Maritime and offshore news trusted by our 88,733 members delivered daily straight to your inbox.
Comptroller Lander calls for increased fiscal transparency, recouping overpayments, and a new RFP to operate the ferry system. Photo credit: Office of the New York City Comptroller
Audit Finds $224 Million In Underreported Costs In NYC Ferry System
New York, NY – New York City Comptroller Brad Lander released an audit showing NYC Economic Development Corporation (EDC) underreported nearly a quarter of a billion dollars in NYC Ferry expenditures during former Mayor Bill de Blasio’s Administration. EDC incurred a total of $758 million dollars in total ferry-related expenditures from July 1, 2015 through December 31, 2021, yet only reported $534 million as ferry-related expenses in its audited financial statements and other records. The total City subsidy-per-ride is nearly double the original estimate of $6.60 and has been consistently underreported.
The audit also found that several decisions — including the early termination of the previous East River route operator’s contract and lack of proper oversight over vessel acquisition — resulted in as much as $66 million in unnecessary expenses. The audit’s many findings collectively indicate poor oversight and a failure to hold the operator, Hornblower, accountable to the fiscal terms and conditions of their contract.
LIVE: Audit finds EDC underreported the costs of NYC ferry system by $224 million between 2015-2021 https://t.co/EUquxD5sa0
— Comptroller Brad Lander (@NYCComptroller) July 6, 2022
The Comptroller made 11 recommendations aimed at improving oversight over the ferry system and protecting the fiscal integrity of New York City. EDC accepted some of the recommendations for providing enhanced transparency and agreed to issue a new RFP for the system operator. However, they refused to include a full accounting of the Ferry system in its audited financial statements, or to seek recoupment of approximately $12 million in overpayments to Hornblower.
Key highlights from the audit’s findings include:
Undisclosed Expenses
While the de Blasio Administration’s EDC reported spending $534 million on ferry operations from July 1, 2015 through December 31, 2021 in its financial statements and other records, auditors found they actually incurred at least $758,517,560 in ferry-related expenses. A review of other financial records, including payment lists provided for this audit, found an additional $180,960,344 in capital expenses and $43,470,732 in operating expenses.
Subsidy Higher than Projected or Reported
Previous reporting indicated that the NYC Ferry system operates at a deficit and that the City’s subsidy is higher than the $6.60 per ride initially projected. By calculating the subsidy based on a more accurate assessment of the real operating costs, auditors found that the actual City subsidy has been consistently higher than reported. In Fiscal Year 2021, the City subsidy amounted to $12.88 per ride, 50% higher than the $8.59 that EDC reported.
The largest element of this understatement is EDC’s decision in 2018 to stop including depreciation in calculating the total cost, a practice the City had used from 2002 until 2017. The City removed capital expenses from its calculation in 2018, shortly after then-Mayor de Blasio announced a $300 million capital investment in the ferry system.
Period
Reported
Actual
FY 2018
$10.72
$12.80
FY 2019
$9.34
$11.44
FY 2020
$10.59
$14.57
FY 2021
$8.59
$12.88
Poor Financial Management
Several of EDC’s decisions resulted in tens of millions in unnecessary expenses, including purchasing vessels at higher-than-market costs as well as early termination and transfer of the East River contract.
The Comptroller’s analysis of vessel costs found EDC paid $34 million in questionable vessel expenses to Hornblower, which was charged with overseeing acquisition and construction of vessels. In 2016, EDC ordered at an average of $4 million per 150 River Class vessel and $7.1 million per 350 passenger vessel. In 2018 and 2019, they ordered at an average of $5.8 million per 150 River Class vessel and $9.1 million per 350 passenger vessel, a price increase that far outstripped the rate of inflation. In one case, EDC ordered and paid Hornblower $8.4 million for a “Rockaway Class” vessel, but received a “River Class” vessel that the agency later valued at $5.6 million. EDC never insisted that Hornblower refund the $2.8 million difference.
Walt Whitman waxed poetic about New York City’s ferries, but EDC’s responsibility is to provide adequate oversight and report accurately.
For a successful 21st century ferry system, we need more transparent reporting, better cost controls, and a new RFP to operate the system.
— Comptroller Brad Lander (@NYCComptroller) July 6, 2022
Billybey originally operated the East River route under a five-year agreement with EDC, but EDC terminated the contract nearly three years early, incurring additional costs of $21 million to Billybey for early termination and $3 million to Hornblower for the transition.
Contract Enforcement and Overpayments to Hornblower
Auditors found that EDC’s weak enforcement of contract provisions resulted in at least $3 million of unsubstantiated payments to Hornblower. Those included failure to submit documentation of the East River early activation costs, questionable calculation of management incentive fees, unjustified ticketing infrastructure and marketing costs, and other miscellaneous overpayments to Hornblower. EDC also failed to ensure compliance with certain insurance requirements.
The audit makes 11 recommendations. EDC agreed with two, partially agreed with three, stated that it is already in compliance with two, and disagreed with four.
EDC agreed to provide enhanced financial reporting on its website, but did not commit to disclose all ferry-related expenditures in its audited financial statements.
EDC agreed to include some additional “non-Operator” costs in the subsidy-per-ride calculation (e.g. the City’s cost in maintaining the ferry landings), but refused to include capital asset depreciation, as had been the City’s practice from 2002 through 2017.
EDC agreed to issue a new RFP to operate the system.
EDC refused to seek recoupment of overpayments to Hornblower totaling approximately $12 million.
In the realm of economics, where numbers often paint a more eloquent picture than words, we sometimes find ourselves bamboozled by the outliers. Let’s talk about France and the latest...
By John Konrad (gCaptain) Shares of Carnival Corporation, the parent company of Carnival Cruise Lines $CCL, soared by nearly 10% today on what the CEO calls “a phenomenal season”. This...
by John Konrad (gCaptain) Hamish Norton, the President of Star Bulk Carriers, provided insightful comments on the current state and future trends in the marine industry during Marine Money Week...
June 22, 2023
Total Views: 956
Let gCaptain be your compass for maritime news
The news that you need delivered every morning.
Sign Up Now for gCaptain Daily
We’ve got your daily industry news related to the global maritime and offshore industries.
OUT AT SEA?
We’ve got you covered with trusted maritime and offshore news from wherever you are.
OUT AT SEA?
We’ve got you covered with trusted maritime and offshore news from wherever you are.
JOIN OUR CREW
Maritime and offshore news trusted by our 96,635 members delivered daily straight to your inbox.
We use cookies on our website to give you the most relevant experience. By clicking “Accept”, you consent to the use of ALL the cookies.
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.