What is a "Public Authority?"
General-Purpose Government, Special-District Government, and Public Authorities
The Story
For seventeen years, I lived in a city overlayed by many units of special-district government of a type called a “public authority.” I paid fares on buses and trains operated by the Southeastern Pennsylvania Transit Authority (SEPTA), I paid parking tickets to the bloodsuckers at the Philadelphia Parking Authority (PPA), and I paid registration fees to attend conferences, galas, and other events at the Pennsylvania Convention Center Authority’s (PCCA) facility. I paid tolls to cross over the Delaware River into New Jersey on bridges owned and operated by the bi-state Delaware River Port Authority (DRPA). And for three years, when I reverse commuted from the city to my job in a New Jersey suburb, I paid fares on the DRPA-owned Port Authority Transit Corporation (PATCO) Speedline trains that run on the edges of the Benjamin Franklin Bridge and deliver South Jersey Commuters to their jobs in Center City Philadelphia in the morning and back to their homes in the evening. In addition to the City and the School District, over 20 public authorities were operating in Philadelphia back then (and more now - mostly new business improvement districts or “BIDs”), and yet for the first ten years I lived there, it never dawned on me to ask, “What’s an Authority?”
And then I took a job working in Philadelphia City Government. I was immediately put in charge of a $62 million project for the acquisition of a 1960s-era, vacant, 18-story high-rise in downtown and its complete renovation and conversion into a new city administration building housing 2,500 city employees and twelve departments. This was a big, complicated, public-private-partnership (PPP) deal, where the city would become the sole tenant of a building acquired and developed by a private sector development team, and owned by something called the Philadelphia Authority for Industrial Development. Yeah, in case you missed it, the acronym is “PAID.” But if the City needed this office space so badly, why couldn’t it just do the project itself? The problem was that federal and state constraints on public personnel and procurement practices in Pennsylvania ensured that capital projects led by the city always cost more, took longer to complete, and were of lesser quality. The workaround for this problem was for the city to use the private sector to deliver the project cheaper, faster, and better than the city ever could. Here’s how it worked: Paid sold $62 million worth of revenue bonds and used the proceeds to pay the total development costs of the “turnkey” project—property acquisition, design fees, and construction costs—for a facility that was custom-designed for the City’s needs. Once complete, PAID leased the building back to the City, and PAID used those funds to repay the bondholders. The City’s rent payment schedule exactly matched the schedule of repayments to the bondholders, and after the 30-year bonds have been fully repaid, PAID will sell the building back to the City for $1.00. Finally, the City structured and led the entire process. Did you get all of that?
How did I learn this? Well, I was responsible for reviewing large payment applications from the contractor on the project every month, so when I found out that PAID would be paying the draw requests after my review, I asked, “What is ‘PAID?” I found the phone number of the PAID guy—his name was Joe—and called him. I asked him who he was and what he did, and he told me that he worked at the Philadelphia Industrial Development Corporation (PIDC), another “quasi-governmental agency.” I was perplexed, so I asked, “then who is PAID, where are their offices, and what is their phone number?” He told me that he represented PAID, that PIDC operated PAID under contract, and that PAID had no separate offices and no staff. By then, he was as perplexed by my line of questioning as I was by his answers. Finally, I asked again, “then what is PAID?” And he said:
“The Philadelphia Authority for Industrial Development is a letter that lives in the desk drawer of the CEO and Executive Director of the Philadelphia Industrial Development Corporation.”
The Theory
A public authority is a type of “special district” government. Special districts are different from general-purpose governments in that they concentrate their efforts in one functional area. General-purpose governments—cities, counties, and townships—are responsible for a host of services ranging from police and fire protection to trash pickup, health services, streets, parks, libraries, and recreation centers. Special districts, however, focus on a single facility or service, such as an airport, toll bridge, or a transit system. In the second half of the 20th century, the number of local units of government declined, as school districts and general-purpose governments consolidated. The number of special district governments, however, continued to grow, tripling between 1952 and 2002 when there were 35,052 special districts - representing nearly 40% of all local governments. According to the 2017 Census of Governments (the most recent), the number of general-purpose governments has remained flat while the number of special districts has continued to grow.1
By some estimates, approximately 30% of special districts are public authorities. A product of the Progressive Era and the Wilsonian ideal of a separation between politics and professional administration, public authorities first proliferated during Roosevelt’s New Deal as mechanisms through which to funnel federal funds to local projects. Public authorities differ from special districts in two important ways: They do not tax, and they are governed by appointed, rather than elected boards. Further, authorities are not subject to debt limits or voter referenda, nor are they subject to the same employment and procurement rules that constrain cities. In theory, taken together, these characteristics give the public authority its key strength: insulation from politics and public scrutiny. Oh, and one more important distinction related to our story about PAID: There are two types of authority: Operating and financing. Operating authorities own and operate large facilities and systems and employ large workforces, in the case of a transit system, for example. Financing authorities, like PAID, have the power to issue bonds, have few if any paid staff, and exist primarily to provide conduit financing for public projects. But what explains the large share of special districts and authorities, and the continued growth in their numbers?2
Setting aside theory—and the Wilsonian ideal of separating politics and professional management—in practice, Ann Walsh found three sets of incentives for authority creation and use: financial, managerial, and political. Financial incentives are most important because authority financing allows a city to exceed its debt limit by financing public projects off-budget, with debt that is not backed by taxes and is therefore not subject to voter referenda. From a management standpoint, the primary incentive is to avoid the rules, laws, practices, and personnel and procurement constraints that impeded the ability of general-purpose governments to act quickly in the implementation of projects. And while the original idea behind authorities was to insulate big, important, non-routine projects from politics, in practice, Walsh reconfirmed a previous finding by Sayre and Kaufman, that,
Authorities merely “change the arena within which the political contests over their decisions take place. The new arena enhances the influence of bankers, consultants, developers, and other private interests in city business.”
Walsh and others have concluded that the continued popularity of public authorities, particularly among elected officials, reflects the larger issue of how difficult it is to manage, control, and use general-purpose government in the development of large, costly, and nonroutine projects.3
To summarize, the argument for public authorities is that if you want to complete a major project—like a bridge, tunnel, airport, or stadium—you need “political insulation” to span over electoral cycles and be able to attract and retain the best talent. The argument against authorities is that they are shadow governments with great powers who are not accountable to taxpayers. And despite the ideal of “political insulation,” while authority leaders and their projects never stand for election, public authority governance is often influenced by city governance through board appointments, and subject to pressures from external forces and other politicians with their own agendas.
The Lesson
If you have been paying attention, by now you will have deduced that PAID is a conduit authority that exists for the purpose of financing public projects outside of the City of Philadelphia’s debt limit, while avoiding onerous procurement and personnel constraints. The financing model for my office building project was an experiment, but it worked so well that the City soon financed a major addition to Philadelphia International Airport using the same deal structure, and there have been other projects since. You can begin to see why public authorities have proven over time to be one of the most enduring, resilient, versatile, and adaptable forms of government ever created. Public authorities and other special-purpose governments with the power to issue debt play a major role in building shaping our cities, so when you look around your city and you see big public projects and facilities, start asking yourself, “Who built that,” and, more important, “Who financed it?”
“The beauty of the authority structure is that it gets you out of the bureaucratic horror show surrounding procurement and employment.”
- Rina Cutler, former Executive Director, Philadelphia Parking Authority
“Authorities are the path of least resistance.”
- Ed Koch, Former Mayor of New York City
United States Census Bureau, Economics and Statistics Administration, United States Department of Commerce, 2002 Census of Governments, Volume 1, Government Organization (December 2002), and Volume 4, No. 2, Finances of Special District Governments, June 2005, Washington, DC: United States Census Bureau, June 2005.
Brown, Peter Hendee, America’s Waterfront Revival: Port Authorities and Urban Redevelopment, Philadelphia: The University of Pennsylvania Press, 2009, pages 2-14.
Walsh, Annmarie Hauck, The People’s Business: The Politics and Practices of Government Corporations, Cambridge: The MIT Press, 1978. See also Walsh’s “Public Authorities and the Shape of Decision Making,” in Urban Politics, New York Style, Jewel Bellush and Dick Netzer, editors, Armonk, NY: M. E. Sharpe, 1990; and Wallace S. Sayer and Herbert Kaufman, Governing New York City, New York: Russell Sage Foundation, 1960.