July 27, 2006

An audit of Rochester's high-speed ferry service released today by the State Comptroller's Office found that former Rochester city officials ignored many warnings that the project had a "very high potential for failure" and didn't adequately protect the city financially when the project went awry.

"Unfortunately in the case of the fast ferry due diligence did not occur. That's very sad and a burden on the taxpayers of Rochester," said Alan Hevesi, New York State Comptroller. The audit spells out a number of missteps by the city administration under former Mayor William A. Johnson Jr., who left office at the end of 2005:

In the first year of the ferry operation, the city provided a $1.3 million loan to original owner Canadian American Transportation Systems. However, auditors found that the city also spent nearly $1 million on the project that appears to have been hidden from the public and were not approved by City Council. The city used funds from its 'furniture, fixtures and equipment budget' to purchase approximately $497,000 of equipment for use by CATS, such as office furniture, computers, a telephone system, a forklift, ticket printers and ovens for the ferry...but the city didn't identify CATS as being connected with these expenses. This, the report states, despite a License, Lease and Management Agreement with CATS that "specifically excluded FF&E (furniture, fixtures and equipment) as a City responsibility in connection with terminal improvements."

The rest of the more than $975,000 in city spending questioned by Comptroller Alan Hevesi was quietly funneled directly to the project's operator. "The manner in which City officials handled these transactions makes it appear that they intended to hide the transactions from public scrutiny," the audit alleges.

After the project was under way, city officials did not adequately monitor CATS' fiscal condition and were unaware that CATS was experiencing growing financial problems, such as taking out a short-term loan for $7.4 million in pre-launch expenses. The city did not thoroughly review the company's business plan, even though outside consultants identified red flags and the plan was modified several times.

The audit states that former Mayor Johnson amended an agreement that had CATS reimbursing the city up to $421,000 to install fuel tanks at the port. The amendment, which cut CATS' share to $210,500, was against the expressed wishes of City Council and came after the work was completed for $440,000 and left the city on the hook for $229,500.

It mentioned that when the city agreed to give the ferry franchise to CATS and lease space in the new city owned terminal to them in 2001, City Council insisted that a clause be included that would cancel the forty year one dollar a year lease if CATS ever halted ferry operations. In December 2003, CATS subleased commercial space in the terminal to it's subsidiary Maplestar. Then in February 2004, Johnson signed a separate agreement that allowed CATS/Maplestar to retain control of the terminal space even if CATS stopped running the ferry. More than a year later, City Council members expressed outrage when they learned of the arrangement, long after CATS had indeed pulled the plug on the ferry.

The report also questioned a $665,000 consulting agreement with LaBella Associates and a subconsultant in 2003. The sub-consultant turned out to be CATS, which received a lump-sum payment of $250,000, passed through LaBella, for "shore infrastructure consulting." The comptroller's office found no documentation of the consulting work performed.

The timeframe covers the planning and operation of ferry service to Toronto by Canadian American Transportation Systems (CATS) and ends shortly after the city bought the ship. Throughout the report, Hevesi is most critical of the oversight and conduct of former Mayor William A. Johnson Jr.'s administration. City spending questioned in the report is in addition to a $1.3 million loan the city granted CATS, allegedly despite CATS' failure to provide documentation the city initially requested.

Update 8/3/06...Mayor Robert Duffy is calling on county, state and federal authorities to initiate or renew criminal investigations into the initial high-speed ferry operator's dealings with the city and state.

He also announced that he has authorized the city's legal counsel to use any reasonable means to break a controversial one dollar a year lease of the ferry terminal. The forty year lease, agreed to by the previous administration, ceded control of half the terminal to Canadian American Transportation Systems' affiliate, Maplestar Development.

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