The unique way Amtrak’s Coscia plans to get Gateway done

By Tom Bergeron
New Jersey | Dec 21, 2017 at 9:25 am
From our print edition

Tony Coscia has spent years pulling together all of the public entities required to fund the Gateway Project: New Jersey, New York, Amtrak and the federal government.

As Coscia, Amtrak’s board chair, edges closer to what he hopes will be the ceremonial start of a project that in some ways already has begun, he knows funding from those entities won’t be enough to produce what is fair to call the most important — and most expensive — infrastructure project this region (and the country) has ever undertaken.

Coscia has the answer for that, too.

“I’ve said this a bunch of times, and I think it’s more than just a turn of phrase, but there is absolutely an important need to use private capital in building the Gateway Project, and it is completely impossible to build a Gateway Project without significant public money,” he said.

“Those two things are both absolutely true. I think we would be cheating the project and we would not be doing our jobs if we tried to come up with a way to do this that created no opportunity for private capital to come in. We know now that the introduction of private capital in the process is one of the things that’s going to create a level of market discipline to what we do. It’s going to allow us to leverage our public resources.”

In a wide-ranging interview on the project with ROI-NJ, Coscia broke down all of the issues surrounding the Gateway Project, which could cost $25 billion to $35 billion and take approximately a decade to finish:

How it is absolutely essential for not only movement to New York City, but also throughout New Jersey; how it is an exponentially better plan than the ARC tunnel project that was killed at the start of Gov. Chris Christie’s administration; how there is no more time to put this off; and how it can serve as a model that much-needed infrastructure projects across the country can follow.

That model, Coscia said, starts with the public-private partnership approach.

“There’s a lot of interest right now to put private capital into what is broadly defined as infrastructure assets, mostly because these hard assets have a useful life value that can be determined,” he said. “And anyone who’s managing a large portfolio right now wants some exposure to this space, the same way they want exposure to different other elements of the real estate sector, or other things like that.

“There’s a need, though, to tie those investments to investments where you can identify cash flow that comes from it. So, whether it’s user fees or rents or even availability payments that governments make, there’s a way of looking at sort of the annual cash flow that that project can generate and looking toward filling in some of the gaps that are created in building those projects by deploying private capital, because private capital is interested in being in that space.”

Coscia made two things clear.

First, the massive majority of the funding will come from the public sector. Gateway is not something that can be handled by private capital alone, he stressed.

“We know that there is no way of building this project without a significant public investment at all levels of government,” he said. “So, we encourage conversation about how the private sector will participate in the project, we just do it with the sort of immediate message that, ‘Please don’t mistake that for meaning that the public sector is off the hook.’

“There are trillions (of dollars) in private capital, but not trillions in private capital that would fund a project like this.”

The second part comes with a catch, Coscia said.

Without private capital, Gateway — and scores of other essential projects — will not get done, Coscia said.

“The important thing about bringing private capital into infrastructure is that there aren’t enough public resources to invest in everything we need to invest in,” he said.

“If we had been investing steadily for the last 40 years, then maybe this situation would be different. But the truth is, we’ve so underinvested in infrastructure for so long, it’s created this glut of projects, all of which have a compelling need to get done immediately.”

It’s the ultimate payback for the failure of infrastructure funding, Coscia said.

“There’s this sort of really unfair comparison that takes place between two very worthwhile projects, and the right answer is, you do have to build both now,” he said.

“I get the fact that we can’t go back and redo history (and) we are going to have to be strong enough to make decisions and prioritize, but the fact is, there aren’t enough public resources, there isn’t an ability to tax people enough to be able to do everything that needs to be done. There is an opportunity, and I think it’s a good opportunity, to bring private capital in to meet some of those needs.”

Private capital comes at a cost to the public, Coscia said.

“Private capital requires a return,” he said. “So, in essence, what we’re really doing is we’re giving up some of the value that comes from these infrastructure assets and we’re providing it to a private investor. There is a price tag with that.”

But private capital also brings a benefit, Coscia said. It could and should lead to a better building schedule.

“You hope that you make those decisions based on getting something out of paying that price, which comes in the form of transferring risk to a private investor, creating a discipline within the project to bring projects in on time and on budget and basically give you a stronger execution ability,” he said.

“You can make an argument that government has issued tax-exempt debt and finance projects without any sort of pure private involvement for centuries, and that that should work.

“I guess I would say that, in 2017, because of the fact that we have way more projects that need to be done than there are public resources to do it, because of the fact that we’ve allowed our institutions to maybe not continue the ability to have enough institutional strength to execute on these projects … there is a good opportunity right now to bring private capital into projects where it gives a public entity the ability to transfer some of the risk to a private investor and also give it the kind of support on execution and responsibility for budgets and deadlines that right now at least some public entities struggle with the ability to manage.”

(READ MORE from ROI-NJ with Tony Coscia.)

Coscia, a longtime partner at Windels Marx Lane & Mittendorf LLP, is as familiar with public and government projects as anyone in the tri-state region. He served as the chairman of the Port Authority of New York and New Jersey for eight years before stepping down in June 2011. That followed an 11-year run as chair of the New Jersey Economic Development Authority.

He took over as the chairman of the board of Amtrak in 2010, helping to turn around the financial fortunes of the organization.

Amtrak is having a record-breaking year in 2017, Coscia said.

Ridership, revenue and operating earnings are all up, while Amtrak established a new high for cost recovery, covering 94.7 percent of its operating costs with ticket sales and other revenues, he said.

“It is by far the best year in the company’s history,” Coscia said. “To give you some sense of perspective, our operating loss was $184 million in 2017. That’s a number that was $500 or $600 million just five, six years ago, so we’ve drastically cut our losses and we’ve reduced our long-term debt by two-thirds.”

And Amtrak has done this while spending $2 billion on capital improvements, a number Coscia said is four times what would normally be spent — an increase he said was necessitated by having too many capital projects put off for too long.

Coscia said he is bringing that same bottom-line business approach to the Gateway Development Corp.

He said he has to attract the funding he needs.

“I’ve been in business for over 30 years, and people invest money in well-run enterprises and they don’t invest money in enterprises that are poorly run,” he said.

“My objective is to have the Gateway Development Corp. run this project in a way where people have a level of confidence that whatever amount of capital, whatever amount of money is provided to this project, people trust that it’s going to be well spent and it’s going to be well managed.”

Last Thursday, Christie and New York Gov. Andrew Cuomo said their states are committed to funding 100 percent of their share of the project. But Coscia said, ultimately, the financing comes down to one entity: the federal government.

“There is there is no scenario under which this project gets built without a substantial level of financial participation by the federal government that is at an extremely high level that arguably will represent the single biggest investment that the federal government has made it infrastructure,” he said. “I mean the reality is that that’s what this project going to require, and if it doesn’t happen, the project’s not going to get built.”

Model trains project

No one disputes that the Gateway Project, which will build two new rail tunnels between New Jersey and New York, is essential for the region to maintain its economy. But completing the project, which could cost $25 billion to $35 billion and take approximately a decade to finish, would have an added bonus:

It would prove such a massive project could not only be completed, but in a new way.

So said Tony Coscia, the board chair of Amtrak, who is leading the Gateway effort.

“We all know that the models that have been used in the past are not going to be adequate to do this,” he said. “So, we have to sort of build that new model and whatever painful experience we have to go through to build that new model.

“To those of us who are involved in this business, it is absolutely worth it, because building a new model is sort of the first step in being able to then create something that could address the different infrastructure needs that exist.

“In a lot of ways, we can create a 21st century kind of understanding to how government at different levels have to work together, how sort of shared partnership has to work in different ways, and also the sort of stark lines drawn between what the public sector does what the private sector does.”

Coscia said doing nothing is not an option.

“We can’t throw up our hands and say, ‘Well this is too big and too hard; we can’t really get our act together,’” he said. “Our ability to actually take on a project like Gateway and be able to see it through is a learning exercise and a muscle memory that we need to build as a country in order to remain competitive economically.”

Gateway, Coscia said, is different because of the players involved.

“Gateway involves two different states, several different operating railroads (and) requires state, local and federal governments,” he said. “You couldn’t ask for a better prototype.”