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Public Authorities

by Glenn Pasanen and Gail Robinson, Apr 12, 2004
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Public authorites control many billions of dollars. In 2002 the 17 largest had $105 billion in debt.

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The plumbing fixtures at the Metropolitan Transportation Authority headquarters at 2 Broadway can join the $7,500 thermometers in the Tweed courthouse and the Pentagon's $640 toilet seats in the annals of government waste, fraud and abuse.

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Owners of Figliolia Plumbing in Brooklyn allegedly charged the authority $25.98 for lead-pipe connectors costing 49 cents each and marked up the cost of other materials by 5,000 percent as well. With the extra money, prosecutors charge, the Figliolia family bought jewelry, an indoor swimming pool, and backyard pond complete with footbridges. And some of the proceeds went for bribes and gifts to transit authority managers.

But some would accuse the Metropolitan Transportation Authority itself of even grander larceny (though perhaps not in violation of the criminal code). Before the 2002 election for governor, the MTA said it was in financial good health. But after New York State voters re-elected Governor George Pataki, who appoints the MTA board, the authority suddenly claimed it was running a $2.7 billion deficit and needed to raise bus and subway fares. Independent experts questioned the figure and discovered that the agency was keeping two sets of books to justify its wildly contradictory portrayal of its finances.

The Metropolitan Transportation Authority is just one of more than 640 authorities throughout the state. While they are created by the state government and operate for a public purpose, they are exempt from many of the rules and review under which government agencies normally operate. These authorities run the airports, operate bridges and tunnels, foster economic development, encourage development and oversee the subways and buses.

And, an increasing number of critics charge, they also:

  • Provide jobs and contracts to political cronies
  • Amass excessive amounts of debt
  • Operate outside public scrutiny and taxpayer control
  • And in general defy standard practices of good government.

Public authorities are the Enrons of state government, New York State Attorney General Elliot Spitzer charged in a speech last year, "hiding spots, breeding grounds for inertia, incompetence and, at times, worse." Faced with such concerns, public officials have proposed to reform the system. Ideas range from a modest directive issued by Governor George Pataki, whose appointees run many of the authorities, to State Assemblymember Richard Brodsky's call to eliminate authorities entirely.

DOING GOOD THINGS (SOMETIMES), BUT ARROGANTLY (OFTEN)

Authorities were virtually unknown in the United States until the Great Depression, when local governments, desperate for money, cast about for new financing methods. Most of the authorities were created for a single purpose and for a limited period of time.

But Robert Moses changed all that. As Robert Caro relates in his book "The Power Broker", Moses saw that the money coming in from tolls on the Triborough Bridge far exceeded the cost of maintaining the bridge. This inspired him to create an array of authorities that could go on in perpetuity, taking money from fees such as tolls and using it to finance his other projects -- bridges, highways, parks and so on.

This arrangement lives on. Some authorities, like the New York State Housing Finance Agency or the New York State Dormitory Authority, are financing mechanisms that borrow money for allegedly public purposes. Others, such as the Metropolitan Transportation Authority, also provide a service. Still others are economic development agencies, like the Hugh L. Carey Battery Park City Authority, which plan and finance large projects thought to be beyond the capacity of local government.

The governor controls the authorities through his appointment power. The MTA, for instance, has 17 voting (and six non-voting) members, all appointed by the governor. The Battery Park City Authority has three board members and a chief executive officer, all named by the governor. In some cases, like the current Lower Manhattan Development Corporation, the city looks to be a partner, but the governor, through his appointment power, retains ultimate control.

In 1956, when there were 56 authorities, a commission reviewed their operations and eliminated 20 of those. This year, New York State Comptroller Alan Hevesi directed his staff to undertake a similar study. The report, Public Authority Reform: Reining In New York’s Secret Government (in pdf format), was issued in February. It unearthed some 643 authorities, public benefit corporations and similar quasi-public agencies, most of them focused on a particular locality or facility.

Many affect the lives of average New York City residents. This includes most (though not all) of the more than 200 authorities considered to have statewide or regional responsibilities, such as the MTA and the Urban Development Corporation. About a dozen more have specific responsibilities in New York City, such as the Water Board and the School Construction Authority.

Many authorities do good things, Hevesi said at a recent New York City bar association forum on authorities. But, he added, "They're not supervised, and many of them develop a culture of arrogance and a set of behaviors we would never accept if we knew about them."

CRONYISM, COMEDY AND SCANDAL

An earlier, 2003 Hevesi report focused on one authority: the MTA. As the controversy about the conflicting sets of financial information entered the headlines -- and the courts -- the public learned more about the agency that operated with little scrutiny or oversight. The MTA has an annual budget of about $7 billion, Gene Russianoff of the Straphangers Campaign, a transit advocacy group, noted. But he said, "In the last four of five years, they issued that budget on a Tuesday and the following Tuesday, they would approve it -- a budget larger than many states -- with no hearing, no public review. They got away with this for years and years."

The uproar sparked some reforms at the agency, including new budget rules. But the MTA is not alone.

Some other examples:

-- The New York State Power Authority hired Vincent Vesce, a childhood friend of Pataki's, as an executive vice president at the salary of $186,000, according to the New York Post. The authority also hired the governor's former bodyguard for $160,000 -- and issued a waiver letting him collect his $60,000 a year state-police pension at the same time. Pataki aides told reporters the men were qualified for the jobs.

-- From 1999 to 2002, the Long Island Power Authority contracted with a former adviser to Rick Lazio, who ran against Hillary Clinton for Senate in 2000, to survey ratepayers. In addition to questioning them about their electricity needs, the poll also asked Long Island residents what they thought of Pataki and whether they would vote for Lazio or Clinton. The authority paid its acting chief financial officer almost $600,000 over 14 months -- and defied requirements that the state comptroller approve the contract.

-- The New York State Thruway Authority and Canal Corporation, which oversee the Erie Canal, sold a developer the rights to develop land along 45 miles of the canal -- all for $30,000. Although the canal corporation defended the arrangement, critics called it a "sweetheart deal" with the state doing little to advertise that canal rights were available. "The state is selling used trucks for more than it quietly sold the rights to the entire Erie Canal corridor," Assemblymember Richard Brodsky told the New York Times. Hevesi later rescinded the contract.

--The Liberty Bond program, an $8 billion plan created after 9/11 to provide financing for major projects to revitalize Lower Manhattan and aid the city economy, is coordinated by the city Economic Development Corporation, a public-benefit corporation. The watchdog group Good Jobs New York has highlighted how little affordable housing the bonds have funded, while they have been approved. for a Forest City Ratner project near downtown Brooklyn that will house the Bank of New York, a power plant in Astoria, and luxury housing.

--Last year, Attorney General Eliot Spitzer charged that the New York Racing Association, a public authority, had ignored widespread abuses by its betting clerks, including money laundering, betting and borrowing from the cash drawers. With indictments looming, Pataki selected Kenneth Cook to head the agency's security operation. According to the Albany Times-Union, Cook contributed $10,000 to Pataki's 2002 re-election campaign and worked for a firm run by friends of, and contributors to, the governor.

Then there are the authorities that seem to come more from Comedy Central. What does the Long Island Regional Ashfill Board do? Does Tuckahoe really need its own parking authority? Why does Governors Island have two separate authorities? And what about the Overcoat Development Corporation? Although it is allegedly located at 633 Third Avenue, no one there had heard of it, a New York Times reporter found. He discovered the agency is what remains of an effort to lure an Indiana coat company to Amsterdam, New York... in 1986.

WHY AUTHORITIES?

Given such a checkered record, why allow authorities to exist at all?

The answer is simple -- to get money.

The New York State constitution sets strict restrictions on government borrowing. For all intents and purposes, said Charles Brecher of the Citizens Budget Commission, the state cannot borrow money unless the voters directly approve the amount of money involved and the purpose for which it will be used. And voters often say no. "As a result," Brecher said, "state functions have been starved for capital."

And so they turned to authorities. Some of the authority money comes from fees. But authorities can issue revenue bonds, bonds issued for a certain purpose that then use the proceeds generated by the project -- the tolls from a highway, say -- to pay back the debt. In theory, there is nothing wrong with this, according to an article by William Stern, former head of the state Urban Development Corporation, in City Journal. But, he said, "because revenue bonds do not even require the approval of the legislature, they escape all forms of popular scrutiny. New Yorkers, in short, never get a chance to vote down revenue bonds, as they often choose to do with general-obligation debt."

And Stern says, the authorities also "buy" state facilities, giving the state a quick infusion of cash but adding the money to the state's long-term debt. So, the Urban Development Corporation "bought" Attica Prison to help the state out of a budget crisis during the Cuomo administration.

"You don't ask children and grandchildren to pay for the services you use today," Brecher said. "The device of authority borrowing has on occasion enabled the legislature and the governor to do that."

The money involved is enormous. According to the Hevesi report, authorities account for 90 percent of state debt service payments, up from 60 percent in 1985. The state's 17 largest public authorities had $105 billion in outstanding debt in 2002; $34 billion of that debt is financed by the state itself. And it could rise even further. The state's public-authority debt service costs will increase from $2.9 billion this year to $4.6 billion in 2008, according to a projection in the state's five-year capital plan.

Beyond the money, the Hevesi report lists several other lures for politicians:

  • Public authorities can finance public improvements without raising taxes. (Besides selling bonds, they can charge user fees, such as highway tolls, to cover costs of construction and operations.)
  • They can make politically unpopular decisions that elected officials are unwilling to make.
  • They can often be more flexible than government and cross jurisdictional boundaries.

From this perspective, many of the authorities make sense. The Metropolitan Transportation Authority, for example, can serve the needs of all travelers in, to and around New York. Even Russianoff, who has often fought with the MTA, said the agency "shows both the good and the bad of public authorities."

BATTERY PARK CITY AND THE JETS STADIUM

The Battery Park City Authority also boasted a laudable public purpose: It would take the money from a large high-end office and residential development and use it to finance new affordable housing -- without taxpayers having to pick up the tab. The authority has had many successes -- developing office space, thousands of apartments, parks, esplanades and open space -- but it has not created nearly as much affordable housing as promised.

Originally, two thirds of the housing at Battery Park City was intended for people of low and moderate income. As the housing market in Lower Manhattan boomed, Governor Mario Cuomo, the state legislature and other officials decided to build luxury housing at Battery Park City and use the proceeds from that to build 24,000 low and moderate income apartments in other parts of the city.

In fact, though, only 1,557 affordable units were built with authority funding, according to a September 2000 City Project study. (See related article in Gotham Gazette, Public Subsidies Flowing Up The West Side by Brad Lander.)

Today the city uses the Battery Park City Authority's cash, and its ability to borrow money, as aids in balancing the city’s overall annual budget. The authority refinanced all of its existing debt so the city would get nearly $100 million of extra revenue for this year’s budget (and lesser amounts in subsequent years). The state legislature authorized the Battery Park City Authority to borrow an additional $150 million to buy property from the city -- another one-shot asset sale to fill the budget gap.

The money may sound like a windfall for the city, but it is not; it is closer to an accounting trick. The Battery Park City Authority’s debt now totals $1.1 billion. This means the authority will pay about $1.9 billion in debt service (paying off the interest on the bonds) through 2039, according to one bond document. The authority collects payments from Battery Park City residents and businesses in lieu of taxes. It turns some of the money over to the city -- after deducting expenses and debt service costs. In other words, every dollar that goes to the authority’s debt service is one dollar that does not go to the city.

Now, Mayor Michael Bloomberg has announced that the city will use $350 million from the Battery Park City Authority to help pay for the proposed Jets Stadium and Javits Convention Center expansion.

Authorities in general will play a big role in Bloomberg's ambitious plans for the West Side. The Hevesi report points out that the Empire State Development Corporation, run by long-time Pataki associate Charles Gargano, controls 90 authorities, including the Lower Manhattan Development Corporation, the New York Convention Center Development Corporation (the Javits Center) and the Pennsylvania Station Redevelopment Corporation (the new rail station). Add in the MTA, which controls the rail yards in the West 30s; the Hudson River Park Trust (largely controlled by the governor), the Port Authority and the Battery Park City Authority and it is clear that the big decisions about the West Side will be made outside the normal political channels. The City Council and the state legislature will be excluded, and much will be done without public scrutiny.

REFORMING THE SYSTEM

Public officials and others have offered a number of plans to reform the authority system. Dominating much of the discussion is a 113-page bill offered by Hevesi and Spitzer. It would create a commission, similar to the one almost 50 years ago, to look at the 212 statewide authorities and determine which ones can justify their existence.

Those that survive the process would have to act more like regular government agencies -- putting out their contracts for competitive bidding, for example, and then submitting them to the state comptroller for approval. The measure also requires that the authorities make their financial reports public. Overall, Hevesi said, "We don't want [the authorities] to be stripped of their ability to perform services, but we want them to respond as government agencies should."

The Assembly, controlled by Democrats, has approved another reform package that overlaps with some of Hevesi's proposals. Introduced by Brodsky, it would give the state attorney general the power to appoint an independent inspector general for authorities and would put the authority finances back in the state budget.

The Republican-controlled State Senate has not voted on that measure. Asked his response to reforming authorities, Senate Majority leader Joseph Bruno said, "It's time for us to take a look at a lot of things, and authorities are one. We're looking at consolidation as a way of saving taxpayers money."

Pataki has not formally weighed in on the plan, although a spokesperson told the New York Sun that the governor has already taken some of the steps recommended by Hevesi. Pataki has issued a directive saying authorities must follow the "best practice" principles of private businesses and in February an aide to the governor reportedly asked heads of the state's authorities to submit a plan for reform to the governor by May 14.

But others question whether any of these reforms address the real problems. For example, Brecher of the Citizens Budget Commission says that they would not keep the authorities from creating more and more debt. To solve this problem would require changes in the constitution.

Brodsky questions the existence of authorities altogether. The reason the authorities are not accountable, he said, is that they have been removed from the legislative process. "We learned from our earliest days of American democracy that we are different, not because we have photogenic chief executives, but because we have legislative bodies specifically set up for the purpose of checking executive power," Brodsky said. "What has happened here is a classic example of the failure of American democratic institutions to live by the principles of democratic and constitutional law."

In an ideal state, he said the state government would have the power to issue revenue bonds and authorities would be abolished. But Brodsky conceded that such a massive change would be impossible and so is backing the more modest Assembly package.

Of course, passing that or the Hevesi-Spitzer plan may prove difficult in Albany. The State Senate may be less anxious to reform a system that, with a Republican governor, largely benefits Republicans. More cynical observers can wonder whether in 50 years another commission will review the state authorities and wonder why New York needs an Overcoat Development Corporation.


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