Who do public authorities serve — the public or the politicians who appoint their boards?
Much like New York City’s deteriorating and underfunded subways, the institutions overseeing our urban infrastructure are showing signs of decades of neglect. While New Yorkers regularly grapple with the physical manifestations of these problems, the governance challenges go largely unnoticed. At least, that was, until June 5, 2024, when New York Gov. Kathy Hochul announced that she was directing the Metropolitan Transportation Authority to announce an “indefinite pause” of the Central District Tolling Plan, commonly called congestion pricing.
Understanding the pause
With the adoption of the Traffic Mobility Act, the MTA was obligated to develop and implement congestion pricing. Accordingly, the MTA adopted a plan which, in addition to reducing traffic, would generate $15 billion to repair and revitalize the transit system. The long-anticipated, hotly debated initiative was to go live on June 30, tolling motor vehicles entering Manhattan at 60th Street and below.
Even to the casual observer, when the governor announced the pause, it was obvious that the MTA leaders were mere bystanders, watching a major policy U-turn and realizing it would create a major funding gap in the agency’s capital program. Indeed, the MTA’s chair and CEO, Janno Lieber had previously stated: “There is no Plan B.” On the heels of the governor’s announcement, the state Legislature (another bystander) declined to grant the governor’s last-minute request for $1 billion in new taxes to stave off the shortfall. At least five MTA board members expressed surprise at the governor’s decision. Some board members made reference to their fiduciary and legal obligations, asserting that they could not be “directed” by the governor. Yet Lieber, a gubernatorial appointee, held a press conference explaining how the MTA would address but not defy the pause.
Not since Sonny Corleone was gunned down on the Long Beach Causeway has there been this much discussion about an incident involving toll collection. Was the governor’s decision prompted by concern over New York’s post-COVID recovery, as she asserted? Was it the politics of the November elections, as others contend? Kathryn Wylde, the president of the Partnership for New York City, characterized the pause as “the triumph of politics over substance.”
While people debate the actual motivation, another set of issues has come to the fore. When it comes to the transit system, who is in charge? Who sets policy? What is the role of the MTA and its board? Are board members advisors or deciders? Is their obligation to facilitate the governor’s priorities, or is their role to act as fiduciaries? These issues go to the core of how critical state institutions define and do their job.
The current political moment offers a rare but important opportunity to scrutinize public authorities and the role and obligations of board members.
Public authorities: basics and conflicts
For the most part, government policies are implemented by state agencies operating as subsidiaries of the state. But not all: Beginning in 1848, amendments to the New York Constitution imposed stringent restrictions on the ability of the state and its agencies to incur debt. To comply with the restraints yet allow government operations to function, the state began creating public authorities — quasi-independent entities that have the ability to borrow, including through the issuance of bonds. Today, New York delegates have broad responsibilities to these authorities; according to the state comptroller, there are 294 of them, plus a multitude of local authorities. From the Empire State Development Corporation (ESD) to the Port of Oswego Authority to the Greenway Conservancy for the Hudson River Valley to the United Nations Development Authority, much of government operations run through these entities.
Public authorities are not free agents. They have the type of governance structure typical of corporations. Each is governed pursuant to bylaws and responsible to a board of directors that’s entrusted to act on behalf of the public. Indeed, under state law, public authority board members are required to “perform each of their duties … in good faith and with that degree of diligence, care and skill which an ordinarily prudent person in a similar position would use under similar circumstances.” Although board members “may take into consideration the views and policies of any elected official or body, or other person” the law explicitly states that they “ultimately apply independent judgment in the best interest of the authority, its mission and the public…”
Many appointees explicitly or implicitly take direction from the elected official who appointed them.
Nonetheless, commentators have warned against the influence of appointing officials as board members. The “Report of the Governor’s Taskforce on the Implementation of the 2009 Public Authorities Reform Act” is akin to a legal primer on these issues, stressing the fiduciary nature of board service and warning against improper influences. Further, Assemblyman Richard Brodsky frequently noted that “[t]he law has always required board members to do what’s right for the public, and not what’s right for the elected official.”
Despite these admonitions, the potential for political influence, for good or bad, is unavoidable. Most board members are nominated by the governor and confirmed by the Senate. It is rare for a nominee to be rejected. An appointment is often viewed as a plum provided to political and financial supporters. This is not to suggest that appointees are not qualified for board service, nor to imply that board members do not approach their service in good faith. But it is evident that many appointees explicitly or implicitly take direction from the elected official who appointed them.
Making matters even more muddled is the increasing frequency of elected officials appointing senior members of their own administration to serve on boards. Currently, the MTA board includes one member of the Hochul administration and two members who serve in Mayor Eric Adams’ administration. Gov. Andrew Cuomo also appointed several members of his administration to the MTA, Port Authority and ESD boards. Two of six members of The Port Authority Board serve in the Hochul administration, and two of three members of the Gateway Development Commission work for the governor. (The Port Authority and the Gateway Development Commission are bi-state entities and not Public Authorities. But the same obligations apply to appointees.)
Another practice that tends to be corrosive to fiduciary decision-making is the failure to re-appoint board members after their terms have expired. Board appointments are typically for a set number of years. Once the term is over, if not replaced, the board member remains as a holdover, serving at the will of the governor. While it would be easy enough to replace or re-appoint board members, that is often not the practice. For example, the Port Authority website indicates that all but two of the six New York commissioners are holdovers. (Similar information is unavailable on the MTA’s website.) From a good governance standpoint, board members should be secure for a specified term, absent malfeasance. Instead, many board members are only as secure as their last vote.
Taken together, these practices do not enhance independent decision-making.
What does this mean for the MTA and congestion pricing?
This takes us back to the pause.
In its wake, a number of board members have expressed consternation about the role of the MTA and whether it is appropriate for the governor to overrule their decision. Given that the MTA was legally required to adopt congestion pricing and that presumably the board did so in accordance with its fiduciary duties, the reaction is understandable. Eleven board members voted in favor of the plan in March; one voted against. If board members supported congestion pricing then, on what basis would they accept the pause now — especially given the fiscal consequences? Doesn’t this go to the essence of a core board responsibility: funding the MTA’s capital plan, which suddenly has a $15 billion hole? Driving home the predicament, the day after the governor announced the pause, the MTA’s chief financial officer and general counsel issued a joint statement calling out the risk to ongoing operations as well as to modernization and improvement projects.
If board members supported congestion pricing then, on what basis would they accept the pause now — especially given the fiscal consequences?
If nothing else, for the first time in a generation, the pause has brought to light the obligations of public authority board members. What is being served up is an actual fiduciary conflict. As noted, Mayor Adams has four MTA appointees, including two members of his administration, Meera Joshi (deputy mayor for operations) and Daniel Garodnick (director of city planning). Both are well-known advocates for congestion pricing. Following the governor’s edict, both publicly expressed their objection to delay. In response, the mayor made it clear that members of his administration are entitled to their own opinion, but when it comes to voting as MTA board members, “they look to the mayor for guidance.” (Ingrid Lewis-Martin, chief advisor to the mayor, has long been vehemently opposed to congestion pricing; when asked about the pause, she commented, “God answered my prayers.”)
It is unclear how these contrasting views will be reconciled. The dilemma applies equally to all 11 board members who voted in favor of the roll-out, including Lieber. What they do next will not be known until the MTA board reconvenes on June 26.
Meanwhile, implementing the pause is unlikely to require any affirmative act by the MTA. As Lieber noted in his press conference, congestion pricing cannot move forward unless New York State signs off on a Value Pricing Pilot Program, a ministerial act entrusted to the state Department of Transportation commissioner, a Hochul appointee.
So it is possible that the MTA board members are off the hook. But given the financial and operational consequences, is acquiescence consistent with their fiduciary obligations? Having approved a capital plan that includes essential system improvements and modernization projects dependent upon congestion pricing revenue, is a board member entitled to stand by as that plan is put at risk?
If the governor’s unilateral action controls the MTA, what is the point of having a fiduciary board at all? That may be the real $15 billion dollar question.