Thursday, February 26, 2009

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Monday, February 23, 2009

the decline of the port authority of new york

Early successes (documented in the rise of the port authority) endowed the Port Authority with a great amount of capital heading into the 1960s, however, the law of diminishing returns made it much harder for the agency to leverage its resources with its past efficiency. The principle transit problem of the day -- commuter railroads -- were of no interest to the Authority, as the the railroads were simply huge money pits, and while the Authority had a plan to turn around the previously unprofitable airports, it had no such plans for the railroads. Politicians, however, were anxious to move the losses off their books, and argued that the Authority should use its surplus to absorb some of the losses.

The agency reacted by finding big-money projects to make its surplus disappear. Unfortunately, the competency and discipline that served the Authority so well in building bridges disappeared along with the surplus. The agency's major project in the late-70s, the World Trade Center, saw its cost balloon from $355 million to $575 million, for example. Around the same time, the agency agreed to take part of the rail transit burden, while also seeking to expand its prerogative from port-area transportation to port-area economic development, a scope which would would include industrial parks, fishing ports, etc.

The Port Authority had always fought to expand its role, but this time its ambitions were greater than its expertise. By the 90s, the agency was facing annual deficits and was forced to contract. The agency had made a few unwise decisions, and political considerations limited its ability to make the politically unpopular business decisions (e.g., raise tolls) needed. The most significant development in the agency's recent history was the name change to Port Authority of New York and New Jersey. Fitting, that a symbolic appeasement underscored these later years, punctuating a period of "drift, patronage and favoritism, and the search for new goals" (Doig).

The Port Authority's early successes and later struggles reflect the organizational design and changing context. To begin with the latter, the Port Authority was born at a time when there was a large need for infrastructure. There were few bridges in New York, two piers in New Jersey, no major bus or truck terminals, and fledgling, unprofitable airports. By the 1960s, it was a different world. Generally, I'd shy away from this type of statement -- I'm sure there were many in 1921 that believed New York/New Jersey didn't need much infrastructure -- and I want to emphasize that I am not arguing that 1960s New York/New Jersey had maxed out its infrastructure. Indeed there is still work to be done today. I am arguing that the Port Authority of New York's engineers had a lot more blank canvas to work with in 1921 than 1960, and it's logical that the agency found it easier to plan and execute good projects.

And while the agency failed to effectively manage commuter rail, the World Trade Center, and some smaller projects that drew less traffic than anticipated, the Authority's greatest failure was in not finding a next "great" project after the piers and airports. If there was a great engineering project for the undertaking, neither the Authority nor anyone else could find it. Normally, a firm in the Authority's position would do one of two things: expand their business to less mature markets or expand their business offerings. The Authority was prevented from the doing the former by their restriction to the port district, and so the organization was relegated to the latter. At first, engineering competency and visionary planning allowed the agency to shift gracefully from bridges to tunnels to airports to piers; when there were no more airports or piers to expand, however, the agency floundered.

I've gone this far with only a brief mention of the elephant in the room -- central planning. It was no accident that FDR showered praise on the Port Authority for its early successes and modeled the Tennessee Valley Authority on the agency. The four-term president saw the agency as the embodiment of the technocratic central management that FDR would strive to spread to much of the American economy. I'm not interested in debating the tenets of central planning, but it's worthwhile to note that the Port Authority struggled with the same challenges that face all attempts to centrally manage a large, complex system -- like the transportation of New York and New Jersey.

You'll note that nowhere have I argued one way or another with regards to the Port Authority's planning -- only its execution of plans. Would it have been better to construct a bridge in the 50s? Was it wise to place a bus terminal in midtown? Maybe, maybe not; I am not fit to judge and certainly haven't read any compelling arguments on the matter. Instead I have judged the agency by its ability to produce self-sustaining public works in a timely and economical manner. Therefore, my praise of the agency's early work should not be confused with praise of its planning; I do not believe that the available facts allow for a judgment to be passed.

Anyhow, let's wrap up with a review of some of the variables that led to the Port Authority's early successes, later failures, and lessons.


Early Advantages

Late Disadvantages Lessons
Agency led by committee appointed by NY and NJ governors

Governors appointed gifted apolitical leaders and competent personnel

Personnel corrupted by political patronage by later governors

Have not figured out how to guarantee technocratic personnel management given democratic leadership's influence
Agency led by committee appointed by NY and NJ governors

Agency planning and execution was largely apolitical and governors supported the Authority against local interests

Influence of political interests grew Have not figured out how to sustain an apolitical government agency

Direct incentive to efficiently execute sustainable business strategy

Politicians eyed agency surplus and wanted to siphon from it for unprofitable projects Self-funding can greatly improve accountability, but need to protect integrity of agency budget autonomy
Depending on user payments for funding

Not relevant during growth period

Income through user fees threatened by political incentive to oppose all fees (politicians don't benefit from payments; easy populist issue) Clear understanding of user payment levels for each project beforehand
Agency limited to port district

Many growth opportunities within the port area

Forced to pursue less profitable enterprises within area, rather than more profitable elsewhere Don't make agencies servants of jurisdictions, but allow them to grow based on their core competency
Empty infrastructure landscape

Low-hanging fruit that would serve public need and could be profitable to construct and maintain

More mature market Frame long-term purpose of agency
Vague mandate

Allowed agency to find success outside initial purpose (rail)

Pushed mandate into areas outside expertise and struggled Allow flexibility

Good luck on timing of pier development with container revolution


Monopoly on port district planning and execution

Allowed for a coordinated development effort; competition was 'political' (not rational) with few rivals

Prevented the rise of a more effective competent replacement and allowed for the Authority's decay Powerful for initial coordination, but lack of effective marketplace for government agencies precludes destruction of decayed agencies

I still have some questions. While the Authority has not been 'destroyed' by market forces, it has been castrated by political forces; is this an efficient and/or acceptable end? It's certainly better than the institution growing in size, and likely worse than the institution being replaced by a more efficient and competent firm.

In the end, I think the lessons of the Port Authority suggest that a thoughtfully designed 'public goods' marketplace, populated by *private* firms, with well-designed, long-term contracts, would be best, but I also know that this glosses over a lot.

For now, I'll just look for more books on innovations in government design and public contracting. Your thoughts?
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Tuesday, February 3, 2009

the rise of the port authority of new york

I grew interested in the Port Authority of New York and New Jersey (previously the Port Authority of New York) after reading of its role in creating containerports in the The Box, an excellent history of "How the Shipping Container Made the World Smaller and the World Economy Bigger." I picked up Empire on the Hudson (not recommended) and scoured the internet for information on the bi-state agency. I've quoted from the book below and condensed my learnings to two (free!) blog posts (the second is now up: the decline of the port authority of new york.)

The Port Authority of New York was one of the first government programs designed to be "efficient and nonpolitical ... vigorous and experimental." The agency’s significance does not emanate from its good intentions, however, but from its innovative design, many accomplishments, and gradual decline. Many times before, I have stated the importance of understanding the impact of political economy and organizational design on government program effectiveness. Yet many liberals -who should be the most concerned with a high-functioning government- are ambivalent about the subject, and to no one's surprise, small-government conservatives share this ambivalence. This post will not fill this huge void on its own, but it will provide the first half of a two-part organizational biography of the Port Authority of New York. And to tell the Port Authority's story, we must begin with the history of the port itself.

The Port of New York is the United States' largest port, with "nearly 800 miles of waterfront, dwarfing Boston with its 140, Philadelphia with 37, and Baltimore with 120." New York City capitalized on this great natural advantage, with "nearly half of the nation's international commerce - counting both export and import commodities - [passing] through the Port of New York" in 1919. You'll notice in the accompanying image, however, that New York shares the waterway with New Jersey. Yet while New York enjoyed 230 piers at the time, New Jersey had but two.

New Jersey was understandably frustrated by this state of affairs. Its waterfront was actually better oriented for transit, because it was cheaper to ship cargo by rail from New Jersey to the rest of the country than from the island of Manhattan or Brooklyn. However, freight rates were not dictated by actual transportation costs, but set by a government regulatory body, the Interstate Commerce Commission (ICC). Despite New Jersey's multiple petitions, the ICC maintained that there would be a single rate for rail transit to the Port of New York, whether it was to the New Jersey or New York side, which carried the hidden cost burden of floating freight across the river.

In 1921, New Jersey lost its appeal to the ICC, and New York’s counsel in the case, Julius Henry Cohen, capitalized on the opportunity to win support for a Port Compact, which provided for a bi-state agency to coordinate development for the New York/New Jersey port district. And thus, under the banner of cooperative planning, the Port Authority of New York was born. Each governor would appoint six commissioners to oversee the agency, which would rely "on revenue bonds and user payments (rather than general taxes) to carry out large capital projects," a characteristic unique to the Authority at the time. Furthermore, the Authority worked with the states’ governors to limit local government leaders’ power to disrupt the agency’s plans; a victory for technocratic governance and a (well-deserved) slap in the face of direct democracy.

The autonomous, self-sustaining public agency would largely fail in its initial objective, to resolve the rail problems that had led to the rate discrimination case, but it would leverage its vague prerogative to take on an array of other projects. The Authority’s early years were dominated by bridges, completing the Outerbridge Crossing, Goethals Bridge, Bayonne Bridge, and George Washington Bridge by 1932. The Port Authority wasn’t the first to build bridges, but it managed to build all four bridges under budget and ahead of schedule. A factoid that should make every Boston taxpayer fume. In addition, the agency had beaten out a competing government institution to win control over the Holland Tunnel and its lucrative user fees.

Former New York Governor and then-President Franklin Roosevelt congratulated the Port Authority for its "skill and scientific planning," and celebrated the agency an example for government institutions across America. This praise not only reveals the fantastic reputation the Authority enjoyed in its early years, but also provides the context necessary to understand the agency as the poster child for technocratic progressive government. The Authority’s successes were counted as victories for government-run corporations and cooperation, in contrast to the failure of private firms and dog-eat-dog capitalism. (I’ll return to this subject in the next post).

The Port Authority’s next twenty years were filled with piers and airports. The agency had long lobbied NYC and New Jersey to develop their respective waterfronts, but New York was disinterested in assistance, and Jersey simply couldn’t close the deal. This delay actually ended up working in New Jersey’s favor, however, as by the time the state got its act together in 1955, the shipping container was about to render traditional piers obsolete.

Accordingly, blind luck corrected the ICC’s injustice in the rate discrimination case, with Port Elizabeth leapfrogging its Manhattan and Brooklyn competitors to become the largest containerport in the world. The timing of the waterfront development was a stroke of luck for the Authority as well. The agency had fought hard to construct traditional piers up until the container’s arrival, and only their failre to build the necessary coalition saved them from the embarassment of building infrastructure for the horse-and-buggy of shipping.

In addition to the bridges, the Holland Tunnel, and the containerports, the Port Authority created the Lincoln Tunnel and world’s largest bus and truck terminals downtown, and transformed the Newark, LaGuardia, and JFK airports into the profitable, consumer-driven facilities we know today -- all by 1955.

And there ends the good news. I'l leave the bad news (and the synthesis) for the next post.
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