- the native canadian

Rick Armon and Frank Bilovsky
Staff writers

(November 20, 2004) — City officials released their business plan Friday to justify buying the private high-speed ferry service and turning it into a publicly run operation.

The city plan calls for the creation of a public authority — the Rochester Port and Ferry Authority — that would issue $40 million in government-backed bonds to buy the massive vessel and oversee the business.

"It's better to try this way than to hope and pray that someone comes along with a solution," said Mayor William A. Johnson Jr., who believes a public takeover is the only way to save the popular service.

The authority would raise the necessary cash through the bond sale, although taxpayers could be liable if revenues didn't meet expenses in any year.

The operator of the ferry, Canadian American Transportation Systems, sent out a strong signal late Friday that it might resist the city's offer to buy the ship. In a press conference, CATS President Cornel Martin accused the city of stealing the company's business plan.

"The city's adversarial conduct strikes us clearly as a hostile takeover," Martin said. "CATS will no longer stand by while the city tries to unethically and possibly illegally destroy the business CATS has created. ... They are trying to steal our ferry. They will not steal our business."

City officials did not have the opportunity to comment.

If the city takes over the ferry, at least the city would have a tangible asset to sell if the service founders again, leaving little risk to taxpayers, said Edward Doherty, the city's environmental services commissioner and former budget director, who wrote the 30-page plan.

The $42.5 million Spirit of Ontario — a vessel that can carry up to 774 passengers and 238 cars — made its last voyage between Rochester and Toronto on Sept. 7 after less than three months in operation. CATS said it was bleeding money. U.S. taxpayers have invested about $50 million in the project — in the ship itself, in the ferry terminal constructed at the port and in the surrounding infrastructure.

City officials are now trying to negotiate a deal to buy the ship from CATS.

The plan

Johnson said city officials learned from mistakes made by the ferry company and built their business plan on conservative assumptions. For example, the plan estimates that 385,705 passengers — or about 416 per trip — would ride the ship annually. CATS had estimated that 450,000 riders were needed before the operation would break even. (ed. And of course, if we 'estimate' the number of passengers that makes it a 'certainty', doesn't it?)

The plan projects operating revenue in the first year would total $19.5 million and expenses $20.3 million, including $4.6 million in debt payments. The authority also would have a $4 million reserve fund available to cover the first-year loss.

Revenues would outpace expenses and the reserve fund would increase in subsequent years because of smaller debt payments, Doherty said.

The debt would be spread out over a 15-year period. There also is an option for 20 years.

Johnson said he welcomed scrutiny of the plan. City Council is expected to hold a public hearing on it.

Key elements

Other key elements:

The ship and other necessary assets would be purchased for $42.1 million, with $1.8 million set aside for startup capital and $4 million for the reserve fund or working capital. The $42 million includes a $6.6 million state loan and a $1.3 million city loan already invested in the project.

The authority must earn at least $30.31 per passenger to make the project viable. (ed. And if it doesn't??) Specific ticket prices were not set in the plan, considering they would vary for walk-ons, people who brought vehicles and those who used the business class.

CATS charged $28 per adult walk-on passenger, but also tacked on surcharges that totaled $4 for northbound passengers and $3 for southbound riders. Adults who brought cars on the ship were charged $20.

About 5,480 trucks or buses would use the ferry in the first year, or about six per trip. The vessel can hold only 10 at one time. The average truck or bus fare would be $260.

Doherty said companies such as Eastman Kodak Co., Wegmans Foods Markets Inc. and American Rock Salt Co. are interested in using the ferry.

Other annual income would come from food and beverage sales ($1.39 per passenger), duty-free/gift shop sales ($1.12 per passenger) and $800,000 in advertising sales in the first year and $1 million in subsequent years.

Other annual expenses include $6.3 million for fuel, $1.2 million for insurance, $400,000 for customs fees in Canada and $200,000 to lease a ferry terminal in Toronto. (ed. And of course, rent rarely - if ever - increases.)

The ship would make two daily round trips between mid- April and mid-October, and only one round trip four days a week during the off-season months.

The operation would employ 28 full-time and 144 part-time workers.

Uncertainty

Some experts questioned whether the figures in the business plan were realistic.

"I think they are being somewhat sensible in that they are not using these outlandish marketing studies that CATS did to promote the thing," said Rochester Institute of Technology management professor Robert Barbato. "I think they are being reasonably conservative about this. They've done the best they can, but there really is uncertainty."

He has concerns about using figures from the first summer of operations as a basis for future ridership, since the ferry benefited from discounted ticketing in August and the service's novelty.

All business plans are speculations for the future, Barbato said.

Charles Wasley, an associate professor of accounting at University of Rochester's William E. Simon Graduate School of Business Administration, agreed that it was not prudent to take an initial business plan at face value, especially one coming from the public sector.

"As with all government-run programs, you have to have a healthy dose of skepticism."

Both Wasley and Barbato questioned whether annual income of $1 million from advertising was a realistic number. (ed. Sure! Advertising some local horsetrack, the local Marriott or the ambiance of Appleby's is JUST the eye-grabbing crap tourists strain to read! Don't they?)

"Has anybody been willing to step up and sign a contract for that?" Wasley asked.

Johnson said the city must act quickly if the service is to resume in April as hoped. The senior lenders, principally the Export Finance and Insurance Corp., an arm of the Australian government, is interested in recouping its $22.5 million investment in the venture and already has potential buyers.

EFIC has expressed support for the city plan, Johnson said.

The city needs to save the ferry because of its financial investment at the port and because the tourist attraction sets Rochester apart from other mid-size cities, Johnson said. (ed. Oh! So your career's on the line, is it?) The city and state also could lose millions if the ship sails away because of complicated loan agreements that allow the senior lenders to be repaid before the local governments, he added.

"A lot of us have a lot of egg on our face if this thing doesn't work," he said. (ed. Start wiping.)

If the Spirit of Ontario is turned into a public service, it wouldn't be the only government-run ferry operation in the United States. For example, New York City operates the Staten Island Ferry. Alaska runs the Marine Highway Ferry System. And Washington state operates Washington State Ferries in Seattle and British Columbia.

The call to create a public authority comes at the same time that state leaders are trying to crack down on independent authorities, which have had a history of scandal and mismanagement. Both state Comptroller Alan Hevesi and Attorney General Eliot Spitzer have backed legislation to reform the way authorities do business and make them more transparent.

RARMON@DemocratandChronicle.com

As one ferry halts, local plan proceeds