Study: Reforming the Port Authority and the MTA

by | 6.23.2014 at 11:17am
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Easy access to huge revenue streams, lack of transparent political oversight, confused governance, unsustainable cross-subsidization and persistent debt are reducing the effectiveness and threatening the long-term financial sustainability of the New York City Region’s two largest transportation agencies, according to a capstone project study conducted by a group of Earth Institute Environmental Science and Policy Masters students this spring. The study was commissioned by the Regional Plan Association, the nation’s oldest independent research and planning organization.

Together, the Port Authority of New York and New Jersey and the Metropolitan Transportation Authority (MTA), are responsible for almost all of New York and northern New Jersey’s transit infrastructure including subways, buses, commuter rail, bridges, tunnels, airports and ports, making them two of the largest transportation agencies in the world. Both agencies are “public benefit corporations” which means that they are quasi-private corporations—chartered by the states they serve and run by appointed leadership, but able to issue their own debt and collect revenue to run their operations.

Both agencies have been plagued over the years by allegations of corruption and mismanagement. Most recently, the MTA has faced scrutiny in the wake of the derailment of a Metro-North Railroad train that killed 4 people and injured 59 in December of 2013. The Port Authority, meanwhile, has been racked with controversy over the 2013 “Bridgegate” scandal in which New Jersey Governor Chris Christie’s political appointees at the Port Authority allegedly collaborated to create traffic jams by closing lanes at the toll plaza to the George Washington Bridge.

“The well-being and efficiency of these systems is crucial to the region’s prosperity, economic health and—more so in recent decades—environmental sustainability,” explained Maureen Loman, the student team manager, in the group’s final presentation. “In light of recent events …  a deep analysis to understand [the agencies'] complexities is essential in even beginning to understand how we can help strengthen them.”

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Columbia University Subway Station at 116th Street. Source: Restructuring the Governance and Financial Regimes of the MTA and the Port Authority Capstone Presentation.

To analyze their functioning, the student team broke up in to two groups, each covering one agency.

Ben Ong, a student who worked on the MTA team, said that persistent debt is at the root of many of the MTA’s challenges. “Right now the MTA is having a huge debt issue,” explained Ong. “The subways are working at a huge operating income deficit. The overall deficit in terms of net operating income for local transit is around $6 billion. If it were a private company it would fail in a day.”

The agency makes up for most of the operating deficit through various subsidies provided by state and local governments. Even so, said Ong, “the farebox recovery rate, that percentage, with taxes and subsidies, is still not sufficient to cover the operating deficit. Every year there’s a deficit, and the subsidies that come in are not enough to help. The only reason the budget can balance is because of a lot of accounting cash adjustments, if you will … really, the MTA is just not managed in a sensible way.”

Part of the reason for this, said Ong, is the confusing nature of joint control of the agency between New York City and New York State. Because of the way this control is structured, “there is a big misalignment between who uses, who pays and who cares and who controls.” Even though most of the agency’s users live in New York City, “oddly enough the state has much more control; in terms of the subsidies and taxes, it’s all state controlled. Because this joint control is imbalanced, it really reduces the clarity for responsibility. If something goes well, both sides want to take credit, but something goes wrong, no one want to take credit.”

To find solutions to these management issues, the team compared the functioning of the MTA with other transit agencies in cities with large public transit systems, including Vancouver, Singapore, Tokyo, Stockholm, Hong Kong and London.

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Metro North Station at Marble Hill. Source: Wikimedia Commons.

Of the systems studied, London provided a particularly useful model; in recent years the city’s subway system was reorganized in concert with the newly created position of elected mayor of Greater London. The mayor’s office was given authority over the system; by consolidating control and responsibility, London was able to make significant fiscal and management improvements.

Giving the mayor of New York responsibility for the city’s mass transit is an idea that has come up repeatedly over the years. According to Ong, mayoral control of New York City’s subways and buses is justified given that nearly 80 percent of daily local transit riders are residents of New York City, compared to 9 percent from suburban counties. But would shifting to mayoral control be politically feasible? Given that commuter counties are disproportionately subsidizing the MTA’s local transit agencies—26 percent of subsidies come from the suburbs—those counties could have a strong incentive to give up control if the tax structure were more equitably distributed.

However, without suburban subsidies, New York City residents and riders would have to pay much more for the subway and bus systems to meet their expenses; the team estimates that to make up the cost, the MTA would have to raise subway and bus fairs by at least $0.73, bringing the fare from $2.50 to $3.23.

“It’s kind of ironic,” says Ong. “The whole reason the deficit is so high is because the operations are just really inefficient. Doing things the smart way, the efficient way, the financially sensible way … if you want to adjust that and make things even better, we first need to have this [higher] fee to get mayoral control, and then we can start cutting the inefficiencies.”

As for the Port Authority, according to Maureen Loman, even though the bi-state agency was created to be apolitical, the recent George Washington Bridge scandal highlights the degree to which it has deviated from that vision through the years and become in the words of critics, a “transit monster” that serves as a shared political tool of two state governors rather than an independent and transparent agency. Easy access to large cash flows from bridge tolls and rents has “shielded decision-making from political oversight, allowing for under-performance,” according to Loman.

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George Washington Bridge, operated by the Port Authority of New York and New Jersey. Source: Wikimedia Commons.

The Columbia team analyzed the operational divisions within the Port Authority to assess each division’s efficiency in comparison to its peers. “We benchmarked four of its six divisions,”  Loman explained, including the New York/New Jersey PATH subway, port commerce, bridges and tunnels, and airports.

“Basically,”  Loman said,  “there is this cross-subsidization,” in which profits from some divisions are covering large losses from others. “Overall the profits are greater than the losses. But when you really look into the different divisions, it doesn’t make for a solid financial structure.”

She points to the airports, which she says,“are extremely profitable,” while the PATH subway system operates at a big loss. Bridges and tunnels also operate at a profit, while the ports are major losers.

The PATH system, which is a separate subway system that runs between Manhattan and northern New Jersey, is an example of a division that operates both inefficiently and at a loss. Compared to other ways of traveling between New York City and New Jersey, the cost to ride the PATH is substantially smaller. At the same time, operations costs are substantially higher than comparable transit systems, including the New York City Subway, the PATCO Speedline and Pennsylvania Transportation Authority (SEPTA).

According to the team, the Port Commerce division, responsible for sea port commerce, also operates inefficiently and at a loss. Compared to ports of a similar size, the division earns one-half to one-third per container of its peers, suggesting that it is ineffective in capturing revenue from cargo handling.

By contrast, the Port Authority’s airports, including JFK, La Guardia and Newark airport, are very profitable and account for a large portion of the authority’s net income. Even so, the airports have high expenses per passenger, suggesting that they are also operationally inefficient, in spite of profits. In addition, said Loman, JFK and Newark in particular are failing to reinvest in their infrastructure in comparison to peers, which correlates to low customer satisfaction scores.

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Net Profit/Loss Per Port Authority Division. Source: Restructuring the Governance and Financial Regimes of the MTA and the Port Authority Capstone Presentation.

The team’s analysis, said Loman, “brings to light problems in a way that hasn’t really been looked at before.” For example, “why is such an essential port on the East Coast running at a loss?” she asks. “In a fluctuating economy and climate, this kind of cross-subsidization is so unstable. If one of these divisions does really poorly in one year,” it could cause problems for the whole system.

Overall, she added, some “insightful restructuring” of the MTA and Port Authorities governance and finical regimes will be necessary for these transit systems.

Ultimately, the team’s research should help the Regional Plan Association in the development of its fourth regional plan. According to Wendy Pollack, the association’s director of public affairs, “what the students found was compelling, demonstrating, for example, the extent to which cross-subsidies within public authorities mask weaker performance in some divisions.” The work, she said, will help inform the association’s governance research for the Fourth Plan.

The Port Authority and the MTA did not respond to requests to comment for this story.

You can watch a video of the students’ final presentation on the project here.

 


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