Wednesday, February 08, 2012

The Rebuilding of Ground Zero, Part 154

While the Freedom Tower (1WTC) is closing in on being topped out later this year, the financial picture for the World Trade Center redevelopment is grim. In fact, grim isn't quite the word. It's downright scary and awful. An audit demanded by both New York and New Jersey governors Andrew Cuomo and Chris Christie shows just how bleak the situation is.

The Port Authority has so severely mismanaged the project that the audit released this week only scratches the surface on the dysfunction.

First among the problems is the compensation packages provided to Port Authority employees that leads to structural costs that are resistant to change:
  • Promotion within the organization is primarily based on seniority, with little evidence of advancement or compensation being tied to performance. As a result, the organization has a concentration of long tenured senior and middle management employees.
  • The magnitude of growth in size and cost of the security apparatus warrants an in depth review of its efficiency and relative effectiveness, as is currently being conducted.
  • Overtime and other forms of “add‐on” compensation resulted in an additional $20,559 per employee in 2010. Overtime expenses alone topped $85 million in 2010.
  • Total “add‐on” compensation, when combined with all other benefits, results in incremental average cost per employee equivalent to approximately 70% of base salary, a relatively high fringe benefit rate.
  • 93% of employees make no contribution to their health care; by contrast, 100% of New York State and New Jersey State employees contribute to health care.
  • Total cost of compensation and benefits for the average active Port Authority employee is estimated to exceed $143,000 annually.
That's just the tip of the iceberg.

While Steve Cuozzo, myself, and others take the Port Authority to task for the out-of-control costs for rebuilding the PATH terminal (costs rising from $2.2 billion to now $3.8 billion and rising), but the rest of the site work is a mess.

The auditor takes the position held by the Port Authority that it is owed monies by the city of New York and WTC 9/11 Museum foundation, but that's not necessarily the case. That would add hundreds of millions of dollars more to the costs that the Port Authority can't cover.

All this throws the agency's capital plan into doubt, and that includes the plans to raise the Bayonne Bridge, replace the obsolete Goethals Bridge, airport improvements, and replacement of the stringers on the George Washington Bridge.

Moreover, the problems with the Port Authority are going to lead to further delays on reconstruction efforts that will in turn lead to higher costs. These are on top of the delays and problems once a master plan was settled for the Ground Zero redevelopment - problems that could have been avoided.

Now, the auditor's solution is value engineering, which means using less expensive materials and architecture to arrive at a solution. That's not going to happen as the planning is too far underway for the Port Authority to cut its losses on the PATH hub, even though that is the area most ripe for cost-cutting.

Far from scaling back the costs, the Port Authority seems prepared to see the project through to completion as is, even as it claims that it will attempt to reduce further cost overruns.

Many of the problems can be traced back to the decisions by the Port Authority to stonewall Larry Silverstein in his reconstruction efforts, and the delays that the Port Authority created when it was preparing the siting for 2, 3, and 4 WTC. Those delays also meant that Silverstein could not obtain the critical funding for building the towers and potential tenants stayed on the sidelines while the Port Authority dithered.

This is yet another reason that the Port Authority should have gotten out of the real estate business in all of its aspects. It simply cannot do what it was entrusted in doing - providing improvements to the bistate infrastructure.

The fact that the PATH hub is out of control shows that the agency can't even manage its core functions properly. After all, the Port Authority has spent hundreds of millions of dollars to build three temporary stations. The first temporary station, opened in late 2003, cost $253 million. That station opened out on to Church Street and provided five tracks and three platforms. The station entrance on Church Street was then moved north to accommodate construction elsewhere within Ground Zero, but that temporary structure was also demolished and a new temporary station entrance was built at Vesey Street across from 7WTC. That's where the present location is, but it too stands in the way of rebuilding efforts for both the loading docks for 1WTC and the performing arts center that will be built on the site.

The delays are intolerable as it is, but the shifting construction around the site has revealed that the Port Authority has squandered countless hundreds of millions of dollars in shifting the temporary PATH station around the site all while overbuilding the capacity at the outset.

The temporary station is currently using only three tracks and two platforms, yet it was rebuilt in 2003 with 5 tracks and 3 platforms. Why was that even necessary given the planned reconstruction and the need to demolish what was just built. Those are costs that could have been saved on both ends - in not rebuilding with the extra platform and two tracks, and the subsequent demolition that added to costs and complexity.

None of that was addressed by this particular audit, and will get short shrift at the end of the day.

Mind you, I'm a regular rider of PATH and have seen how the site is being rebuilt on a daily basis. It's amazing to watch the structures going up all around, but knowing how much money was wasted in the process of building and subsequently demolishing what was just built is absolutely infuriating.

It is well past time to hold those involved in the process accountable.

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