The Port Authority of New York and New Jersey is implementing changes to “rid itself of years of inefficiency,” and faces "enormous" challenges and opportunities over the next decade, according to a report by Navigant Consulting.
It was one of two studies
, totaling 165 pages—the other was performed by Rothschild Inc.—that the agency released on Wednesday.
New York Gov. Andrew M. Cuomo and New Jersey Gov. Chris Christie directed the port authority to undertake a full and independent audit of its operations and finances after an uproar over large toll increases on the agency’s bridges and tunnels.
In a joint statement, Cuomo and Christie said the two studies showed “the port authority is finally on the right track, and the necessary reforms put into place by the agency’s leadership are beginning to deliver results, just as we demanded.”
Navigant said planned increases in bridge and tunnel tolls scheduled to go into effect over the next three years and other non-fare revenue enhancements and cost reductions will be needed to fund its preliminary capital plan through 2020 and keep transportation infrastructure in good repair.
Without the planed toll increases, the agency would have to reduce its capital plan by nearly $6 billion, and projects would have to be deferred, delayed, or cancelled, Navigant said.
The tolls are expected to have a particularly negative impact on one of the port’s major facilities, the New York Container Terminal in the Howland Hook area of Staten Island, as fares rise sharply over the next few years. For example, the cash bridge toll on a six axle truck-trailer using one of the port authority’s bridges to reach the island is currently $78 and will climb to $126 by December 2015. Fares are lower for trucks equipped with “EZ Pass” RFID (radio frequency identification device) tags.
New York State Assemblywoman Nicole Malliotakis is battling the agency in court to get a copy of a study on the impact of tolls on the terminal. See related story.
Navigant said challenges facing the port authority include:
- Prioritizing, funding, and effectively executing over $11.4 billion in deferred capital projects that are not presently included in the agency’s $26.9 billion preliminary capital plan for the years 2011-2020, but which are “necessary for the cost effective operation of the agency’s assets."
- Funding, without direct return, the agency’s PATH commuter rail system and port.
- Completing the construction of the World Trade Center, destroyed in the Sept. 11, 2001 terrorist attack.
Navigant noted over the past five years, the agency's aviation department, which operates five airports in the region, “has been the only positive free cash flow contributor to the port authority but now has some of the largest upcoming capital expenditure needs.”
In addition, the authority's department which operates its tunnels, bridges, bus terminals, ferries, and PATH also does not have sufficient operating cash flow to cover capital expenditure needs.
Navigant said while the agency has sufficient capacity for its current capital plan through 2020, including the World Trade Center costs, under the “downside” scenario of a soft economic environment and reduced volumes, the agency might have a capital capacity shortfall.
“In either case, however, even with the toll increases enacted, the port authority will require careful prioritizing of spending, and implementation of the identified performance improvement initiatives, to ensure the region’s infrastructure needs are met.”
The Rothschild study said the port authority’s financing strategy, principally using consolidated bonds, “has effectively sourced capital at competitive cost” and based on the agency’s long-term forecast it is “projected to score credit metrics in line with the peer group.”
Rothschild said the public-private partnerships “may provide attractive financing alternative, but an evaluation needs to consider the potential impact on the port authority’s primary sources of financing.”
Navigant suggested the agency can generate additional revenue by redeveloping cargo and hotel facilities at John F. Kennedy International Airport, divesting itself of assets such as the Newark Legal Center, an office building in Newark, N.J., and Teleport, a 100-acre business park with telecommunications links on Staten Island. It also suggests it could generate more advertising revenue with its bridges, tunnels and PATH railroads and by selling airspace over its bus terminal and nearby entrance roads to the Lincoln Tunnel.
The cargo redevelopment initiative at JFK would replace older assets and increase cargo capacity.
“Due to successive years of constrained expense budgets, the Aviation Department has not had the resources to actively market its cargo facilities, many of which are old, obsolete, or vacant,” the report said.
The planned redevelopment would begin on the north side of the airport and spread to the other three cargo areas, each a mini “campus” on JFK grounds. Revenue would be derived from multi-year ground rents or leases.
At the port—the nation’s third largest after Los Angeles and Long Beach—the report said “continued efforts are needed to increase port cargo volume. A 10 percent increase in container volume would generate approximately $15 million in additional revenue.”
Last year the authority’s Port Commerce Department instituted a $4.95 “cargo facility charge” to help recover the cost of rail and roadway infrastructure investments which it said is generating a $30 million.
The agency said it is “actively working at the federal level to encourage legislation for this fee to be adopted at other ports to level the competitive field.” Additional information on that effort was not immediately available.
The Port Authority of New York and New Jersey is a landlord port. Because a majority of the port is leased, the report said there is only a modest opportunity to generate additional revenue. The report said the agency currently receives $27 per container that transits through the port, $21.95 per container under the tenant lease and $4.95 from the CFC.
Container traffic, which fell 0.9 percent in 2008 and 13.1 percent in 2009, has since rebounded, climbing 16 percent in 2010 and 4 percent in 2011 to 5.5 million TEUs. It was budgeted to grow 7.5 percent to 5.9 million TEUs this year, but through July container volume is up just 2.5 percent.
The report said an “in-depth analysis currently underway should be completed to determine whether to institute a monetary incentive for new cargo.”
It noted the Port of Long Beach recently instituted a $20 per container incentive to mitigate the risk that some ships will use the expanded Panama Canal to bypass it for East Coast ports.
“Though this incentive reduces profitability, the offsetting volume induced is still accretive given the fixed cost nature of the business,” the report said.
International automobile traffic has declined more sharply from 790,000 in 2007 to 388,000 in 2011, because of the weak economy, the Japanese tsunami and the decision by Hyundai and Kia to relocate operations and the movement of 85,000 units to Philadelphia. The port has budgeted for 502,000 vehicles this year.
The report said rebuilding the auto business “should be a top priority.”
The report also recommended the port add an economic specialist to attract warehouse and distribution facilities close to the port, noting “this strategy has been executed successfully in Savannah.”
It also suggested the port “develop an aggressive plan to staunch the losses at the Red Hook Container Terminal in Brooklyn, that absent intervention is currently projected to lose over $100 million over the next 10 years.”
It said that loss occurs because “most of the inbound containers Red Hook receives need to be barged across to New Jersey where there are rail connections, and that cost is borne by Port Commerce. Port Commerce needs to attract more customers with cargo that will be consumed in Brooklyn and other areas east of the Hudson River and therefore not need to be barged across to New Jersey.
“If the losses at Red Hook are not curtailed, consideration should be given to attempting to transfer the operation of the facility to a third party with potential for operating efficiencies, or closing it due to its financially unsustainable losses,” the report said.
In addition, the report said the agency could save up $1 million per year by upgrading utilities and up to $1 million per year by hiring an in-house attorney with a specialty in maritime law.
The agency will also benefit from a plan to move New York City trash by barge to a new rail facility being built in the Greenville section of Jersey City that will generate revenue and eliminate wear and tear on road infrastructure, Navigant said. However the agency will also see truck tolls fall by $4 million as the trash moves from truck to barge. - Chris Dupin