A legal settlement between the Port Authority of New York and New Jersey and the federal Securities and Exchange Commission blows a hole in Gov. Chris Christie’s original version of why he canceled a long-planned commuter-rail tunnel during his first year in office.
Announced just before the governor delivered his State of the State speech, the SEC’s order makes clear that Christie administration officials were eyeing money the authority had earmarked for the commuter tunnel, hoping to use it instead to solve state transportation funding problems. Ultimately, that’s exactly what happened.
Meanwhile, Christie was bemoaning possible cost overruns tied to the tunnel.
The settlement hits the authority with a $400,000 penalty — barely a drop in the bucket for the multibillion-dollar agency. It also calls for an independent monitor to review Port Authority bond-offering policies, among other remedies.
The order released by the SEC on Tuesday accused the Port Authority of approving bond offerings to raise cash to finance roadwork in New Jersey even as agency lawyers had raised questions about whether it could legally do so under its 1921 charter. Those misgivings were not passed along to investors, even though federal-securities law requires complete and accurate disclosures, the SEC said in a news release announcing the penalty.
“The Port Authority represented to investors that it was authorized to issue bonds while not disclosing significant known risks that its actions were not legally permitted,” said Andrew M. Calamari, the director of the SEC’s New York regional office. “Municipal bond issuers must ensure that their disclosures are complete and accurate so that investors can make fully informed decisions about whether to invest.”
The SEC record shows the administration seeking to use agency funds to rebuild the iconic Pulaski Skyway, the Wittpenn Bridge, and several other roadways in north Jersey as early as May 2010, months before Christie announced he was pulling the plug on the tunnel project. But this is not just a case of Christie jumping the gun. The administration must have known that Port Authority funds can only be used to repair infrastructure directly connected to the authority’s bridges, tunnels, and roadways.
While it’s true that the Port Authority owns most of the region’s major bridges, tunnels, and airports in a district that generally covers a 25-mile radius around the Statue of Liberty, the agency’s own lawyers raised the question about whether those particular roads and bridges actually qualified for funding.
Although it’s ostensibly an independent agency, the governors of both New York and New Jersey can exert immense pressure on the Port Authority since they appoint commissioners and other top officials and also have the power to veto the agency’s meeting minutes. Eventually, the Port Authority acquiesced to the demand to use agency funds for state roadwork.
The SEC’s announcement prompted Assemblyman John Wisniewski, the state lawmaker who led the legislative inquiry into Bridgegate, to renew criticism of Christie’s 2010 decision to cancel the rail-tunnel project, and also the plan he announced in early 2011 to use the Port Authority’s funds to help pay for roadway repairs in New Jersey.
Christie’s office yesterday referred questions about the SEC settlement to the Port Authority, which did not respond after requesting that questions be sent via email. A news release issued by the Port Authority on Tuesday conceded the agency acted “negligently.”
The case that led to the settlement was rooted in a major political dilemma that Christie faced soon after taking office in early 2010 as the state Transportation Trust Fund was on the verge of running dry.
While the apparent solution was to hike the gas tax — something Christie ultimately authorized last year — the governor said at the time that he opposed doing so as the state was still feeling the effects of the Great Recession. He had also yet to gain the popularity among voters that would lead to his easy re-election in 2013, and the gas-tax hike would have likely threatened the political outlook for that victory.
To help keep transportation projects funded, Christie announced a plan in early 2011 that involved using nearly $2 billion in funds that had originally been earmarked by the Port Authority to pay for the planned Access to the Region’s Core rail tunnel. Christie had already canceled the tunnel project by early 2011, claiming it would have exposed the state to potentially costly overruns. Federal transportation officials disputed those claims at the time and attempted unsuccessfully to convince Christie to reverse course, even arguing that they would reconsider who would be responsible for any overruns that occurred.
The Port Authority’s Board of Commissioners voted to approve funding the roadwork in New Jersey in late-March 2011, after agency lawyers ultimately decided the roadwork could be justified because the repairs would benefit the Lincoln Tunnel, which is one of the agency’s assets. The commissioners, however, weren’t warned about the potential legal questions or that the justification involved the specific claim that the work would benefit the Lincoln Tunnel, according to the SEC’s order.
The Port Authority also didn’t include those concerns in official statements issued prior to a series of bond sales that occurred between 2012 and 2014 even as agency lawyers continued to raise concerns about potential exposure to costly lawsuits, the SEC said.
The Port Authority stressed in its news release that no bond proceeds ended up being used to fund the roadwork in New Jersey. The release also said the SEC did not determine that the Port Authority “acted willfully or even intentionally.” The agency has already made several changes, including using outside bond counsel and ending the practice of “consent” voting, the release said.
But Wisniewski (D-Middlesex) said the settlement means $400,000 that could have been used to pay for transportation improvements in the Port Authority region will instead go to paying the SEC penalty.
He added that the issue, “need(s) further investigation if we are ever going to understand how Christie manipulated the agency at the expense of New Jersey commuters. Wisniewski is one of several candidates now seeking the Democratic Party’s nomination in this year’s gubernatorial election.
In the past two years, two former Christie allies who were appointed by the governor to fill high-level positions at the Port Authority have pleaded guilty to federal corruption charges, and two other Christie allies who were charged with corruption in the wake of the Bridgegate scandal were found guilty by a federal jury.