Public authorities have always had a controversial history in New York State. Responsible for the maintenance of the state’s most important infrastructure, including bridges, state dormitories, airports, mass transit, housing etc. they are known for excessive and wasteful spending, massive accumulation of debt, a lack of transparency, and last but not least weak governance.
Public authorities are state-chartered public benefit corporations that operate independent of the main structure of government escaping restrictions placed on ‘regular’ state agencies. In theory this would seem to make sense. In practice, however, many public authorities operate as fiefdoms, governed by boards of directors appointed to their respective positions by elected officials often influenced by special interest groups.
Currently, 47 state authorities and 530 local authorities are functioning, an increase of 297 since 2007. State authority operating expenses (in 2015) totaled $31.4 billion, local authorities spending an additional $16.1 billion, with debt @ $263.3 billion of which 60 percent was issued by state authorities alone.
Governor George Pataki signed into law the Public Authorities Accountability Act of 2005 (PAAA) “to ensure our public authorities are held to the highest standards of ethics and professional responsibility.”
This new law mandated (thanks to the herculean efforts of Ira Millstein, Senior Partner of the international law firm Weil, Gotshal & Manges and advisor to the governor) the use of Model Governance Principles based on the best practices of corporate governance utilized by private sector companies, as specified in the Federal Sarbanes-Oxley Act of 2002. It also established new reporting requirements, and an oversight group that eventually morphed into today’s Authorities Budget Office.
Unfortunately, with due deference to Mr. Millstein, this law proved to be little more than a “let’s try to do something right” policy statement, rather than a serious, no holds barred piece of reform legislation. Concerns came quickly to light. The law did not provide the ABO with enforcement powers, left them seriously underfunded, the data received was not attested to and/or verifiable, and fiduciary duties were an afterthought.
In response to these facts of life, members of the New York State Legislature (again with the help of Mr. Millstein) recommended that additional changes be implemented, and in 2009, Governor David Paterson signed the Public Authorities Reform Act of 2009 (PARA) which amended the Public Authority Accountability Act.
- In Retrospect
On July 1st of 2010 the Authority Budget Office issued a comprehensive evaluation of the effectiveness of the legislation since inception with copies forwarded to the Governor, Legislative Leaders, the State Comptroller and State Inspector General. This report, as you might anticipate, demonstrated that a fair majority of the authorities and local authorities subject to review (and their Boards of Directors) were not the least bit enamored with the newly imposed reporting and governance requirements. As a result:
- Of the 556 annual and budget reports required, only 66% were received.
- 114 Annual Reports were sent back to correct the information provided
- One IDA failed to report three projects financed with $436 million of tax free debt.
- One agency reported $1.6 million in salaries, the actual number $185.0 million.
- The amount of debt (not reported) ranged in various agencies from $1.6 to $200 million.
- One agency reported one contract, wherein 13 actual contracts existed for $230 million.
- Current Status:
With the latest legislation in mind, have things improved? Yes, and no. On the hopeful side more information is being gathered that has never before been available; and, the ABO is working with the “Governor’s office, select members of the legislature, municipal officials, and officers and representatives of public authorities to dissolve 250 state and local authorities deemed to be inactive, defunct, or no longer performing the purpose for which they were created.”
On the negative side, reporting problems continue to persist with the proliferation of local development corporations (LDCs) hardly models’ of good government. State and local authority spending, debt, conduit debt, and the number of questionable procurement contracts in play continue to increase, and 3,364 current Board members were cited as being unaware of their respective responsibilities in managing other peoples’ money.
The Public Authorities Accountability Act of 2005 and the Public Authorities Reform Act of 2009, established a framework to improve the operations of public authorities and local government agencies.
Unfortunately, the achievement of the goals initially envisioned still remains a work in progress with real reductions in the cost of services, compliance and closure unacceptably enduring and evasive. For those involved, frustration is evident, as highlighted in the following comments made by Mr. David Kidera, former director of the ABO in the cover letter to one of his reports:
“I urge everyone to read our latest annual report carefully. It is time for a comprehensive debate on the future of our public authorities and whether New York State, its local governments, and its taxpayers can continue to support the growing size and cost of this system. We need to reach consensus on practical ways to manage the proliferation of local authorities, assure that their financial decisions promote sustained economic growth across the State and the creation of career oriented jobs, and examine opportunities to consolidate, eliminate, or restructure authorities, at the state and local level, with similar missions or common public purposes. We need to further amend our laws to establish the legal framework within which we expect authorities to operate into the future. We also must consider better enforcement tools that will heighten compliance with statutory and ethical standards and instill trust that the decisions of public authority directors and executives are being made in the best interests of the public.”
Adam Paul Gordon, author of “Turning the Lights On: An Analysis of the Fiduciary Duty Provisions of the New York Public Authority Act” (in conjunction with the New York Law School Review) offered the following critique: “while New York’s elected officials have spoken about returning public authorities to the people, the Public Authority Reform Act does little more than the Public Authority Accountability Act to bring public authorities out of the dark. Reform efforts must be more than bold proclamations and metaphors, they must work.” He also concluded “the new fiduciary duty provisions are not only important in a political sense, but also in a legal sense. The drafters of the Reform Act adopted the corporate model of board governance, but improperly cut the essential remedial measures that are central to achieving its purpose. The remedies available to shareholders of private and nonprofit corporations must carry over to public authority law. Without them, public authority boards will continue to act in the dark without accountability.”
It is hard to even imagine that, over some eleven years, little real progress has been made to effectively address what needs to be done for all the reasons cited. David Kidera’s’ plea calling for a “comprehensive debate” can no longer be ignored. Is anyone willing to do so? Your suggestions appreciated.