35 percent of the plan; these funds are derived from agency operating surpluses and reserves. Other non-borrowing sources are $3.9 billion from federal and third-party grants, $2.8 billion from airport passenger facility charges available for airport investments, and $250 million from the sale or net leases of assets. The remaining $14 billion is raised from borrowing through the issuance of agency revenue bonds ($11.8 billion) and use of federal transportation loans ($2.7 billion). The scale of borrowing is set by agency policies limiting the amount of outstanding debt and debt service obligations.
The dollar amounts in the plan are cash disbursements required to pay for work contracted for and underway or completed. It does not indicate the total cost of the projects included in the plan or the value of contracts to be issued in future years for which payments will be due after 2026. For example, the plan includes $3.5 billion in cash disbursements for the replacement of the Bus Terminal through 2026; however, the agency expects the total cost to reach as high as $10 billion with the remaining payments after 2026 unspecified. While a cash plan accounts for the funds needed to carry out a plan, it omits spending on projects that may be required in future years owing to contracts and other commitments made during the current 10-year plan period.2 Unlike capital plans at the Metropolitan Transportation Authority (MTA) and the City and the State of New York, the Port Authority’s capital plan shows only planned cash disbursements; it does not indicate commitment levels over the 10-year period. Without a commitment plan, the public cannot tell at what point the Port Authority expects to let contracts that will initiate a project and how much these contracts ultimately encumber the agency to spend.
Nearly two-thirds of planned disbursements occur in the first five years. This allotment is consistent with the conclusion of several major projects launched in earlier years including the World Trade Center, the redevelopment of terminals at LaGuardia Airport and Newark Liberty International Airport, and the conclusion of work related to Superstorm Sandy.
Ten large initiatives account for nearly two-thirds of the plan. (See Table 1.) The largest single initiatives are $3.5 billion for beginning replacement of the Bus Terminal and $2.7 billion in support for the Gateway Project creating new trans-Hudson rail capacity. Of the total $20.3 billion for these largest initiatives, $7.4 billion is for airport enhancements, $2.7 billion for bridges and tunnels, and $1.7 billion each for completion of the World Trade Center and extending Port Authority Trans-Hudson (PATH) service to the Newark AirTrain. Even with this focus on large projects, major investments advocated by planners, such as added runway capacity at the region’s airports and the introduction of longer, 10-car trains on the PATH’s World Trade Center line, are excluded. Meanwhile the plan includes $250 million for unspecified projects to benefit New York transportation programs, an allocation available largely at the New York Governor’s discretion and reminiscent of the regional development funds both governors criticized in 2014, and $766 million for completion of the Lincoln Tunnel Access Program, investments found in a lawsuit to be outside the Port Authority’s prime mission.3
Table 1: Major Initiatives in the Port Authority 10-Year Capital Plan
(dollars in millions)
|Port Authority Bus Terminal||Expand & Connect||$3,500|
|Support for Gateway||Partner||2,700|
|Redevelopment of LaGuardia Terminal B||Deliver||2,530|
|Redevelopment of John F. Kennedy International, Rail Link to LaGuardia||Expand & Connect||2,500|
|Redevelopment of Newark Liberty International Terminal A||Expand & Connect||2,340|
|PATH Extension to Newark AirTrain||Expand & Connect||1,730|
|World Trade Center||Deliver||1,692|
|Restoration of George Washington Bridge||Renew||1,535|
|Replacement of Lincoln Tunnel Helix||Renew||1,138|
|Lincoln Tunnel Access Program||Deliver||766|
|Share of Total Plan||63%|
Notes: For an explanation of categories of capital investment, see text. World Trade Center Program includes one Renew project. Restoration of George Washington Bridge includes one Deliver project.
Source: Port Authority of New York and New Jersey, Proposed Capital Plan 2017-2026 (January 11, 2017).
The projects in the plan are identified in four broad categories—Deliver, Renew, Partner, and Expand and Connect. (See Table 2.) Deliver accounts for $7.6 billion and refers to spending for completion of projects already under construction, which include completion of the World Trade Center and redevelopment of Terminal B at LaGuardia Airport. Partner projects, totaling $4.7 billion, are those completed with other regional stakeholders; the largest are the support for Gateway and PATH projects related to recovery and resilience after Superstorm Sandy. Expand and Connect refers primarily to the large new initiatives described above and totals $11.1 billion.
Renew refers to projects often described as state of good repair (SGR) work and totals $8.8 billion. A comparison of this sum with estimated deprecation over the plan period suggests the agency may be underinvesting in SGR work. The Port Authority’s projections of its expenses indicate depreciation will total $6.3 billion from 2017 to 2021; assuming depreciation continues at a similar annual level for the next 5 years, total 10-year depreciation will be $12.7 billion. The $8.8 billion in SGR work suggests a $3.9 billion, or 30 percent, shortfall. This may be an underestimate of needed work, because depreciation is based on historical cost rather than current replacement costs.4
Table 2: Port Authority 10-Year Capital Plan by Business Line and Category of Spending, 2017 to 2026
(dollars in millions)
|Deliver||Partner||Expand & Connect||Renew||Total||Share of Total|
|Tunnels and Bridges||1,751||336||360||3,674||$6,121||19%|
|World Trade Center||1,792||0||32||0||$1,825||6%|
Notes: For an explanation of categories of capital investment, see text. Other includes Ferry Transportation, Development, George Washington Bridge Bus Station, and investments related to Gateway. Other also includes $500 million in unspecified Renew projects and $300 million in Expand & Connect efficiencies.
Source: Port Authority of New York and New Jersey, Proposed Capital Plan 2017-2026 (January 11, 2017).
Critique of the Plan
The proposed 2017 to 2026 capital plan continues a deficient methodology for selecting capital investments at the Port Authority that can be improved in three ways:
Develop a publicly-available needs assessment that identifies spending necessary to bring facilities to a state of good repair. The Port Authority’s allocations for SGR projects are not based on a comprehensive appraisal of the condition of facility components. These investments are selected based on a numerical ranking of pressing needs identified by staff responsible for the facilities; neither the rankings nor the rationale for the list’s cutoff point are publicly disclosed. Moreover, the Port Authority’s current process may omit repairs and replacements not requested by staff but likely to be needed in future years of the plan period.
In contrast, as part of the legislatively-mandated capital planning process in New York State, the MTA surveys each of its bridges, tunnels, stations, rolling stock, and other capital assets every five years, assigning each component a score related to its SGR. The MTA uses this information to develop a 20-year needs assessment that identifies required investment to bring these components to SGR and what portion of those investments will be included in its upcoming five-year capital plan. The Port Authority’s pavement group uses a similar approach to direct investment, going as far as to predict when a section of pavement will deteriorate and pinpointing the appropriate timing and treatment to maintain SGR at the lowest possible cost. But there is no agencywide process of this type.
Without such a program, the public cannot see current and projected conditions for the Port Authority’s assets to assess whether the agency’s planned SGR investment is adequate. In some cases systematic underinvestment results in additional long-term costs. For example, the Port Authority’s 2014 to 2023 capital plan did not incorporate the replacement of the Newark AirTrain, despite the rail link’s impending end of useful life. Since then $377 million has been added to the capital program to rehabilitate the current, obsolete AirTrain so that it may operate while the agency designs and builds a replacement. A more thorough survey of assets and a public needs assessment would have identified and planned for this work sooner.
Establish a set of criteria for selecting enhancement and expansion projects that includes benefit-to-cost analyses. The Port Authority’s resources are finite. The combined cost of all possible beneficial projects exceeds the agency’s capital capacity. As such, any available capacity in excess of bringing facilities to SGR should be directed according to how well a project meets established criteria for project selection. These criteria should be quantifiable and allow for comparison of benefits and costs across projects.
Though this process is important to any project, regardless of size, it is particularly important for large enhancement or expansion projects. These multibillion dollar initiatives may take more than a decade to design and build. The agency’s decision to advance an initiative explicitly commits it to paying the expected costs during the plan period and implicitly commits it to paying additional costs beyond the plan period. Moreover, many expansions include operating costs that will have financial implications for the Port Authority beyond the capital budget that should be considered.
The airport links in the current plan devote significant sums to projects with dubious benefits. Extending the PATH to the Newark AirTrain will create a duplicative service for $1.7 billion: New Jersey Transit already provides a reliable 25-minute train ride from New York Penn Station. Preliminary feasibility studies showed the proposed PATH extension would serve an estimated 7,000 riders daily, of which half were already using New Jersey Transit. This project also assumes PATH introduces 10-car trains and that a 10,000-car garage is built, investments not included in the proposed plan.5 Similarly, creating an AirTrain to LaGuardia from the Mets-Willets Point transit station, as proposed, would not decrease travel times to the airport from Manhattan, the Bronx, Brooklyn, and most of Long Island.6 The modest ridership estimates and limited improvements in travel times for these projects would almost certainly lead to unfavorable benefit-to-cost ratios. It is likely that other projects not included in the plan would show higher ratios.
Discard the use of bi-state parity to allocate capital resources between “New Jersey” projects and “New York” projects. Despite calls for the Port Authority to place regionalism above parochial interest, a notion of parity—that is, the effort to divide investment equally between the states—has resurfaced with this capital plan. After the December 2016 board meeting the executive director released a statement that said the capital plan provides parity between the states, indicating funding for replacing the Bus Terminal was divided into a New Jersey commitment and a New York commitment, proportional to each state’s ridership.
However, as with many of the Port Authority’s facilities, the Bus Terminal is more than a sum of its ridership. New Jersey residents benefit from access to Manhattan’s central business district and New Jersey property values are improved by their accessibility to the region’s commercial core. Likewise New York employers benefit from a wider pool of workers that can reach their workplaces, and all residents in the region have access to more affordable housing while retaining a more reasonable, albeit still longer than average, commute.
Runway capacity at Port Authority airports is another project where parity-based allotment is inappropriate. For example, a 2011 report from the Regional Plan Association recommends increasing runway capacity at John F. Kennedy International and Newark Liberty International to reduce delays and meet long-term demand.7 However, these expansions could and should be implemented sequentially. An airport project on one side of the Hudson does not necessitate a corresponding investment on the other.
Though new runways are not included in the proposed plan, the debate over the Bus Terminal has played out publicly over the past few months. The agency’s reference to each state’s commitment asks more questions than it answers. Namely, what other projects may have been undermined by the process of bi-state horse trading? When the emphasis is on splitting a check and not forging a link, the agency’s customers suffer and the region’s long-term planning splinters.
Publishing a needs assessment based on a component-by-component survey and applying a set of criteria for selecting projects would build the public’s confidence that the agency is acting as a good steward of the region’s transportation infrastructure. It ensures the Port Authority prioritizes maintaining safe and efficient facilities and undertakes enhancements and expansions only when supported by planning documents demonstrating their benefits, costs, and ability to meet long-term demand. Such an open process would allow agency staff to formulate a capital plan insulated from political pressure on project selection and would better equip the board to fulfill its fiduciary responsibility.
- Port Authority of New York and New Jersey, Proposed Capital Plan 2017-2026 (January 11, 2017), http://corpinfo.panynj.gov/pages/capital-plan/.
- A commitment is the amount an agency expects to place under contract for a given period as opposed to a disbursement, which is the amount of cash conferred by the agency to pay for related work.
- The Special Panel on the Future of the Port Authority created by the governors recommended reallocating regional development funds to specific transportation projects related to the Port Authority’s mission in its December 2014 report. The Lincoln Tunnel Access Program refers to the rehabilitation of the Pulaski Skyway and the replacement of the Route 7 Wittpenn Bridge. See: Paul Berger, “SEC levies $400,000 fine for Christie administration misuse of PA funds,” The Record (January 10, 2017), www.northjersey.com/story/news/new-jersey/2017/01/10/sec-levies-400000-fine-christie-administration-misuse-18-billion-port-authority-funds/96398180/; and Special Panel on the Future of the Port Authority, Keeping the Region Moving (December 2014), p. 49, www.panynj.gov/pdf/SpecialPanelReporttotheGovernors.pdf.
- This comparison is not perfect: depreciation is a financial mechanism to account for wear and tear, and is booked on a straight line basis. SGR needs for a facility escalate rapidly as it nears the end of its useful life. Many of the Port Authority’s facilities are reaching this escalation point. See: Port Authority of New York and New Jersey, 2017 Budget (November 10, 2016), Appendix 2: Consolidated Statements of Revenues, Expenses and Changes in Net Position (Multi-Year Projection), p. 89, http://corpinfo.panynj.gov/pages/budget/.
- The AirTrain could also be extended to the PATH station in Newark to meet airport demand less expensively. See: Stephen J. Smith, “Not Everyone’s a Fan of Chris Christie’s Newark Airport Transit Extension,” Next City (October 1, 2013), https://nextcity.org/daily/entry/not-everyones-a-fan-of-chris-christies-newark-airport-transit-extension.
- Yonah Freemark, “For LaGuardia, an AirTrain that will save almost no one any time,” The Transport Politic (blog entry, January 21, 2015), www.thetransportpolitic.com/2015/01/21/for-laguardia-an-airtrain-that-will-save-almost-no-one-any-time/.
- Jeffrey M. Zupan, Richard E. Barone, and Matthew H. Lee, Regional Plan Association, Upgrading to World Class: The Future of the New York Region’s Airports (2011), www.rpa.org/pdf/RPA-Upgrading-to-World-Class.pdf.