State of New York Office of the State Comptroller Division of Management Audit and State Financial Services
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State of New York Office of the State Comptroller Division of Management Audit and State Financial Services PORT AUTHORITY OF NEW YORK AND NEW JERSEY REGIONAL DEVELOPMENT PROGRAM REPORT 97-S-37 H. Carl McCall Comptroller State of New York Office of the State Comptroller Division of Management Audit and State Financial Services Report 97-S-37 Mr. Lewis M. Eisenberg Chairman Port Authority of New York and New Jersey One World Trade Center New York, NY 10048 Dear Mr. Eisenberg: The following is our report on the Port Authority of New York and New Jersey’s Regional Development Program. We did this audit according to the State Comptroller’s authority as stated in Section 7071 of the Unconsolidated Laws of New York. We list major contributors to this report in Appendix A. September 30, 1998 OSC Management Audit reports can be accessed via the OSC Web Page : http://www.osc.state.ny.us. If you wish your name to be deleted from our mailing list or if your address has changed, contact the Management Audit Group at (518) 474-3271 or at the Office of the State Comptroller, Alfred E. Smith State Office Building, 13th Floor, Albany, NY 12236. Executive Summary Port Authority of New York and New Jersey Regional Development Program Scope of Audit In 1978, the legislatures of the states of New York and New Jersey authorized the Port Authority of New York and New Jersey (Port Authority) to undertake a regional development program that included the construction and operation of industrial parks and other economic development projects in the inner cities of the Port Authority region. The intent of the program was to create and/or retain jobs, stimulate private investment, stabilize or improve the tax base, and create momentum for economic development near the industrial parks. Regional development projects undertaken by the Port Authority include the Essex County Resource Recovery Facility in New Jersey; Bathgate Industrial Park in the Bronx; the Industrial Park at Yonkers, NY; the Industrial Park at Elizabeth, NJ; and the Teleport on Staten Island, NY. Another regional development project was the Newark Legal Center in Newark, NJ, which was undertaken pursuant to state laws passed in New York and New Jersey in 1962. When fully developed, these six projects were expected to directly support 9,875 jobs. Through December 1996, construction of these projects cost the Port Authority approximately $531.6 million. From 1992 through calendar year 1996, the projects incurred a net loss of approximately $29.1 million (including amortization). Our audit addressed the following questions: ! To what extent has the Port Authority’s regional development program fulfilled its original intent of creating and/or retaining jobs, stimulating private investment, and foster the development of the areas surrounding the projects? ! Should the Port Authority develop a strategy for the disposition of profitable regional development projects that are not part of its core mission? Audit Observations Significant improvements have been made to the six sites where the Port and Conclusions Authority’s projects are located. As of December 17, 1997, the projects were supporting a total of 6,260 jobs. However, the projects have not all served as catalysts for the economic development of their immediate areas, as originally envisioned. Three of the projects -- Newark Legal Center, Yonkers Industrial Park, and the Teleport -- have a total vacancy of 232,291 square feet of rentable space, resulting in a potential cumulative gross revenue loss of $14.7 million to the Port Authority. In addition, 2 lots at Bathgate Industrial Park and 30 acres of the 100-acre site at the Teleport remain undeveloped. Moreover, four of the six projects — the Elizabeth, Bathgate, and Yonkers industrial parks; and the Newark Legal Center -- have generated net annual losses (at least during some recent years) and, as a result, have been a drain on the operations of the two remaining projects and the Port Authority as a whole. The projects’ location in economically-distressed areas has often discouraged prospective tenants and developers. The Port Authority must work to overcome this challenge to meet the goals of improving these areas. We recommended that the Port Authority enhance its marketing efforts to attract tenants and investors who can create and retain jobs. (See pp. 7-11) Moreover, additional charges in lieu of taxes on common area infrastruc- ture and other facility improvements, as well as the methodology used for determining those amounts, have made Teleport rentals particularly unattractive. The Port Authority needs to look at ways to make these rents competitive. (See pp. 9-11) In 1995, the Port Authority’s new Executive Director decided to reempha- size its core mission of providing transportation to the bi-state region. As a result, Port Authority officials have sold 79 acres of the 91-acre Elizabeth Industrial Park and 2 of the 7 buildings at Yonkers Industrial Park, but said they decided not to sell the Bathgate Industrial Park and the Teleport because both facilities continue to contribute to net operating revenues. We recommended that the Port Authority develop a strategy for all of its projects, including divesting itself of additional projects that are not part of its core mission. (See pp. 11-13) There are shortfalls in revenues from the Essex County Resource Recovery Facility (Essex Facility). Essex County is expected to make a reasonable effort to ensure that the facility receives 680,000 tons of acceptable solid waste. Instead, between 230,000 to 280,000 tons of waste are being diverted to landfills and incinerators located outside the county that charge a lower fee to accept the waste. We estimated that this diversion results in decreased annual revenues to the Port Authority and the plant operator ranging from $7.9 million to $9.7 million. Diversion and replacement waste from alternate sources mitigated some of this loss in 1997, but a recent decision by the U.S. Supreme Court allows carters to bypass designated waste disposal facilities, such as the Essex Facility, thus leading to further revenue decreases in the future. We suggested that officials from the Port Authority work with those from Essex County and the State of New Jersey to make this project economically viable. (See pp. 23-25) Comments of Port In response to the draft audit report, Port Authority officials did not Authority Officials specifically agree or disagree with our recommendations. However, officials stated that many of our recommendations were consistent with the Port Authority’s existing business strategy. Furthermore, the Port Authority’s response indicated that officials had taken actions to implement several of our recommendations. Contents Introduction Background ..................................1 Audit Scope, Objectives and Methodology ................4 Comments of Port Authority Officials ...................5 Operation of Economic Growth and Job Creation ....................7 Regional Unoccupied Space ..............................9 Divestiture .................................. 11 Development Recommendations .............................. 13 Projects Supplemental Rent ......................................... 15 Recommendation .............................. 17 Arrearages ......................................... 19 Recommendations .............................. 21 Essex County ......................................... 23 Resource Recovery Recommendation .............................. 25 Facility Exhibit A Income (Loss) Before Amortization Appendix A Major Contributors to This Report Appendix B Comments of Port Authority Officials Introduction Background The Port Authority of New York and New Jersey (Port Authority) was established on April 30, 1921, to promote and administer transportation- related activities within the Port District, an area of about 1,500 square miles in both states, centered on the Statue of Liberty. Since 1950, employment opportunities in the bi-state Port District, particularly within the older central cities, have declined. As a result, available land and other resources in the region have been underutilized, the tax base has eroded, and the rate of unemployment has been substantially higher than the national average. In 1978, in recognition of the loss of manufacturing jobs and plants in the Port District and the negative impact of that loss on the region’s economy, the Port Authority was authorized by the states of New York and New Jersey to expand its traditional transportation-related activities. It undertook a regional development program that included the construction and operation of industrial parks and other economic development projects in the inner cities of the Port District. The intent of the program was to create and/or retain jobs, stimulate private investment, stabilize or improve the tax base, and create momentum for economic development near the projects. Over the years, the Port Authority has developed and/or funded several industrial and economic development projects. During our audit the following projects were in operation: ! Essex County Resource Recovery Facility New Jersey’s largest waste-to-energy plant, this privately-operated facility opened in 1990 to serve the solid waste disposal needs of the 22 municipalities in Essex County, NJ. The Port Authority financed its construction and continues to oversee negotiations for the sale of energy and materials recovered in its operations. ! Bathgate Industrial Park A 21.5-acre facility in the Bronx,