WolfeNotes.com

It’s the Full Monte: Wall Street Finance Meets Privatization and Deregulation

(Almost Makes Us Nostalgic: Where Have You Gone Bob Moses?)

Forget the fact that it was released on a Saturday night after the Christmas holidays, triggering a venomous editorial response.

Forget the fact that it spawned vapid news coverage about “payback” and  “conspiracy theories” and equally vapid editorial denunciations (and memo to Star Ledger editorial board, it is not possible to slime Christie, he’s already is covered in it, see: Chris Christie’s Entire Career Reeks – it’s not just the bridge).

We thought readers would actually like to read the Report and gain some understanding of what it says ( you can read Report here).

So, here’s our initial take – a Cliff Notes version:

The vultures are circling over the Hudson – no not the birds, the Wall Street variety, Vulture Capitalists.

So are the real estate developers and lobbyists and assorted shakedown men, all poised to make a killing by plucking the asset meat off the carcass of the Port Authority.

The Report – I hesitate to call it a Plan – is devoid of any regional or transportation vision other than financial and political.

At least our notorious Powerbroker and master builder Bob Moses used finance, institutional power, and economic interests to drive a larger vision of the region.

The modern day Moses’ regional vision is driven by the economic development oriented private Regional Plan Association – they just released the Fourth Regional Plan. The mainstream regional transportation advocates, the Tri-State Transportation Campaign have a more sensible vision. 

Other visionaries and planners ask questions like: could we bring back trolleys, streetcar suburbs, and inter-city light rail, fueled by renewable wind and solar power, and all of that driving a regional manufacturing renaissance and thousands of new sustainable jobs in decentralized worker owned co-operatives?

But our modern day political opportunists in the Governor’s Offices of New York and New Jersey could summon no vision – or even echo an historical vision or parrot the main stream vision.

So, let’s start by a quick inventory of what the Report says nothing about:

• Vision Gaps and Omissions

The opportunity to reshape an institution as massive as the Port Authority and influence the entire region doesn’t come around often, maybe once in a century. So, the reforms must be bold and reflect 21st Century challenges, not petty political squabbles and greedy financiers.

While noting the historic failure to establish a clearly defined mission for the Port Authority, which has contributed to mission creep into real estate and other non-transportation projects, the Report is devoid of any vision or policy for the future transportation needs of the region, particularly in a carbon constrained future.

The Report also ignores climate change, energy, or any environmental vision, values, policy, or objectives – trip reduction, reduction in VMT, telecommute, shift from airports and roads to rail and public transit, planning for a low carbon future, climate adaptation – all ignored.

That is a stunning failure of leadership and imagination.

• A Questionable Consultant Wrote Report

Next, consider the powerful consulting firm that wrote the Report – the Promontory Group (WaPo):

The dramatic change in the landscape since the financial crisis unraveled global markets has at once propelled Promontory’s business and threatened the reputation it’s built since rehabilitating that of the Irish bank. It’s been thrust into a firestorm over financial consultants, calling into question the influence it yields in the regulatory world, in which billions of dollars are at stake for its clients.

A glaring example emerged last fall, when ProPublica reported that Promontory and other consulting firms were paid nearly $2 billion by banks to examine shoddy mortgage files. The banks were supposed to pay out millions of dollars to borrowers for flawed foreclosure practices. Despite the consultants’ substantial payday, not a single dime of relief reached the homeowners.

So now, let’s turn to the content of the Report – brief excerpts:

• Sending the signal – “Public Private Partnerships” (PPP)

Like Bob Barker from that old TV show The Price is Right shouting “Come on Down”,  the Report is an invitation to Wall Street finance, vulture capitalists, and related privateers and profiteers. The signals begin at the outset:

To fulfill this mandate, the Authority must avail itself of the most advanced engineering, financial and managerial approaches available, from innovative public-private partnerships to state-of-the-art financing techniques, while never losing sight of its daily obligation to keep people and goods moving safely and dependably through the region.  (p.1)

• Real Estate Feeding frenzy: asset firesale

After  sending the invitation, the Report gets a little more specific, announcing upcoming fire sale:

The Panel further recommends that real estate holdings that are no longer central to the Port Authority’s transportation mission, including commercial real estate at the World Trade Center, should be divested in an orderly way that recognizes their monetary value, as well as the national significance of the World Trade Center site. The Panel acknowledges the important role played by the Port Authority in spurring economic growth in Lower Manhattan with the original World Trade Center development, and applauds the leadership shown by the Authority in rebuilding the site in the years since the September 11 attacks. As that rebuilding nears completion, however, the Port Authority must refocus and recommit its efforts to the transportation needs of the region. (p.2)

• Governance

The next section of the Report deals with Governance issues.

I think many people would agree that one of the key governance issues is the loss of professionalism and the proliferation and abuse of patronage appointments.

But there is nothing in the Governance recommendations about patronage appointments and the need for new objective qualification/civil service type reforms to prevent abuse and professionalize the Authority

Other governance issues involve a lack of transparency, openness, and community involvement and public participation in PA decisions.

But there is nothing in the recommendations about a range of needed reforms, from sunshine, to community involvement, transparency, and the need for more open and participatory meetings, deliberations, and planning.

• Bureaucratic and Technocratic Planning vision – no community engagement – status quo fail

We thought we were past this planning model 30 years ago: calling Jane Jacobs!

• Asset Management – or Giveaways?

Other troubling signals about privatization are sent via the recommendations on asset management:

The Port Authority’s mandate has expanded considerably since its founding. As it nears its centennial, however, the Port Authority must refocus and return to its core mission of investing in the region’s airports, port facilities and the Trans-Hudson transportation network. This must be accomplished even as the Authority recognizes that its traditional revenue sources, bridge and tunnel tolls and airport landing fees, will not by themselves support the transportation investments the region requires. The Authority must therefore modernize its approach to the financing, design, and construction of new transportation infrastructure, while managing its existing assets more effectively and efficiently, in order to meet the region’s needs for the 21st century. (p.4)

On a minor technical note, the Report lists ongoing efforts to sell off non essential assets. One that caught my eye was the Newark incinerator. I was involved in the finance of that project, and note that the State of NJ contributed a $48 million no interest loan – that makes taxpayers an equity investor, yet those funds are not mentioned, leading me to question the Report’s rigor.

• Anti-regulatory ideology 

Seemingly out of nowhere and with little or no support, the Report slams regulation – what does this mean?

Coordinate with New York, New Jersey and federal officials to address regulatory constraints that stunt growth, stifle competition and harm the regional economy. (p.5)

• Asset sales to finance transportation investments 

The approach seems to be that the PA will sell of non-core mission assets to finance future necessary investments in transportation. But there doesn’t seem to be any guarantee that the investments would happen, possibly leading to bargain basement fire sales to provide operating revenues to keep tolls and fares down:

Pursue construction of a new Port Authority Bus Terminal, utilizing the embedded value of the Port Authority’s real estate holdings at that location and other sources of funding, to meet the increasing requirements of this vital element of the Trans-Hudson transportation network. (p.6)

• Privatization of PATH

The Report uses deceptive euphemism to recommends privatization of PATH – that issue has already drawn NJ media attention:

d)  Seek an improved operating model for the PATH rail system, including partnering with a third-party operator, to enhance the PATH’s operational performance and reduce its financial deficit.

• The Full Monte – Wall Street financialization meets Privatization and Deregulation

Here’s where the Report’s author’s just let it all hang out – including a recommendation to feather their own nest with millions in future consulting fees et al:

Mission Recommendation #3:
Phase out real estate ownership and development as an element of the Port Authority’s mission.a)  Prudently divest existing real estate holdings and restrict future real estate investments to those integral to the Authority’s core transportation mission.

• Divest and monetize the Port Authority’s commercial real estate holdings at the World Trade Centerpursuant to a plan taking into account both the value of these assets and the site’s national significance.
• Divest and monetize other commercial real estate holdings not necessary to the Authority’s core mission in a manner that maximizes proceeds available to support transportation infrastructure.
• Assess future real estate opportunities using standardized metrics to ensure consistency with the Port Authority’s core mission.

b)  Repurpose, redevelop, or sell underperforming assets, including obsolete facilities suchas the Red Hook Container Terminal. (p.6)