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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