Rechler: A 21st Century Approach to Infrastructure

The following remarks were made by Scott Rechler, Chairman and CEO of RXR Realty and Chair of Regional Plan Association, at the 2017 RPA Assembly on April 21, 2017. 

Thank all of you for coming.  This is my first Regional Assembly as Chairman and I am incredibly honored to speak before you today.

Instead of giving a speech that all of us have heard year after year – about how we don’t invest enough in infrastructure -- I want to speak to a harsh truth. 

No matter how much we spend on infrastructure, our approach to planning, investing and building is completely outdated and broken. Too much of our infrastructure today is living on borrowed time, which means that our region itself is living on borrowed time. I’m fond of saying that we need to find 21st century solutions for 21st century challenges.  But the scary fact is that we are still applying 20th century solutions with 20th – and even 19th century – infrastructure.

Yes, we need to invest more, but how can we ask the public to pay more, if we continue to operate in a broken system where projects take too long to construct, cost way too much, and that are designed for today, and not for tomorrow? How is it possible that the construction of one mile of the Second Avenue subway costs four times as much as it costs to construct in Tokyo or Paris?  We’re not talking about Shanghai or Mumbai where labor is close to free and regulations are far looser, but expensive, first world cities.

How is it possible that East Side Access, which started over a decade ago, still has five more years to go before its complete? And how is it possible that the design for the PATH Hub caused that project to come in double its original estimate of $2 billion? 

These are all MTA and Port Authority projects, but these agencies didn’t create this broken and highly regulated, system. Regulations that protect our environment and our workers, are not only worthy, they are essential. But what makes no sense is to have layer upon layer of review and approvals – bureaucratic and legal red tape that is outmoded, costly, and, worst of all, ineffective and counter-productive. 

After years of paying more and more for less and less, are we surprised that the public has lost faith in government’s ability to get things done? If this cynicism breeds inaction, then the rest of the world will pass us by. Because while our approach to infrastructure may be stuck in the last century, our global economy is doing the exact opposite.  It’s progressing at warp speed into the future.

Just in the last ten years alone, we have seen incredible advances in technology that have changed our everyday life – from the way we shop, to how we watch TV, or to how we get around town – innovations that have turned long-standing industries completely upside down.

We may have the greatest city in the world with seemingly limitless numbers of the best and brightest wanting to live and work here, but if we continue to rely on our 20th century infrastructure and, worse, our 20th century playbook for replacing what we have, then that is a recipe for disaster.

It is time to start viewing our infrastructure through a 21st century lens.  This means, first, optimizing our existing infrastructure; second, building projects better, smarter, and faster; and third, repositioning agencies to be more accountable and transparent.

When I talk about optimizing our infrastructure, I’m not talking about doing more with less.  Government already does that. What I mean is expanding the capacity of our existing infrastructure in a way that meets demand.

Take an example from the private sector.  About ten years ago, when the iPhone came online, AT&T realized that the demand for data was surging at rates that they could never have anticipated. AT&T quickly recognized that it was facing a decision that would make or break the company:  How to accommodate this new demand without losing customers.

One obvious option: build more switches, routers, cables, and wires, an expensive and time-consuming process. Instead, they focused on developing software to expand the capacity of their existing infrastructure…not only to accommodate the immediate surge of new data, but also the exponential growth in data expected in the years to come. AT&T recognized that in order to compete in a 21st century economy, building more of the same wasn’t going to cut it. It was a massive undertaking, but it worked. 

We need to take this same innovative approach here as it relates to our infrastructure. 

For instance, without building more lanes, Governor Cuomo directed the MTA to remove tollbooths at New York’s bridges and tunnels and replace them with software to read an EZ-Pass or a license plate.  A bill is then automatically mailed to motorists when they pass through. This simple solution will move more vehicles more effectively through our tolls and onto where they want to go. Similarly, Mayor DeBlasio and City DOT Commissioner Polly Trottenberg deserve kudos for expanding ferry service citywide and optimizing a long under-utilized resource:  our waterways.

Today, our transportation agencies are working on some of the largest projects in the country without considering 21st century innovations. With some of the biggest companies in the world such as Ford, Uber, and Google are investing heavily in automated vehicle technology, it won’t be long before we can imagine automated buses moving through the Lincoln Tunnel with the speed and efficiency of rail.Yet, we have the Port Authority concentrating its energy in designing a larger bus terminal for buses from the Ralph Kramden era.

Now, optimizing our infrastructure will only get us so far.  We have to build new infrastructure as well. But with public finances increasingly strained and our infrastructure deteriorating, we cannot do what we need to do by repeating the same tired mantra of, “this is how we do things.”

Instead, we should leverage the private sector’s innovation, discipline, and capital.  I am speaking of public-private partnerships or P3s. We have generally shied away from P3s, mainly because government has opted use its “low-cost capital.” While government may be able to borrow more cheaply than the private sector, that dynamic changes when projects are routinely delayed and over-budget.    

Here is an example from my time at the Port Authority.  A few years ago, the Port Authority wanted to raise the Bayonne Bridge and also replace the Goethals Bridge at the same time. They opted for the traditional government route for Bayonne and P3 for Goethals. 

Today, Goethals is tracking on-time and on-budget, while Bayonne is several hundred million dollars in the red and its completion date has been pushed back multiple times. A four percent borrowing rate doesn’t sound so cheap when you add a few hundred million dollars of cost overruns, does it? 

Another good example of how P3s have worked well is the $4 billion public-private partnership to build a new Terminal B at LaGuardia Airport. Two-thirds of the costs are financed by the private sector and if there are any overruns or delays, the private sector pays, not the public.

Let’s be clear, a successful P3 isn’t free money, nor is it a replacement for direct government spending.  One way or another, the public bears the cost. But, what is so different about P3s is that, if properly structured, the public can have certainty that a project will get done on time and on budget or someone is held accountable. P3s bring innovation, discipline, and a transfer of risk from the public to the private sector.  What should we be willing to pay for something like that?

Remember, infrastructure is an investment.  Not a sunk cost.  And as with any investor, the public wants to know that their money is being spent effectively and there is accountability if the project is botched.

Finally, I also believe we need to re-evaluate some of our governmental agencies, many of which, like our infrastructure, were designed in the 20th century. An agency that I have thought about a lot is the Port Authority, where I served as the vice chairman. The agency was established nearly a century ago because our region at the time was in complete gridlock. 

Sound familiar? 

The Port was set up to be immune from short-term politics and parochial interests for the betterment of the region. And it did complete an extraordinary number of historic projects, such as the George Washington Bridge, the Lincoln Tunnel, and other important projects that other agencies were unlikely to do or unable to do so. 

But no matter how well intentioned recent reform efforts have been, the Port Authority is inherently flawed precisely because of its bi-state nature.   Virtually no elected official, in either state, is accountable for the agency’s success or failure.  When it does something well, elected officials will be first in line to take credit. 

But when things go wrong, the blame is pinned on the hard-working men and women that keep the agency running.

Now, despite its dysfunction, the Port Authority has done some phenomenal things in recent years -- largely due to the leadership of Pat Foye and the thousands of Port Authority team members who have committed themselves to the highest standard of excellence – professionals for whom I have the utmost respect for.

But we have to ask ourselves whether the Port Authority, a terrific agency for the 20th century, is the right one for the 21st

I don’t think it is – at least in the way that it is currently structured.

The bi-state nature of the Port Authority makes sense in theory.  But in practice, it masks ultimate accountability and creates inefficiencies. I recognize that we can’t break up or separate the Port Authority’s financial core.  But we should be looking at whether there are assets that the Port Authority can shed to either state. But if a state believes it can better operate an asset or wants to invest in an asset, such as one of the airports or a seaport, it should be allowed to do so.  And most importantly, the state should be held responsible for the asset’s success or failure.

Does it make sense for the Port Authority to run a small commuter railroad like the PATH Train?  Probably not. 

Wouldn’t it make more sense for that system, where 80 percent of its riders hail from New Jersey, to subsumed into New Jersey Transit?  The Port Authority could commit the same annual subsidy of several hundred million dollars that it does today and New Jersey Transit could benefit from the savings.   

Also, does the Port Authority really need a two thousand-member police force?  Shouldn’t we look to find ways to better leverage the police forces of New York and New Jersey?

The Port Authority has been selling off its non-core real estate, and it should continue to do so, but it’s not as easy when it comes to the World Trade Center. 

One outside the box solution would be for the Port Authority to take the World Trade Center complex public with a professional management team and Board that is charged with maximizing value. As the shares increase in value, the Port Authority could strategically sells its shares and re-invest the proceeds back into the region’s transportation system. This would instill private sector innovation and discipline, provide for sorely-needed liquidity, and enable the Port Authority to focus on its core business of transportation. 

Even if there were political will on both sides of the Hudson, none of these recommendations can happen overnight and they certainly require further analysis. But the current Port Authority structure will continually fail to fully meet the demands of either state or the public unless there is change. 

These are just a few ideas that we should consider for the Port Authority. But, we need bold new thinking not only at the Port Authority, but at other archaic agencies as well.

We need to be creative, innovative, forward-thinking, but most importantly, we need to act. Our global economy is changing by the day, and our place in it is not secure.  If we are to remain competitive, we have to throw away our old 20th century playbook and create a new one for the 21st century.  Our future depends on it.

Thank you all again for coming today.  I look forward to hearing today’s informative and exciting panel discussions and having a healthy discourse on how we can continue to best move forward as a region.