Some lessons from the ferry report
The ferry, once the darling of much of this community, is now the object of ridicule. And the reputation of the man who championed the ferry, former Mayor Bill Johnson, has been tainted.
Johnson and the ferry had already taken plenty of abuse. But last week's report from State Comptroller Alan Hevesi is harsh, and it is damning. And ferry critics and Johnson opponents have been absolutely salivating.
The report focuses on the city's selection of Canadian American Transportation Systems to operate the ferry and the city's oversight of CATS. It concluded that the Johnson administration didn't exercise "adequate due diligence when approving and monitoring the project" and that it failed to protect the public's interest.
At a news conference last Friday, Johnson was furious, calling the report "negligent." He questioned why Hevesi's staff focused solely on the city (which loaned CATS $1.3 million) but ignored the state (which loaned $14 million) and let CATS escape virtually blameless. Johnson charged that Hevesi's office interviewed him for only 45 minutes and hadn't questioned other former city officials who could have explained many of the issues the report raises.
Should Hevesi look into the state's own "due diligence"? Sure. Should somebody be investigating CATS? Absolutely. But I think we can draw some important lessons now, and not all of them are in the Hevesi report. (Full disclosure: one of the early principals of CATS, Tom Riley, is a board member of this newspaper. Riley left CATS prior to the start-up of the ferry service.)
As the Hevesi report says, due diligence is crucial in a project like this. And those in charge of providing it need to know what to look for.
Johnson insists that the city did exercise due diligence. I disagree with him. I disagreed long before the Hevesi report came out.
The first problem was that city officials trusted CATS too much. CATS' plan called for a large amount of public investment. The public, in fact, was to put in more money than the CATS principals --- Brian Prince and Dominick DeLucia ---were.
And there were two problems with the CATS investment. First, part of what Prince and DeLucia counted as their own investment was wishful thinking, not cold, hard cash. They pledged $3.5 from excess cash they thought they'd have from operating the boat.
In addition, city officials never verified that Prince and DeLucia ever put any of their own money in.
The ferry was in financial trouble from the beginning; unbeknownst to city officials, CATS borrowed $7.4 million for operations before service began. Why didn't the city know? Because Prince and DeLucia refused to show them their financial records. In an interview after CATS abruptly suspended service in September 2004, Johnson told this newspaper that Prince and DeLucia insisted they didn't have to open their books, even though CATS was getting public funding.
"We've been going back and forth with them on that," said Johnson. "Their view is that they're a private company. And I've told them consistently: You take public money, you are a public corporation."
"We are still at the point of trying to look at their books," said Johnson. "They have not been fully disclosing of that."
We then asked Johnson if the city shouldn't have insisted on access to CATS' financial records before granting the loan.
"In hindsight," said Johnson, "you can always say you could have done some things differently. There's no question about it --- particularly with the way this thing has panned out."
The city lost even more money on the ferry after it started operating it itself, of course. And my own sense is that some of the oversight problems continued. Or maybe it was less "oversight" than knowing what to look at. And what it would take to make the ferry a success.
City officials had been concerned that CATS wasn't spending enough money marketing the ferry. And yet once they took it over, they repeated the mistake. And they were as reluctant to part with financial information as CATS had been.
While it's worth dwelling on all this --- for reasons of government credibility and accountability --- history and context are important. So let's look at that context.
First: There is no question that our ship could hardly have had worse luck. The accident in New York harbor was followed by engine problems, delaying the start of operations until well into the peak season. The attacks of 9/11 led to changes in customs and security requirements. Part of CATS' private funding was contingent on the construction of a terminal in Toronto, Johnson told us in that 2004 interview. Toronto had promised one but was dragging its heels.
Second: There's the little issue of politics. Much is being made of the Rochester General Regional Transportation Authority's skepticism about the ferry. RGRTA, in fact, refused to act as a conduit for the state funds. And former RGRTA chair Bill Nojay is having a high old time with the Hevesi report. But RGRTA's objections trace back to when Jack Doyle was county executive. The Republican Party was amassing a tidy bank account, getting donations from area businesses that --- purely by coincidence, of course --- were getting contracts from the Doyle administration.
The ferry offered a chance for somebody to make big bucks --- not so much from the ferry as from the related development around the ferry terminal. CATS wanted and eventually --- temporarily --- got the right to develop that land. And CATS wasn't the first outfit hoping to operate a ferry between Rochester and Toronto. A Canadian named William Wilkenson tried for several years to get one started. He was never able to convince city officials that he had enough money to pull it off.
Representing Wilkenson at one point was none other than attorney Bill Nojay.
CATS' business plan called for financial help from both the city and the state, and city officials became convinced that Doyle and Nojay --- whom Doyle had appointed to head RGRTA --- were trying to keep the ferry from becoming a reality. Nojay --- whose warnings about CATS' financial shakiness have proved to be correct --- insisted that RGRTA was simply being prudent. Skeptics could wonder whether the real intent was to have the ferry service and port development handled by somebody with ties to local Republicans.
Third: The ferry was an economic-development investment, to encourage both tourism and development. The Greater Rochester area badly needs a stronger economy, and as Johnson noted last week, it's particularly tough to encourage development here.
While the Doyle-Minarik administration kept its blinders on, did little to boost the economy of the region, and, disastrously, cut taxes, creating a severe budget crisis for the future, the Johnson administration kept the city on a fiscally prudent course --- and took a bold risk by embracing the ferry.
We're all screaming about the ferry now, but it isn't our only expensive economic-development project. Who's screaming about COMIDA and Empire Zone tax relief given to businesses that don't fulfill their promise to add jobs? The money we all lose is just as real as the $1.3 million the city loaned to CATS: what those businesses don't pay in taxes, the rest of us do.
Who's screaming about COMIDA and Empire Zone benefits that lure companies out of the city and into the suburbs, driving city taxes up higher? Who's screaming about PaetecPark, where public funding has risen dramatically since it was first proposed? Who's complaining about the $1 million taxpayers lose every year on Frontier Field?
Did the Johnson administration make mistakes? Absolutely.
Was CATS' ferry too big? Probably.
But the ferry was a risk worth taking. It cost what it cost. The biggest problem isn't the cost, it's that the cost wasn't anticipated. And because of that, the cost came as a shock, first to public officials and then to the public.
My hunch is that we'll eventually have ferry service between Rochester and Toronto --- and, perhaps, some other routes. Unfortunately, the problems with the CATS-Rochester ferry have left taxpayers with a big debt and a sour taste in our mouths.
Final lesson: the problems of this first ferry shouldn't push us back into our old, timid way of doing things. Bold action is needed if we're to ever get out of this economic slump.