I recommend Lynne B. Sagalyn’s 2016 book “Power at Ground Zero,” which is referenced throughout here.
The September 11, 2001 terrorist attack on the World Trade Center in New York City resulted in nearly 3,000 deaths, the full collapse of four buildings, including the iconic Twin Towers, and significant damage or partial collapse of nearly 40 adjacent structures. The loss of life, infrastructure, and economic activity was catastrophic, and New York City was confronted with a rebuilding challenge of unfathomable proportions. The site covered 16 acres and was the economic powerhouse of Lower Manhattan: in 2011, the New York Times estimated the physical damage at $55 billion and economic loss worth $123 billion. Just in the first 15 months after 9/11, the city’s economic output decreased by an estimated approximately $27.3 billion.
The rebuilding of the World Trade Center (WTC) was unusually complex for several reasons. While megaprojects may have development and realisation stages as long as 30 years, and benefit from liminal reflection periods, the necessity to remain a global financial hub and the broader meaning of the site for New York City demanded a turnaround within several years; the developer, Larry Silverstein, was met with public consternation when he estimated a 2014 completion of the first tower. The process was emotionally fraught, given the loss of life, Twin Towers’ symbolism, and collective traumatising New Yorkers. A single construction project of similar scope had never been undertaken. Megaprojects beget megaprojects, but in this case, a mega-attack spawned multiple megaprojects. In addition to the office towers and skyscrapers lost in the attacks, rebuilding a Port Authority Trans-Hudson transit hub beneath the WTC cost $4 billion. 26 individual projects were associated with the site. The most complicating factor in this mammoth endeavour was the lack of a clear organisational and leadership structure to guide its planning, appraisal, and delivery. Competing agencies and jurisdictions did not coordinate their efforts and undermined each other since no planning process was defined at the onset, and they each behaved in accordance with Hall’s organisational process paradigm (1980), maintaining their cultural and operational status quo. No key stakeholder was willing “to submerge its interests to the greater civic good,” and inaction of key elected officials created a leadership vacuum which further compounded risks, complexities, and uncertainties (Sagalyn 2005).
Mega-infrastructure projects’ success hinge largely on the processes shaping and organisational structure of the leadership spearheading it. A comparison between the planning and appraisal of the WTC rebuilding to best practices finds the project was woefully mismanaged. Although the rebuilding of Ground Zero was under unique circumstances, the project fell victim to risk-mitigation failures endemic to megaprojects globally. The lease between Silverstein and the PA inadvertently created a pseudo private-public partnership with uncertain financing, generating its own risk and exacerbating existing risk. The Lower Manhattan Development Corporation had potential to spearhead the project as a special purpose entity but was not given authority to enforce decisions, resulting in a poorly-governed project poisoned by insidious mistrust.
Money Woes: The Port Authority’s Lease with Larry Silverstein
The Port Authority of New York and New Jersey (PA) is a quasi-governmental organisation founded in 1921 to administer the common interests of the port between the two states. Since the 1930s, it has been a self-supporting agency able to embark on mega-infrastructure and transport projects, beholden only to the governors of New York and New Jersey, and its own board, which is appointed by the governors. In the 1970s, it used its powers of eminent domain and political weight to build the World Trade Center. The Port Authority owned and managed the site until July 2001, when it was leased for ninety-nine years to real estate magnate Larry Silverstein for $3.2 billion.
The PA exposed itself to risk even before the terrorist attacks occurred given its own insurance policies and lease terms with Silverstein. Two clauses made Silverstein legally responsible for the rebuilding of the site but allowed him to rebuild it “exactly as it had been.” Although Silverstein was able to recoup more insurance money than the Port Authority could have, the lease terms disadvantaged the PA in deciding how the land could be redeveloped. Private-public partnerships used as a “vehicle to circumvent budget constraints” often fare poorly (McKinsey 2016). For financial convenience rather than sound project governance, Silverstein was able to retain power at Ground Zero because of his larger potential insurance payouts and the PA’s inability to afford buying him out.
The uncertainty of the project’s total financing stretched several years. Without a firm budget, planning efforts were limited, but many business and civic organisations advocated for expedited recovery. The majority of the re-building’s funding came from Silverstein’s insurance, disbursed across 25 carriers. The size of the payout was contingent upon the insurance agencies’ decision if the attack constituted one or two separate events; one attack warranted a payout of $3.5 billion; 2 attacks twice that. The many legal battles between Silverstein and the insurance carriers were public and protracted; their fees and payments to the PA cost him over $100 million before any construction started. By 2004, Silverstein’s various insurance defeats in court shrank his potential payouts from $7 to $4.65 billion, but “costs for rebuilding…were expected to run between $9 billion and $12 billion. …decisions about who would pay for what part of the $2 billion underground infrastructure buildout had yet to be determined” (Sagalyn 2016).
Economic analyses and public forums revealed that given the changing landscape of New York’s business real estate, more mixed use development, particularly residential and cultural, would have been welcome by the community to foster a socially comprehensive revitalisation. In 2002, Lower Manhattan office spaces suffered a vacancy rate of 20.4%, indicating that building more would not necessarily be profitable. Yet Silverstein was undeterred from his commercial ambitions. He was committed to maximising the 10 million square feet of destroyed space, and the Port Authority’s charter did not authorise residential land management. By failing to reconsider the land use beyond office and retail space, the PA and Silverstein exposed themselves to revenue risk, “actual project revenues (or net revenues) being lower than the forecast base case revenues” (Lemmon 2004). Further ignoring predictions on the development’s profitability, companies’ reticence to rent a terrorist attack site, and relocation of previous WTC tenants to elsewhere in Manhattan, “Silverstein planned to use insurance funds to build the Freedom Tower and a second tower and then borrow against the equity in the first two towers to finance the others” (Sagalyn 2016). Forecasting indicated that it would be difficult to find tenants to fill his towers, heightening Silverstein’s lifecycling and operating risk of maintaining an partially occupied skyscraper (Lemmon 2004). In September 2018, the Wall Street Journal reported One World Trade Center was 20% vacant.
The uncertainty regarding the financing and future profitability of the space, along with New York City’s notoriously inflated construction rates, exposed the project to several types of financial risk. Because of the project’s high public profile, Silverstein felt pressured to commence development regardless of market conditions, exposing it to construction risk, or “fail[ure] to be brought in to service at the right cost, at the right time, and to the right level of quality or performance” (Lemmon 2004). In 2005, Silverstein requested use of New York City’s $3.35 billion in public Liberty Bonds for rebuilding Ground Zero. This audacious ask prompted the PA, for the first time since the attacks, to request a detailed financial feasibility plan, as building 10 million square feet of office space seemed increasingly improbable. Elected officials “feared a walk-away scenario in which Silverstein would complete one tower (possibly two), default on his lease, and then walk away with million in profit from fees, leaving the PA without a way to finish the other buildings” (Sagalyn 2016). Fearing risk of a breach of contract, the PA made Silverstein unrealistically commit to certainty on the timing of construction. However, this only worsened Silverstein’s construction risk, and he re-negotiated this commitment over the course of the project. This stipulation did nothing to keep the project on track, as there is no correlation between on time and mitigating cost overruns.
Given most mega projects often run 50-100% over their estimated cost, Silverstein’s plans to commit all the insurance payouts and Liberty Bonds with limited contingency deeply exacerbated his construction risk. A 2011 nj.com article quoted Chris Ward, the Port Authority’s executive director, stating the combined projects of the rebuilding, memorial, museum, and transit hub had a $600 million contingency fund, a paltry 5% of the $12 billion total estimate of the projects. A more sizable contingency could have built project flexibility and prevented rampant cost overruns.
Who’s the Boss?
“Major projects have many, and sometimes a bewildering number of, stakeholders, and stakeholder management is a central task in identifying and managing projects that result in implementation and operational success” (Allport 2011). Ground Zero’s stakeholders were in the “bewildering” range, each with hefty political and financial clout. Although the owner of the site, the PA did not decisively take control of the rebuilding process, leaving over nineteen public agencies with some sort of jurisdiction or vested interest in the site to vie for influence.
The rebuilding effort was steeped in partisanship and jurisdictional competition. City officials felt they should steer it. Both City and State officials initially jockeyed for control of the federal $20 billion promised for recovery efforts, until the White House stated it would be disbursed through the State. Although the WTC was in New York City, it was owned by the PA, whose board is appointed by the governors of New York and New Jersey, which limited the Mayor’s role. Although it was agreed the site should have a memorial, museum, and commercial space, the PA and Lower Manhattan Development Corporation (LMDC) never formulated a clear programme of functional requirements to reconcile these competing priorities and limit the ambiguity clouding the scope of the project. This was illustrated by the widely disparate proposals submitted by architects.
Two months after the attacks, the City held its mayoral election. In anticipation of a Democratic victory, Republican Governor George Pataki created a subsidiary of the Empire State Development Corporation, the LMDC, to stunt a Democratic mayor’s influence and “assure the state’s control over federal funds for the recovery and rebuilding of Lower Manhattan” (Sagalyn 2016). However, after Republican Michael R. Bloomberg’s upset victory, it was hastily reconfigured to allocate power back to the mayor. The LMDC was ostensibly formed to “mediate between agencies and set the agenda for rebuilding lower Manhattan,” but it was crippled by ineffective leadership and by 2008 was discredited as an ineffective shell (Sagalyn 2016). Although the State received billions of federal funding to shape the recovery, Governor Pataki, setting his sights on re-election and a possible presidential bid, consistently shied from taking hard stances on the how rebuilding should proceed.
Megaprojects benefit from governance through special purpose entities, exclusively devoted to managing and delivering them, to adhere to budgets and planning and construction schedules, and to “escape the rigidity of existing routines and to find new common denominators” (Salet et al. 2013). At face value, the LMDC had potential to be a special purpose entity for the rebuilding of the WTC. It was structured like an independent corporation to oversee the WTC rebuilding, and board members “did not necessarily feel beholden to the elected officials who appointed them” (Sagalyn 2016). However, its power was never clearly parsed with the PA, an insular, “engineer-dominated authority…not accustomed to sharing its institutional turf” (ibid). It also could have alleviated the stresses of managing the process from the PA, which was reeling from the loss of its executive director, 83 other employees, and WTC headquarters. From its conception, the LMDC’s relationship with the PA was adversarial. Uncoordinated, contradictory planning efforts publicly weakened inter-organisational trust, which arguably did not even start at a neutral starting point given the LMDC’s political origin. Governor Pataki did not bestow the LMDC enforcement authority over other agencies, and was derided in the media and amongst politicians as an ineffective rebuilding hindrance. The competing agencies only aggravated risks typical in any megaproject, and unnecessarily generated their own planning uncertainty and and organisational complexity.
A political champion is necessary for the advancement of a project throughout planning, appraisal, and delivery. Although the rebuilding involved many political leaders, they each advocated for their desired outcome and did not seek consensus. The turmoil cost the project its confidence with the public and media. Editorials eviscerated Governor Pataki’s passivity and the PA’s mismanagement. The lack of a unified front caused confusion and anger amongst the public and civic organisations, who already felt the PA was ignoring their desire for more of a cultural presence and mixed land use at the site. Chris Ward, who assumed the duties of PA Executive Director in 2008, was the first official to straightforwardly report to the Governor’s office the project’s shortcomings and devise a strategy to rectify fifteen separate issues related to the design, legalities, budget, and schedule.
The rebuilding of the WTC suffered perversions of megaproject management best-practices. Instead of a transparent private-public partnership with clear objectives and stable financing, the PA’s lease terms with Larry Silverstein and financial straits ceded Ground Zero’s fate to a private developer with strictly commercial interests and a disregard for the community’s desire for mixed land use. Rather than an autonomous, authoritative special purpose entity created to drive the planning process and manage the project’s labyrinthine complexity, the toothless LMDC was formed as a political manoeuvre and eroded public trust, sowed dissent, and fueled jurisdictional competition with the PA, a site owner neither organisationally nor culturally positioned to lead a megaproject.
Both failures emerged in a leadership vacuum. They were the incidental products of financial uncertainty and lack of clarity on the project’s objectives. The rebuilding sloppily commenced without clear funding, scope, or political consensus, dooming it to over a decade of mismanagement, cost overruns, and public dissatisfaction. Financial risks flourished because of the rebuilding’s private insurance-based funding scheme and pressure to rebuild quickly. The reluctance of elected officials to scope the project and listen to the public’s desires for mixed use redevelopment compounded its uncertainty. The magnitude of this project was an innate source of complexity, but its lack of decisive political leadership and deliberate project management spawned confusion and further complexity.
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