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Go to Rochester D&C
City debates $11.5M for ferry
Supporters say deal should be a go, though others question it
Brian Sharp
Staff writer for Democrat and Chronicle
(December 18, 2005) — While a few City Council members continue to wrestle with a request to borrow another $11.5 million for the high-speed ferry, supporters think they have the votes to get the deal approved.
"I sense that there are enough council members prepared to support us," said City Councilman and ferry board President Benjamin Douglas.
Events of the past week have given ferry doubters — and believers — plenty to debate.
Monday brought the ferry's final Rochester-to-Toronto trip of the season, three weeks ahead of schedule.
At the same time, there were outlines of an aggressive marketing plan for next year that proponents said would drive up ridership and revenue.
Then came the midweek news conference in which Douglas and Mayor William A. Johnson Jr. reported that the ferry lost $10 million in the past 10 months and defended a request to borrow more.
Ferry officials covered most of those details in small group briefings with City Council members earlier this month.
That allowed them to get a read on what the council would support, so they could be reasonably sure of a positive vote.
But questions and behind-the-scenes discussion remain.
Joining Douglas in support of the $11.5 million request are Councilman Robert Stevenson, whose district includes the Port of Rochester; Council President Lois Giess; and Councilwoman Gladys Santiago. Only Councilman Brian Curran is certain to oppose it.
Councilmen Bill Pritchard, Adam McFadden and Tim Mains were undecided as of Friday, and Councilman Wade Norwood did not return phone messages.
"We are just trying to do our due diligence and make sure whatever we put out there is the right thing to do and our constituents don't go crazy," McFadden said.
"People are expecting me to protect taxpayers. This is a gamble. Taking a chance and taking a gamble are two different things."
The city backed a $40 million loan, created Rochester Ferry Co. to oversee operations and bought the ship last February. Rochester Ferry then hired Bay Ferries Great Lakes to manage the ship.
Facing public skepticism after the previous owner abruptly halted service in fall 2004, officials struggled to build ridership with limited marketing and a delayed, midseason start.
Bay Ferries posted high marks in customer satisfaction and on-time service, but had to cover $2 million in expenses to end the season after losses drained the ferry's financial reserves.
Moving forward, McFadden said city officials considered financing options that included: shutting down the service; borrowing additional money from the initial lender, Export Finance and Insurance Corp. in Australia; selling $50 million in bonds and paying off the Australians; or the $10 million bond issue.
Choosing the latter course, ferry officials arrived at the $11.5 million figure after adding in reserve and transaction costs.
Not a bank
Douglas said the preferred option actually had been to get more money from the Australians. "Their policy is that they will ... help people get off the ground in a start-up venture," Douglas said.
"What they don't want to become is a bank. They helped CATS (the original ferry operator in 2004) get off the ground. They helped us get off the ground. But they knew that we had other options."
The ship was built in Australia, and EFIC exists to increase Australia's exports. Douglas said the city and EFIC maintain a good working relationship.
The city is seeking to delay the Feb. 15 payment on the $2.7 million debt service owed to the Australians next year. EFIC officials did not return phone or e-mail messages.
If the $11.5 million bond issue is authorized by City Council on Tuesday, Rochester Ferry would move forward with the help of a Wall Street underwriter.
The bond sale is likely to take place in early January.
Rochester Ferry Co. would issue the bond, guaranteed by the city. The money would be available about Jan. 20 or soon after, officials said.
"In the bond market, $11 million isn't huge," said Chris Hayes, chief investment officer with Hayes Fischer Capital Management in Rochester.
"It will be interesting to see what rate of interest they are going to have to pay."
Hayes' firm has investments with Sea Containers Ltd., which operates ferry ventures worldwide.
Rochester is not alone in its struggles, he said, citing fuel prices, competition from discount airlines and other factors.
"It's just a tough business right now," Hayes said.
'Throw the money away'
Ronald Fielding is senior vice president and manager of the municipal bond group with Oppenheimer Funds Inc. in Rochester.
His portfolio totals $10 billion in New York, making Oppenheimer Funds the largest creditor of municipal governments in the state.
"The fact that they're going to throw the money away to keep this ferry going for a year is of no consequence to me. ... I only care if they have enough money to pay me back," Fielding said. With the city guaranteeing the debt, he said, "We will certainly look at that offering and, if it's priced competitively with other general obligation offerings, we'll buy it."
Mixed opinions
Public opinion appears to be mixed. Robert Knox lives in Rochester and supports giving the ferry at least another year.
"There were, of course, some bad turns early on," he said, but added he has faith in Bay Ferries' experience and thinks plans to increase marketing could deliver higher ridership.
"I believe it's worth another try."
Charles Straka is doubtful. He lives in Fairport and thinks suburbanites likely account for the bulk of passengers.
Those details, along with financial specifics, are missing, he said.
"There's a lot of talk and relatively few numbers," said the retired capital investment manager with Xerox Corp.
"If you're in business, that's the first thing that you look at, and it's been very fragmented."
McFadden said the problem boils down to City Hall needing to be clearer with the public.
"I think that you have to be open and honest with people, and put it on the table whether they want to subsidize a fast ferry that may have an economic impact on the region," he said. "We have to stop telling people that this is self-sustaining, that it's profitable.
"Although we haven't asked taxpayers to kick in any money yet, at some point, if we go down the road and this becomes not profitable, we will."
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