Audit reveals New York City Ferry System has US$224 million in undisclosed expenditures

Audit reveals New York City Ferry System has US$224 million in undisclosed expenditures

Photo: EDC.NYC

The Office of the New York City Comptroller has published an audit report that reveals the New York City Economic Development Corporation (EDC) did not disclose some of its expenditures in relation to the operation of the city’s passenger ferry system.

On February 12, 2016, the EDC entered into an operating agreement with HNY Ferry to operate the NYC Ferry system. The agreement covers an initial term of six years from May 1, 2017 through April 30, 2023, and a renewal option for one additional five-year period at EDC’s sole discretion.

On December 17, 2021, EDC extended the initial term for five months from May 1, 2023 through September 30, 2023.

NYC Ferry provides city-wide ferry services to waterfront communities, parks, and recreation areas for residents, commuters, tourists, and leisure riders. Services currently include six routes and one seasonal weekend shuttle with 38 ferries and 25 ferry landing stops.

NYC Ferry also provides free shuttle bus services at the Rockaway and East 34th Street landings

Additionally, EDC directed HNY Ferry to operate the East River ferry service from December 2016 through April 2017 pursuant to an Early Activation Agreement dated September 29, 2016.

For the period June 2015 through December 2021, EDC’s Executive Committee approved approximately US$829 million in expenditures related exclusively to NYC Ferry, including roughly US$559 million approved for the operator and a further US$270 million approved for other vendors. Per EDC’s audited financial statements, the net losses of the ferry operations for Fiscal Years 2017, 2018, 2019, 2020, and 2021 were US$30 million, US$44 million, US$53 million, US$53 million, and US$33 million, respectively.

In addition, EDC reported approximately US$1 million, US$7 million, and US$9 million in vessel depreciation for Fiscal Years 2019, 2020, and 2021, respectively, and US$218 million as ferry operation related net capital assets as of June 30, 2021.

The audit found that EDC did not disclose over US$224 million in expenditures as ferry-related in its audited financial statements and that EDC understated the city’s subsidy for the ferry operations by US$2.08, US$2.10, US$3.98 and US$4.29 for Fiscal Years 2018, 2019, 2020, and 2021, respectively.

In addition, EDC did not timely plan for a smooth transition to a new operator by the end of the initial term.

The audit also found that EDC’s financial decisions resulted in over US$66 million in unnecessary expenditures. These included the purchase of vessels at higher-than-market costs.

In a related tweet, New York City Comptroller Brad Lander said EDC ordered and paid HNY Ferry US$8.4 million for a “Rockaway class” ferry, but received a “River class” vessel that the agency later valued at only US$5.6 million. Mr Lander added that EDC never insisted that the operator refund the US$2.8 million difference.

Also, EDC did not maximise shuttle bus services by fully utilising the fees paid to the operator and adopted an inefficient process for collecting landing fees from and reimbursing them to the operator.

The audit revealed EDC did not properly enforce agreement terms and conditions or review related documents to ensure that the operator complied with certain insurance and reporting requirements, that payments made to the operator were accurate, substantiated, and justified, and that ridership and ticket revenue was accurately reported by the operator.

The audit makes 11 recommendations presented in the body of the report. In its response, EDC agreed with two of the 11 recommendations, disagreed with four, partially agreed with three, and stated that it is the current practice for two recommendations.

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