Port Authority Needs ‘Top-to-Bottom Overhaul’ of Management, Audit Says

The Port Authority of New York and New Jersey, which is redeveloping the World Trade Center, needs a “top-to-bottom overhaul” because of poor management and a lack of cost controls, according to an interim audit released by its board.

The cost of the World Trade Center project in Lower Manhattan has grown to $14.8 billion from about $11 billion estimated in 2008, the audit found. After third-party reimbursements, the net cost to the authority has climbed to $7.7 billion from $6 billion.

The auditors found “a challenged and dysfunctional organization suffering from a lack of consistent leadership, a siloed underlying bureaucracy, poorly coordinated capital planning process, insufficient cost controls and a lack of transparent and effective oversight of the World Trade Center program that has obscured full awareness of billions of dollars in exposure to the Port Authority,” according to their report, released yesterday.

“This record of historic failure must be reversed,” New York Governor Andrew Cuomo and New Jersey Governor Chris Christie said in a joint statement yesterday. “Steps have already been taken in the last two years, but much more must be done.”

Audit Required

The governors required the audit in August, when they backed a Port Authority plan to raise tolls $4.50 over five years for the bridges and tunnels it operates.

The rise in trade center costs “was driven by policy decisions on both sides” of the Hudson River, Authority Chairman David Samson said during a conference call with reporters yesterday. In rushing to open the Sept. 11 memorial before the 10-year anniversary of the 2001 terrorist attacks, “decisions were made and management controls slipped,” he said.

“Those decisions also caused the priorities of the Port Authority to be reset and had a distorted effect on the authority’s allocation of resources,” Samson said.

Pushing to get the memorial done in time increased costs at the adjacent mass-transit hub, a more than $3 billion project designed by Spanish architect Santiago Calatrava, according to the audit. Costs also mushroomed because the authority took on work related to the memorial, New York City subway operations and site security.

On Schedule

Some of those costs were part of getting the memorial garden -- with its waterfalls on the footprints of the two destroyed towers -- completed on schedule, according to the report.

Authority Vice Chairman Scott Rechler said on the conference call that the agency would seek to recover some of the funds from the city, the National September 11 Memorial Museum and the Metropolitan Transportation Authority, the state agency that runs the subways. Some costs won’t be recoverable, he said. The audit estimated that the agency is owed $1.6 billion for the work.

“Opening the memorial in time for the 10th anniversary was a key achievement in transforming the site of a global tragedy into a memorial that welcomes visitors from around the world,” Julie Wood, spokeswoman for New York Mayor Michael Bloomberg, said in a statement.

The mayor is chairman of the board of directors of the 9/11 Memorial. He is also founder and majority owner of Bloomberg News parent Bloomberg LP.

Debt Doubled

The Port Authority’s exposure to debt has more than doubled over the past 10 years, to about $19.5 billion at the end of 2011, and future cash flow from operations alone isn’t sufficient to fund capital projects under way, the audit found.

A four-member special committee led the review with help from Navigant Consulting Inc. and Rothschild Inc. The authority oversees the region’s airports, marine terminals and seaports, PATH commuter rail line, six tunnels and bridges between New York and New Jersey, the Port Authority Bus Terminal and the World Trade Center.

Samson, along with Rechler, and Commissioners William Schuber and Jeffrey Lynford, formed the four-member committee that conducted the review, which the governors ordered after an audit by New York Comptroller Thomas DiNapoli found the agency had paid $85.7 million in overtime in 2010 to 5,360 of its employees of its 6,977 employees.

Auditors found that the total cost of compensation and benefits for average active Port Authority employees exceeds $143,000. They said 93 percent of authority employees make no contribution to health care, compared with 100 percent of New York and New Jersey employees who do.

“These factual findings underscore the need to examine employee compensation and benefits, and bring them in line with public-employee benchmarks,” Samson said on yesterday’s call.

To contact the reporters on this story: Freeman Klopott in Albany at fklopott@bloomberg.net; David M. Levitt in New York at dlevitt@bloomberg.net

To contact the editor responsible for this story: Mark Schoifet at mschoifet@bloomberg.net

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