Port Authority Chairman: Doing Big Things Will Be Hard
Thursday, January 27, 2011 - 06:58 PM
Last week, before President Obama called on Congress to “do big things” and invest in our national infrastructure, Anthony Coscia, the Chairman of the Board of Commissioners for the Port Authority of New York and New Jersey, explained to a roomful of bankers and builders why doing big things had become so difficult in America.
Coscia is to be believed in these matters. Before taking the Chairmanship of the Port Authority—the $5.9 billion annual capital budget of which would make many governors jealous—Coscia was the Chairman of New Jersey’s development bank for eleven years. He also sits on the Board of Amtrak. His remarks, delivered at a conference sponsored by the global infrastructure consultancy CG/LA, were rather candid. America's labor and environmental regulations have made projects more expensive, he said, and, he added, the country need to overhaul the way projects are chosen and financed. He predicted that the ARC Tunnel would indeed by built, but hinted that Amtrak and the private sector might shoulder more of the cost. He believes private investment should and will be explored as a way to build High-Speed Rail, which he called “essential.”
Edited excerpts of his remarks after the jump…
On the difficulty of doing big projects:
We have gone way too long in terms of replacement programs. So we find ourselves rebuilding assets that were built in an environment that was different from the standpoint of labor and the environment, all those issues, and so the replacement price is exponentially higher. Our pricing in terms of what we charge for tolls and landing fees and others has kept pace with inflation from a normal sense, but not with the added cost of building that has come with a more modern society.
[The Bayonne Bridge] cost $13 million in the 1930s for us to build. That's $175 million in 2009 dollars. Any possible solution to [needed renovations] today is at least a $1 billion project. And as I said, timing is not exactly opportune because the impact of the recession on an agency like the Port Authority—that is so reliant on macro economics for it viability—has had a deep impact. In 2008 we had a capital plan that was based upon projections that we would reach 132 million travelers at our various bridges and tunnel crossings, which as you know is a significant source of revenue for us. We will now, because of a slowing economy, because of a softening of consumer demand, unemployment levels, we won't reach that 132 million passenger number probably until the end of this decade.
On opportunities for private sector investment.
We cannot rely on what were the financing techniques that, for the last 50 years, worked for us. Some new mechanism has to be devised in order to do that. Public-private partnerships receive a great deal of attention. In the United States, unfortunately, I think that that topic has been, to some degree, oversimplified—both by those who favor it and those who do not favor it. The reality is that the mechanism of simply allowing private investment capital to acquire public assets is a dynamic that requires a lot more effort in order to achieve broader public support in the United States. And in fact, many of the European models that I think have been highly successful do have a place in the US economy, but there has to be some sort of reengineering of those financial instruments in order to have them work effectively.
There are those who believe that we ought to pay for [needed infrastructure upgrades] in a conventional sense, and to the extent that that requires an enormously increased amount of government spending, we should do that. And there are those who believe that private capital will somehow substitute for that public spending. Unfortunately my view is that the reality is that some hybrid of those things needs to be developed that is different from what we've been used to in the past.
I think that we're beginning to see some sort of shades of that happening. I know at the Port Authority we have a project that some of you may know about in terms of replacing the Goethals Bridge. It's something where we've gone out and we've looked for interest in a “Design-Build-Finance-and-Maintain project, one that will allow us to continue to control the structure in the toll revenue so that it can meet our public policy objectives but gets us to that nexus point with the private sector that utilizes their help in the way that is the most efficient and most effective.
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The initial indications are that there's an enormous amount of interest from global consortia on this issue and we're very optimistic that we will meet our 2012 date of selecting someone to work with us on this project. And we think it represents at least the beginning of a hybrid that may very well provide at least an early-stage model for how we might be able to do this.
On the need for a National Infrastructure Bank
The Federal Government clearly has to pay a very critical role in all of this. The President spoke about a national infrastructure bank. I applaud the concept of creating a mechanism that will do two things that are not done today:
The first is that we need some kind of intelligent mechanism to discern between those projects that should be built and those that shouldn't be built, to try to take politics out of the equation and put substance into the equation.… I do think that the President's infrastructure bank concept at least creates the outline of a mechanism that will allow us to put a lot more substance in the decision as to what our national priorities are from an infrastructure standpoint.
The second thing that I think that it does, what I think is helpful, is that I do think that there is a financial instrument, there is a security that has the same kind of innovative ability in our marketplace that the tax exempt bond did when it first appeared, that allows capital a way of coming into public sector infrastructure projects in a way that creates market returns that will tap into the enormous liquidity that is out there for this but at the same time protect the public interest. I think that mechanism probably represents something that is not exactly like something we've seen before. It's not the kind of secured debt that we might normally understand and neither does it represent a pure equity investment.... Some kind of a hybrid between the conventional municipal bond that has been such an enormous source of capital in the United States and something that is a lot more dynamic. And I think we have to all have a little bit courage to be able to push the outer end of that envelop. If we do not do that, the US economy I think faces a great deal of peril because I think we are way beyond the point of talking about projects that would just make things better. We are talking about projects that are fundamental to preserving the national economic position
On the Cancellation of the ARC Tunnel:
The Port Authority's role was as a financing partner in the project. We did have certain responsibilities in terms of acquiring real estate on the New York side, but that was more a legal function of our ability to acquire land in the state of New York, which New Jersey Transit didn't have. Our real role was: we were a $3 billion partner in the project. The reason we were a $3 billion partner in the project is that our mission is to move people between New York and New Jersey. We're of the view that building another lane in the Lincoln Tunnel isn't really going to solve that problem, even if we could do it, which we can't. Mass transit or intercity rail was our way of addressing that problem.
I have to say that—since finance is really where my professional activities have been—I've never gone through an episode where I raised $3 billion dollars and it hasn't been used. That's never happened. But then it happened. We did raise $3 billion for the project, but I think [Governor Christie], for a lot of reasons that are fundamental of the time we're in right now, was not comfortable going ahead with the project.
We are still looking for solutions to trans-Hudson commuting, and those solutions will come in some form. I also serve on the Board of Amtrak and I know that Amtrak has remained pretty dedicated to finding a solution to that issue as well, because the Northeast corridor is very dependent upon it.
We have the $3 billion and we are reinvesting it in other projects that hopefully will add to the region's transportation strength. In terms of “will a new tunnel be built?” I think the answer to that is yes, but it will be in a configuration, of a financial model, that will be acceptable to a broad variety of stakeholders, and that's still a work in progress.
On High-Speed Rail:
From Amtrak's perspective, high speed rail is absolutely essential. It needs to be done. As the corporation that runs the nation's rail system, we see our role as needing to provide leadership on that issue and I think we will. We announced a vision for the high-speed Northeast Corridor Rail project that I think represents something that people can see the value of, the ability to reduce trip times between New York and Boston, and New York and Washington, to levels that interconnect those cities and all those that are in between. It represents this enormously positive thing.
And if you consider the fact that trips that are between zero and 500 miles are very inefficiently undertaken to the extent that we use the aviation system or we use our highways in order to cover those, I think high speed rail represents this incredibly exciting opportunity to empower cities, to connect them, empower work forces, to create a far more efficient environment that is also in a more sustainable form of transportation. So if we believe in intermodal transportation and we believe that you have to think of the system as one big system and not little silos, then you have to look at how aviation and highways and rail all interconnect, as well as intercity bus and things of that nature.
I think high speed rail is a fundamental way of connecting the corridors—the Northeast Corridor; the Chicago, St. Louis, Milwaukee corridor; and certainly the California Corridor between Sacramento and San Diego—and there's a lot of discussion about all of those. I personally am of the view that high speed rail is for real and I'm of the view that Amtrak will remain focused and dedicated on making it a priority. I think that there are lots of political hurdles that have to be overcome. Some of them are philosophical in terms of how much public money should be invested in high speed rail mechanism. Its affect is uneven: There are parts of the country that do not benefit as much as others, and so that creates a political dynamic that is an issue.
And I think we have a legacy of not being very good at the rail business. Candidly, I think everyone involved in passenger rail in the United States—and Amtrak is certainly on that list—has done things and has had operating histories that have left some people not big fans. But I think it's a new company today. I think in the past year there's been a re-awakening in Amtrak that is really meaningful. The President is a huge supporter of high speed rail. I think that makes a big difference. And I think that there will be probably common ground within the Republican-controlled congress on high-speed rail as it relates to finding a way to introduce the private sector into it. So, I am cautiously optimistic that this idea is so good that people will stick to it, and I guess I will remain hopeful.
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