February 8th, 2016
This week we discuss New York State Governor Cuomo’s poor grasp of good public policy regarding transportation funding.
“…Because, Hey, a Bridge”
We start off with several quotations:
Governor Cuomo’s aim generally seems to be to achieve political victories for the sake of achieving political victories…
Cuomo’s “style” means, to use one example, building a bridge simply for the sake of being able to say that he built a bridge, without bothering to determine what sort of bridge would be best, where and how it would make sense to build it, how it should be funded and maintained, and whether or not there might be other transit or transportation-related projects more worthy of so much economic and political capital. Nothing about the way the bridge is being built remotely resembles good government or best practices. But that doesn’t matter, because, hey, a bridge. (Alex Pareene-Gawker)
Cuomo’s overstuffed shopping cart represents a beneficent form of megalomania: the conviction that he can deliver on all this stuff we’ve needed for a very long time. (Justin Davidson- New York Magazine)
In conjunction with the release of his State of the State speech, New York State Governor Cuomo unveiled a flurry of proposals in recent weeks targeting improvements to the State’s transportation infrastructure. Depending on which press account you believe, Cuomo has aspirations to be either Robert Moses or Nelson Rockefeller.
Most of the Governor’s proposals aim to achieve worthy goals, but have some fundamental flaws from a public policy and infrastructure planning perspective. A common flaw of his current proposals is the lack of a coherent, verifiable funding plan.
Full disclosure: I have been skeptical of Governor Cuomo’s dedication to good infrastructure public policy practices for several years. Unfortunately, in addition to his planning shortcomings, Governor Cuomo has not been a friend to transportation bondholders.
My first negative impression of Cuomo in this context was formed during a spat between the Port Authority of New York and New Jersey (“PANYNJ”) and its bondholders regarding the PANYNJ’s efforts to illegally subordinate holders of its Consolidated bonds.
In its efforts to assist Silverstein Properties’ construction on an office tower at Number 4 World Trade Center, PANYNJ proposed to provide a debt subsidy for a Silverstein loan, which would have been senior to Consolidated bondholders. Cuomo’s attempt to intervene through back channels to short circuit negotiations between the PANYNJ and bondholders demonstrated a lack of respect for bondholder rights.
Cuomo has also been complicit in the poor financial and debt management practices at the New York State Thruway Authority. For many years, the Tappan Zee Bridge had served as a “cash cow” which subsidized operations of the upstate Thruway and a few unrelated projects (like the money losing Canal Corporation).
As the Tappan Zee approached the end of its life, it became clear that the need to fund the TZB replacement would transform the Tappan Zee from a cash cow to a cash drain for the Thruway. One recent indicator of this transformation is Cuomo’s proposal to shift responsibility for the Canal Corporation from the Thruway to the New York State Power Authority.
The need to replace the Tappan Zee has long been recognized and numerous building plans were developed, historically. However, Thruway management did little or nothing on the financial side to prepare for funding such a giant project. “We’ll deal with it when it happens”, seemed to be the prevailing attitude at the Thruway. Tolls were kept low and debt levels continued to grow.
Even as the start of construction approached, Cuomo and the Thruway refused to reveal their financial plan. This refusal at its most absurd resulted in the release via a FOIA request of a heavily (totally?) redacted plan that had been submitted to TIFIA to support a loan application.
Source: Lohud-The Journal News
The most troubling aspect of the incident was the statement in defense of the secrecy by Thruway Executive Director Thomas Madison: “Any release of this preliminary financial information could harm the Thruway’s credit rating…” Hiding this information constitutes poor bondholder relations and violates the spirit, it not the letter of various securities disclosure regimes.
Aspects of the funding plan that have emerged indicate that a major portion of the funding for the replacement Tappan Zee Bridge will derive New York State’s share of penalties levied against financial firms during and prior to the financial crisis.
Cuomo has adamantly resisted calls to raise tolls on the Tappan Zee Bridge or its replacement as part of the funding plan. In his most recent budget submission, Cuomo has demonstrated ignorance or disregard for some basic transportation planning tenets: User pays is the best first choice option for funding a transportation project. The current Tappan Zee toll for a passenger car is less than half the toll charged by PANYNJ on the George Washington Bridge.
The Tappan Zee crossing could and should generate more revenue than Cuomo has proposed. That extra revenue would allow for alternative uses of the State. Access to this State funding would be especially valuable for projects that could not be self-supporting.
Cuomo recently proposed a freeze on tolls on upstate portions of the Thruway with the lost potential revenues to be replaced with State funds. Thus asking the taxpayers in other portions of the State to subsidize travel on the Thruway. (Note that this includes taxpayers who regularly pay the tolls on the RFK, Whitestone and Throgs Neck bridges shown below.)
Source: Jacobs
Tolls can serve a useful demand management tool to reduce congestion. Unlike many congested toll facilities, the Thruway does not charge higher tolls for travel at peak hours on the Tappan Zee. Traffic volumes on the Tappan Zee during morning (eastbound) and evening (westbound) peaks are nearly twice the volumes at off peak hours.
Source: Streetsblog
Raising peak hour tolls on the Tappan Zee, would reduce congestion on the bridge and surrounding roads, decrease commute times, and lower the environmental impact of the traffic.
Cuomo also displays ignorance of the need to fund maintenance and enhancements to a facility once it has been completed. He believes that since the original $600mm bonds issued to build the Thruway have matured, there is no longer a need for tolls. This fallacy arises much too frequently by politicians pandering to public aversion to tolls.
New York State has serious needs for enhanced transportation infrastructure. Ignoring basic financial planning practices makes fulfilling those needs more difficult and risky.
Have a great week,
Michael Craft, CFA
Governor Cuomo’s Poor Grasp of Transportation Funding
February 8th, 2016
This week we discuss New York State Governor Cuomo’s poor grasp of good public policy regarding transportation funding.
“…Because, Hey, a Bridge”
We start off with several quotations:
Governor Cuomo’s aim generally seems to be to achieve political victories for the sake of achieving political victories…
Cuomo’s “style” means, to use one example, building a bridge simply for the sake of being able to say that he built a bridge, without bothering to determine what sort of bridge would be best, where and how it would make sense to build it, how it should be funded and maintained, and whether or not there might be other transit or transportation-related projects more worthy of so much economic and political capital. Nothing about the way the bridge is being built remotely resembles good government or best practices. But that doesn’t matter, because, hey, a bridge. (Alex Pareene-Gawker)
Cuomo’s overstuffed shopping cart represents a beneficent form of megalomania: the conviction that he can deliver on all this stuff we’ve needed for a very long time. (Justin Davidson- New York Magazine)
In conjunction with the release of his State of the State speech, New York State Governor Cuomo unveiled a flurry of proposals in recent weeks targeting improvements to the State’s transportation infrastructure. Depending on which press account you believe, Cuomo has aspirations to be either Robert Moses or Nelson Rockefeller.
Most of the Governor’s proposals aim to achieve worthy goals, but have some fundamental flaws from a public policy and infrastructure planning perspective. A common flaw of his current proposals is the lack of a coherent, verifiable funding plan.
Full disclosure: I have been skeptical of Governor Cuomo’s dedication to good infrastructure public policy practices for several years. Unfortunately, in addition to his planning shortcomings, Governor Cuomo has not been a friend to transportation bondholders.
My first negative impression of Cuomo in this context was formed during a spat between the Port Authority of New York and New Jersey (“PANYNJ”) and its bondholders regarding the PANYNJ’s efforts to illegally subordinate holders of its Consolidated bonds.
In its efforts to assist Silverstein Properties’ construction on an office tower at Number 4 World Trade Center, PANYNJ proposed to provide a debt subsidy for a Silverstein loan, which would have been senior to Consolidated bondholders. Cuomo’s attempt to intervene through back channels to short circuit negotiations between the PANYNJ and bondholders demonstrated a lack of respect for bondholder rights.
Cuomo has also been complicit in the poor financial and debt management practices at the New York State Thruway Authority. For many years, the Tappan Zee Bridge had served as a “cash cow” which subsidized operations of the upstate Thruway and a few unrelated projects (like the money losing Canal Corporation).
As the Tappan Zee approached the end of its life, it became clear that the need to fund the TZB replacement would transform the Tappan Zee from a cash cow to a cash drain for the Thruway. One recent indicator of this transformation is Cuomo’s proposal to shift responsibility for the Canal Corporation from the Thruway to the New York State Power Authority.
The need to replace the Tappan Zee has long been recognized and numerous building plans were developed, historically. However, Thruway management did little or nothing on the financial side to prepare for funding such a giant project. “We’ll deal with it when it happens”, seemed to be the prevailing attitude at the Thruway. Tolls were kept low and debt levels continued to grow.
Even as the start of construction approached, Cuomo and the Thruway refused to reveal their financial plan. This refusal at its most absurd resulted in the release via a FOIA request of a heavily (totally?) redacted plan that had been submitted to TIFIA to support a loan application.
Source: Lohud-The Journal News
The most troubling aspect of the incident was the statement in defense of the secrecy by Thruway Executive Director Thomas Madison: “Any release of this preliminary financial information could harm the Thruway’s credit rating…” Hiding this information constitutes poor bondholder relations and violates the spirit, it not the letter of various securities disclosure regimes.
Aspects of the funding plan that have emerged indicate that a major portion of the funding for the replacement Tappan Zee Bridge will derive New York State’s share of penalties levied against financial firms during and prior to the financial crisis.
Cuomo has adamantly resisted calls to raise tolls on the Tappan Zee Bridge or its replacement as part of the funding plan. In his most recent budget submission, Cuomo has demonstrated ignorance or disregard for some basic transportation planning tenets: User pays is the best first choice option for funding a transportation project. The current Tappan Zee toll for a passenger car is less than half the toll charged by PANYNJ on the George Washington Bridge.
The Tappan Zee crossing could and should generate more revenue than Cuomo has proposed. That extra revenue would allow for alternative uses of the State. Access to this State funding would be especially valuable for projects that could not be self-supporting.
Cuomo recently proposed a freeze on tolls on upstate portions of the Thruway with the lost potential revenues to be replaced with State funds. Thus asking the taxpayers in other portions of the State to subsidize travel on the Thruway. (Note that this includes taxpayers who regularly pay the tolls on the RFK, Whitestone and Throgs Neck bridges shown below.)
Source: Jacobs
Tolls can serve a useful demand management tool to reduce congestion. Unlike many congested toll facilities, the Thruway does not charge higher tolls for travel at peak hours on the Tappan Zee. Traffic volumes on the Tappan Zee during morning (eastbound) and evening (westbound) peaks are nearly twice the volumes at off peak hours.
Source: Streetsblog
Raising peak hour tolls on the Tappan Zee, would reduce congestion on the bridge and surrounding roads, decrease commute times, and lower the environmental impact of the traffic.
Cuomo also displays ignorance of the need to fund maintenance and enhancements to a facility once it has been completed. He believes that since the original $600mm bonds issued to build the Thruway have matured, there is no longer a need for tolls. This fallacy arises much too frequently by politicians pandering to public aversion to tolls.
New York State has serious needs for enhanced transportation infrastructure. Ignoring basic financial planning practices makes fulfilling those needs more difficult and risky.
Have a great week,
Michael Craft, CFA