Port Authority of New York and New Jersey outsources new Goethals bridge
The Port Authority of New York and New Jersey announced on Wednesday that it has awarded the contract to rebuild the Goethals Bridge to a public private partnership (PPP). Bloomberg reports:
A group led by Kiewit Corp. and a Macquarie Group Ltd. (MQG) unit won a Port Authority of New York and New Jersey contract to finance, design and build a $1.5 billion replacement for the 85-year-old Goethals Bridge…
…“As we move forward with continuing constraints on our resources, we’re financing necessary infrastructure and at the same time minimizing the use of public funds and public debt capacity,” Port Authority Executive Director Pat Foye said yesterday at a board meeting in Manhattan.
In 2010, the project was estimated to cost $1 billion. Somehow the cost went up 50 percent since that time.
I’m usually against putting public works on the hook to make payments to a private entity for decades. According to my rough math, the Port Authority will end up paying private partners over $1 billion throughout the lifetime of the 40-year contract. This is money that is sorely needed for other capital projects. However, massive cost overruns at the World Trade Center site show that the Port Authority has proven itself dysfunctional when undertaking big projects. Outsourcing the bridge to a private contract does not seem like a bad idea. From The Star Ledger last year:
The Port Authority of New York and New Jersey is a “challenged and dysfunctional organization” in need of a complete overhaul of its management structure, according to an audit of the bi-state agency conducted in the wake of last year’s record bridge and tunnel toll hike.
At the same time, the audit said, the Port Authority has allowed the overall cost of the World Trade Center redevelopment project to balloon from an estimated $11 billion to nearly $15 billion since 2008.
The Port Authority explained its reason for outsourcing the Goethals project in a press release on April 24 (emphasis mine):
The Port Authority is utilizing an innovative PPP that allows the agency to maintain control of the asset, while having access to private-sector construction and maintenance expertise as well as private capital. The unique agreement will save the Port Authority an estimated 10 percent in combined construction and maintenance costs over the life of the agreement versus the Port Authority’s own project estimates, while minimizing any impact to the agency’s debt capacity. The developer will benefit from access of up to $500 million in a low cost, U.S. DOT TIFIA loan and the issuance of Private Activity Bonds.
The Port Authority estimates that it will save 10 percent of building and maintenance costs, while keeping debt off its books. There is not enough data in the public domain about the deal to verify if this claim is valid. Although the Authority has $18.2 billion of consolidated bonds outstanding as of January 2013, Moody’s thinks the Authority is fairly creditworthy and has ample revenues to cover debt service:
The Aa3 rating recognizes the authority’s near monopoly control over critical transportation infrastructure in its service area; a trend of favorable financial results and the build-up of large reserve balances; historically steady growth in usage and inelastic demand at most facilities through severe stresses, as well as recently implemented toll and fare increases.
At the Aa3 rating and stable outlook Moody’s expects that toll, fare and airport residual fee increases will bolster operating revenues and continue to provide strong debt service coverage ratios (DSCRs) over 2.0 times for escalating and increasingly back-loaded debt service.
And the 10 percent savings that the Port Authority estimates for the bridge? New York State achieved much bigger savings by outsourcing the design and building of the new Tappan Zee bridge, while keeping control and financing it:
“The unanimous approval of the proposal from Tappan Zee Constructors marks an important milestone in the project to build a new New York bridge to replace the Tappan Zee. The price proposal from Tappan Zee Constructors was at least 20 percent lower than other bidders, requires less dredging and can be completed faster than the other proposals,” Milstein said. “Most importantly, the design-build process produced a savings of at least $1.5 billion compared to the amounts estimated by the Federal Highway Administration and our own original estimates.
Given how critical the Port Authority is to the economy of the nation’s most important region, it’s a pity what a mess it is. The Port Authority has a massive pipeline of capital projects. It really needs to be reformed and cleaned up before it undertakes any more. It’s a monopoly, as Moody’s says, and it cannot keep raising fees and wasting money. Someone needs to rein it in. I’m looking at you, Governors Cuomo and Christie.