Lawmakers Consistently Refuse to Hold Public Authorities Accountable

Public authorities provide critically important services throughout New York State such as building infrastructure, maintaining bridges, managing public housing, and running mass transit systems. Because the State Constitution requires voter approval for any law or measure that creates debt, public authorities—whose debt is not included in the State’s debt calculations—provide an ideal financing vehicle for these activities. Until the State Constitution is amended in a manner that would empower the State to bear the debt burden of these services, we need public authorities. 

Unfortunately, a lack of transparency and accountability muddy the integrity of the important work of public authorities. In 2016, four men were indicted in a bid-rigging scheme related to upstate economic development projects that were under the purview of a statewide public authority. In 2018, all four men were convicted. This scandal laid bare the unaccountability of public authority operations which are conducted without the procurement guidelines that govern State agency operations. 

Legislation to address this critical absence of institutional control was introduced in 2017, but was not even brought to the floor in the Assembly. In 2019, public authority reform legislation was similarly a dead end. Unfortunately, the fate of this legislation is typical. Despite repeated evidence that the opacity of public authority operations — from procurement to board member responsibility — threatens the performance of public authority activity, appetite for comprehensive and meaningful reform in Albany is lukewarm to nonexistent. Instead, anemic reform inches along and in some cases, reform has paradoxically rendered public authorities less accountable to the public. As a result, New Yorkers are left to wonder if there will ever be a time when they will have complete confidence in the activities of public authorities.

The Rise of Public Authorities in New York State 

In 1846, the State Constitution established debt limitations that constrained the State’s ability to raise the necessary funds to develop infrastructure and provide essential services. Shortly after the turn of the century, the State devised a new way to fund public works that would insulate itself from long-term debt: public benefit corporations, known as public authorities. The first of such entities was also the first public authority in the country: The Port of New York Authority, later renamed the Port Authority of New York and New Jersey, created in 1921 by interstate compact and approved by Congress (Doig 2001).

A Constitutional Convention held in 1938 was the State’s first opportunity to examine its use of public authorities. By that time, 32 more public authorities had been created and Convention delegates felt that public authority debt threatened the State’s economic stability. The State Constitution was therefore amended to add controls: public authorities that assume debt and collect charges or fees could only be formed by an act of the Legislature, the State Comptroller had the authority to supervise the accounts of public authorities, and public authority debts would not be an obligation of the State or local governments (Quirk and Wein 1971). Specifically, administrative and fiscal functions of public authorities would be separated to “protect the State from liability and enable public authorities projects to be carried on free from restrictions otherwise applicable” (Matter of Plumbing Assn. v. Thruway Authority 5 NY2d 420, 425). 

Because the 1938 Convention completely separated fiscal functions of public authorities from the State and the State needed to incur debt to build infrastructure and provide services, lawmakers increasingly relied on them. Specifically, the state leveraged public authorities in new and creative ways. For example, the State began entering into lease-purchasing financing agreements with public authorities beginning with the Dormitory Authority in 1944. Under a lease-purchase agreement, a public authority issues bonds to build infrastructure and the State annually appropriates money to make lease payments to use that infrastructure (Wilson & Eichelberger 2009). Those payments are then used by the authority to service the bonds. Once the bonds are paid, the titles of the properties revert to the State. 

The State’s reckless use of public authorities soon became apparent. In 1956, the Temporary State Commission on Coordination of State Activities declared public authorities “one of the most significant developments in modern governmental administration.” That Commission noted the increased number of public authorities as well as problems with how they operate. Namely, the Commission’s final report noted that no one has been able to determine or even come up with an approximate count of the number of public authorities that exist, where they are, or what they do. This opacity places the public and the State, who ultimately bear responsibility for these entities at risk.

In addition to its findings, the Temporary State Commission on Coordination of State Activities released recommendations for reform that were introduced as nine pieces of legislation in 1956. Of those nine pieces of legislation, only two were passed by the Legislature and signed by the Governor. Those that passed were weak and did nothing to increase the accountability of public authorities. One bill increased the period of time the Governor has to review Port Authority meeting minutes, and the other eliminated 13 of the 53 public authorities that had been created but did not set limitations on the creation of future authorities (Ward 2006). The 1956 public authority reforms set the stage for Albany’s preference for weak and misdirected reform. 

A Mere Suggestion of Reform

Absent comprehensive reform, public authorities continued to perform with mixed results. For instance, despite charging user fees, many public authorities were still not able to function without State assistance and the use of State-backed moral obligation debt. But they remained essential to the State’s operations. In 1972, the Comptroller released a report that questioned whether public authorities should be considered a fourth branch of government because the State relied on them so heavily (OSC 2004). 

The State was motivated to take action on public authorities in the mid-1970s when one of its newer public authorities faced a crisis. In 1975, the Urban Development Corporation (UDC) – which now operates as the Empire State Development Corporation (ESDC) – defaulted on its short-term debt only seven years after formation. The crisis spearheaded the creation of the Public Authorities Control Board (PACB), which reviews the financing and construction of any project proposed by the eleven authorities that fall under its purview. The five-person board is composed of one representative from the executive branch, one representative from the majority in both the Assembly and the Senate, and a non-voting member for the minority in both houses. In early 2019, Governor Andrew Cuomo reportedly considered blocking the appointment of Senator Gianaris (D-Queens) to the PACB due to his opposition to Amazon locating its second headquarters in New York City in exchange for tax breaks. The Governor’s political involvement in this PACB nomination calls into question the ability of the Senate and the Assembly to faithfully make appointments and weakens the oversight mandate of the PACB.

While the creation of the PACB was a step in the right direction, the board’s mandate is limited and its minimal power has deteriorated. The PACB reviews project feasibility rather than programs, and projects are typically approved when the board determines there are enough funds committed to finance a project (Leigland 1992). To make this determination, the PACB analyzes projections of fees, revenues, and securities (OSC 2004). While financing proposals are rarely disapproved, the PACB’s inability to exercise comprehensive oversight over public authority activity was reinforced in the 2018-2020 Executive Budget released on April 1, 2019. Language governing the PACB was changed to state that failure of board members to vote solely on the basis of financial feasibility “constitutes a violation of the public’s trust,” and the Governor has the authority to immediately remove board member who even threatens to act beyond the scope of legal authority.

Still Waiting for Comprehensive Reform

Independent commissions continued to review public authority operations. In 1990, following a series of corruption scandals implicating government officials at all levels including borough presidents of New York City, municipal officials, and members of the state legislature, Governor Mario Cuomo formed the Commission on Government Integrity. Among the 21 reports issued and public hearings conducted by the Commission was the report Underground Government: Preliminary Report on Authorities and Other Public Corporations (1990). In it, the Commission acknowledged that although public authorities were established to carry out “complicated” tasks, “they have collectively become, in effect, a shadow government, quite powerful but little known and understood” (1). The Commission found that, among other things, tracking the financial transactions of public authorities is challenging because even the most rudimentary information necessary for a basic analysis is difficult or impossible to obtain.

The Commission made a number of recommendations for how public authority accountability and oversight could be improved. Among them, the commission asserted that “[d]ecision-makers in all such organizations should be subject to appropriate conflict-of-interest guidelines” (5-6). Despite the Commission’s analysis and recommendations for reform, the exercise produced no legislative outcomes.

By the early 2000s, it seemed as though lawmakers in Albany were warming to reform. By that time, the Legislature had identified problems with public authority operations and had begun investigations. In 2004, Comptroller Alan Hevesi, together with Attorney General Elliot Spitzer, proposed the Public Authority Reform Act, which was introduced by Senator Vincent Leibell (R-Brewster) and Assemblymen Sheldon Silver (D-Lower Manhattan) and Richard Brodsky (D-Westchester). The Act aimed to increase accountability, deter misconduct, and reduce inefficiencies at public authorities and subsidiary operations (OSC 2004). Also in 2004, Attorney General Spitzer formed the Commission on Public Authority Reform tasked with, among other things, evaluating the operations of state and local authorities and developing policies of effective governance and financial disclosure (OSC 2005). 

The 2004 Public Authority Reform Act did not pass but was reintroduced in 2005 as part of omnibus legislation that also reflected recommendations of the Commission on Public Authority Reform. The new legislation, the Public Authorities Accountability Act, passed and was signed into law by Governor George Pataki in 2006 (Chapter 766 of the Laws of 2005). The Act strengthened the responsibility and accountability of board members in addition to establishing the Authorities Budget Office (ABO). The ABO was tasked with ensuring that public authorities comply with Public Authorities Law by monitoring authority operations, practices, and reports. The Office also maintains a comprehensive inventory of all public authorities and subsidiaries.

During the 2009 legislative session, Senator Bill Perkins (D-Manhattan) and Assemblyman Richard Brodsky (D-Westchester) introduced legislation that reflected some recommendations of Governor Pataki’s Commission on Public Authority Reform. The legislation, the Public Authorities Reform Act of 2009, was signed into law by Governor David Paterson. When signing the bill, Paterson noted: “…for a very long period of time, [public authorities] have operated really without any oversight and operated very much in the dark, and often have amassed crippling back-door financing that has threatened the stability of our economy” (Confessore 2009).

The 2009 Act gave the Comptroller the power of discretion to review certain public authority contracts prior to publication for bid or proposal. Further, the Act restructured the recently-formed ABO. This independent office was additionally empowered to: require board members to adopt a written acknowledgement of their fiduciary duties; recommend debt limits for authorities without debt caps; investigate complaints made against public authorities for non-compliance or inappropriate conduct; and various other activities related to oversight and accountability.

Despite the appearance of reform, the additional accountability mechanisms were not enough to bring public authority accountability in line with routine government agencies. Post-expenditure audits by Comptroller Thomas DiNapoli throughout the early and mid 2010s revealed that public authorities continue to suffer from “lax contracting practices, loose expenditure controls and inadequate oversight” (OSC 2017, 2). Additionally, in 2011, a study in  the New York Law School Law Journal found that that act did nothing to eliminate self-dealing and irresponsible decision-making within public authorities (Gordon 2011). A 2016 economic development procurement scandal further revealed that reforms have done little. Four men affiliated with the Fort Schuyler Management Corporation (FSMC), a nonprofit organization associated with the Empire State Development Corporation (ESDC), were indicted and later convicted of crimes related to bid-rigging. FSMC benefitted from millions of dollars in public funds from ESDC which had been authorized by the ESDC Board of Directors. The public was still paying a high price for poor to nonexistent accountability and oversight.

In response to the bid-rigging scandal, in late 2016 Comptroller DiNapoli proposed legislation that aimed to increase oversight, transparency, and accountability in the procurement processes of public authorities. Specifically, the legislation would require public authorities to adopt the same procurement guidelines as state agencies. In addition, it requires legislative approval before a state-controlled nonprofit organization contracts on behalf of the State (A6355A. Assemb. Reg. Sess. 2017-2018).

DiNapoli’s legislation, the Procurement Integrity Act, was introduced by Senator John DeFrancisco (R-Syracuse) and Assemblywoman Crystal Peoples-Stokes (D-Buffalo) in early 2017. The bill passed the Senate in May 2018. Despite widespread bipartisan support in the Assembly, with 53 sponsors and cosponsors, the bill died in the Assembly. It never made it to the floor. Some speculated that Governor Cuomo had pressured Assembly Democrats not to bring it to the floor.

While the public may never know if legislators were indeed bowing to pressure from Governor Cuomo, it is clear that the appetite for comprehensive and meaningful public authority reform in Albany is perennially lacking. The Governor’s 2019 budget was yet another showcase of antipathy. While he was quick to publicize that public authority procurement reform was included in his budget proposal, his provisions did not include prohibiting the award of contracts through state-controlled non-profit organizations, nor did it include provisions for standardizing the contracting process for state authorities. Further, when the 2019 legislative session ended, the legislature had not taken any steps to increase public authority accountability.

The history of public authority reform in New York State reveals that change is slow and even more troubling, it sometimes actually weakens accountability. But history also proves that change—like public authorities themselves—is necessary. Public authorities support crucially important work across our state, from revitalizing downtowns to providing essential infrastructure to constructing and maintaining our parks. New Yorkers deserve to know how public authorities operate and how they use the public’s money — whether it’s public money collected through user fees or public money transferred from the State. It’s time for our elected representatives in Albany to pass real, comprehensive reform and build trust in public authorities. 

Citations:

Confessore, N. (2009, December 11). Paterson Signs Bill to Rein in State’s Free-Spending Public 

Authorities. The New York Times. Albany.

Doig, J.W. (2001). Empire on the Hudson: Entrepreneurial Vision and Political Power at the 

Port of New York Authority. New York: Columbia University Press.

Gordon, A. P. (2011). “Turning the Lights On: An Analysis of the Fiduciary Duty

Provisions of the New York State Public Authority Reform Act.” New York Law School Law Review, 56(12).

Leigland, J. (1992). External Controls on Public Authorities and Other Special Purpose Governments. In J. Mitchell (Ed.), Public Authorities and Public Policy: The Business of Government (pp. 31–48). Westport: Greenwood Press.

New York State Commission on Government Integrity. (1990). “Integrity and Ethical Standards in New York State Government” Reports. Book 9. Retrieved January 4 2019, from http://ir.lawnet.fordham.edu/feerick_integrity_commission_reports/9.

New York State Temporary State Commission On Coordination Of State Activities. (1956). Staff Report On Public Authorities Under New York State, report 22.

Office of the New York State Comptroller (OSC). (2004, February). “Public Authority Reform: Reining in New York’s Secret Government.” 

Office of the New York State Comptroller (OSC). (2005, January). “Public Authorities in New York State: Accelerating Momentum to Achieve Reform” Retrieved March 15, 2019, from https://www.osc.state.ny.us/reports/pubauth/pubauthoritiesreform.pdf 

Office of the New York State Comptroller (OSC). (2017, January). “Public Authorities by the Numbers” Retrieved March 15, 2019, from https://www.osc.state.ny.us/pubauth/reports/pub-auth-num-2017.pdf

Quirk, W. J., & Wein, L. E. (1971). Short Constitutional History of Entities Commonly Known as 

Authorities. Cornell Law Review, 56(4).

Ward, R. B. (2006). New York State Government (2nd ed.). Albany: The Rockefeller Institute Press.

Wilson, L., & Eichelberger, C. (2009). New York State Public Authority Reform: Where We Have Come From and Where Do We Need to Go. Government, Law and Policy Journal, 11(1).