April 25 (Bloomberg) -- Growing up in the South Bronx, Ken Lipper sat at his grandmother’s knee, tallying the hems and collars she sewed. The 7-year-old boy wanted to ensure the immigrant from Russia, who spoke no English, was properly paid.
Now Lipper says he’s protecting the public purse. At 72, he’s prosecuting an idea from his tenure three decades ago as a deputy mayor under Ed Koch to help steer the Port Authority of New York and New Jersey away from real-estate ventures such as the World Trade Center and back to its core mission of maintaining bridges, tunnels and the region’s primary airports.
Lipper is fighting a plan to provide a $1.2 billion loan guarantee to 3 World Trade Center developer Larry Silverstein, a stance that’s pitted him against fellow commissioner Scott Rechler, also an appointee of New York Governor Andrew Cuomo. The debate at an agency better known for its secrecy follows the departures of senior officials in a political scandal over deliberate lane closings last year at the George Washington Bridge.
“I don’t have any mortgages, I’m free and clear,” Lipper said yesterday in a telephone interview. “I’m insulated from threat. I’m free to do the public’s business without ambition.”
Lipper arrived at the Port Authority last year, capping a five-decade career in which he made millions as a Wall Street banker, weathered investors’ lawsuits over fraud at a money management firm he founded, waged an unsuccessful bid to serve as City Council president and served as an adviser for Oliver Stone’s “Wall Street.”
“He’s very much wrapped up in New York,” said George Arzt, a former spokesman for Koch, who died last year. “He’s really a street guy. When you talk to him, he’s just like everyman, and with the Port Authority debate, he’s fighting for the priorities of New Yorkers.”
Lipper left the Bronx apartment where he grew up and went on to get a bachelor’s degree from Columbia University and a law degree from Harvard. He became a partner at Lehman Brothers and a managing director at Salomon Brothers. He left Salomon in 1982 and landed in the Koch administration as the deputy mayor for budget, taxation and economic development.
Lipper made a name for himself in that role by calling on the Port Authority to sell the World Trade Center. He argued that it was distracting the agency from its core mission and said he believed it would be better managed in private hands, providing millions in taxes for the city.
“One of the things in those days that I had to deal with was an opaque Port Authority and monarchical system,” Lipper said. “Now I have a chance, and I’m doing it, to make it the opposite, to make it transparent, to make it responsive and to democratize it.”
He left the Koch administration after two years, in 1985, to run against Andrew Stein, the Manhattan borough president and son of Jerry Finkelstein, the millionaire owner of publications including the New York Law Journal.
Lipper lost the race and was considering starting his own investment firm when he got a call from Stone, who had co-written a screenplay about the financial world. Stone was looking for someone to advise him on the culture of investment banks and the government institutions that would prosecute insider trading cases. Lipper ditched his plan and worked as Stone’s adviser for the next year-and-a-half.
“I put it aside to work with him because I said, ‘I’ll never get this chance again,’” Lipper said.
The move was the start of a film career that gave him access to the Hollywood elite, who eventually invested with the money management firm he opened. By 2002, the company was managing about $4 billion with the involvement of investors including Julia Roberts, Liam Neeson and Michael Eisner, then the chief executive officer of Walt Disney Co. Lipper had also won an Academy Award as producer for “The Last Days,” a documentary on the Holocaust.
Then Edward Strafaci, a portfolio manager for Lipper, resigned and it was soon revealed that he had overstated the value of two hedge funds. In 2004, Strafaci pleaded guilty to securities fraud and was later sentenced to six years in prison. Lipper liquidated the firm and was left to fight an almost decade-long legal battle with investors who sued. They claimed he should have known about the fraud.
It ended in 2011, when a New York judge cleared Lipper of any wrongdoing and approved a settlement that gave Lipper almost $14 million to cover his legal fees.
‘In the Furnace’
“It’s made me more cautious, but it’s also made me more willing to stand up and take the heat,” Lipper said. “I know what it’s like to be in the furnace and fight my way out of it.”
He’s put himself back in the furnace again, taking on one of New York City’s most prominent developers and almost 100 years of Port Authority momentum by fighting Rechler’s proposal.
It started last year, when Lipper was attending a party for former Governor Mario Cuomo’s eldest daughter, Margaret, a doctor, to celebrate the release of her book on cancer research. Mario Cuomo and his wife, Matilda, were there. So was Andrew Cuomo, who had worked with Lipper when Lipper was deputy mayor. The younger Cuomo asked Lipper how he could get him back in government.
“I said, ‘Just call me,’” Lipper said. “He said, ‘I need old hands. I need people with experience.’”
Andrew Cuomo and Lipper didn’t talk specifically about the World Trade Center redevelopment before the governor nominated him to serve as a Port Authority commissioner, Lipper said.
The governor told Lipper to help him monitor the finances of the port authority to make sure it maximized its toll, fare and airport rental revenue, and spent it wisely to foster regional development, Lipper said. They haven’t spoken about Lipper’s sharp criticism of the plan advocated by Rechler, the authority’s vice chairman.
“He’s allowed this debate to go forward and he hasn’t expressed a point of view,” Lipper said. “I know he wants us to make the best deal for the public.”
Rechler has said his proposal would improve on a 2010 agreement that set the terms under which Silverstein could build 3 World Trade Center. Under the new plan, the Port Authority will collect $100 million in fees to guarantee about $800 million of tax-exempt bonds, and hundreds of millions more in other payments to help fund transportation projects.
Lipper says that commuters shouldn’t be taking a risk to back the third tower, which would add 2 million square feet of office space. Another Silverstein building, 4 World Trade Center, is only 55 percent leased, entirely to government tenants.
“It’s really about who’s going to pay for it and who’s going to be the risk taker here,” Lipper said. “It can’t be the public. The public is not a risk-taker in speculative real estate.”
Janno Lieber, president of Silverstein’s World Trade Center unit, said April 23 that he was optimistic the deal would go through. The developer has already paid more than $1 billion in ground rent to the authority, which owns the trade center site, since the 2001 terror attacks. He said that has helped reduce pressure on the agency to raise tolls to fund transportation projects. Silverstein has also given the Port Authority $3 billion in insurance proceeds, he said.
Matt Wing, a Cuomo spokesman, and Rechler didn’t respond to requests for comment. Andrew Cuomo said at an April 23 press briefing in Albany that the decision on the financing plan for 3 World Trade Center is “up to the Port Authority, that’s their determination.”
The same day, the nine Port Authority commissioners postponed a vote on the financing plan as Lipper led a debate on the agency’s mission.
The 93-year-old authority has been forced to re-examine itself in the glare of public attention after an official charged with carrying out Christie’s agenda at the Port shut down lanes to the George Washington Bridge in Fort Lee in September. The town’s Democratic mayor didn’t endorse the governor’s re-election. Christie, a Republican, says he wasn’t involved.
The Port Authority has been sapped by growing deficits of its PATH railroad, cost overruns at the trade center and spending on pet projects for the governors of New York and New Jersey, who appoint the commissioners that run it, according to a report this month from New York University’s Rudin Center for Transportation.
The agency estimates it will spend almost $8 billion on the World Trade Center site before its completion in five years, almost $2 billion more than projected in 2008. At the same time, LaGuardia Airport has been likened by U.S. Vice President Joe Biden to a facility in a third-world country, while the decaying 64-year-old Midtown bus terminal, which serves 230,000 commuters daily, is getting less than 1 percent of the Port Authority’s $27.6 billion 10-year capital plan.
Lipper says all of those needs show why the authority must be refocused on serving the drivers and riders who pay the tolls and fares that keep it running.
Mitchell Moss, a professor of urban policy and planning who directs the Rudin Center and authored the report, said Lipper’s public opposition is unusual for a board member.
“I think it’s a chance for him to find a new identity, because he’s been much more aggressive,” Moss said in an interview. “It’s an unusual position for a board member to be so outspoken beyond the board.”
To contact the editors responsible for this story: Stephen Merelman at email@example.com Jeffrey Taylor, Alan Goldstein