Ferry Service's Dominance Draws Rivals' Anger

The New York Times - July 22, 2003.

By CHARLES V. BAGLI and KEVIN FLYNN

No one is laughing at Arthur's Folly anymore.

Arthur E. Imperatore Sr., a tough-talking former trucker, has turned his romantic notion of reviving ferry service in New York Harbor into a $73-million-a-year business that some experts say is a model for privately run mass transit.

His lone ferry of 17 years ago has grown into a fleet of 48 catamarans and other vessels that operate 25 routes between New Jersey and New York. In the past three years, ridership at his company, New York Waterway, has increased to 60,000 daily, and profits have tripled to $6 million a year. His boats carry more than 90 percent of the private ferry passengers in the harbor.

"We are a dedicated, innovative company that has almost single-handedly reinvented a dead industry," said Arthur E. Imperatore Jr., 40, who now runs the company founded by his 77-year-old father.

To the Imperatores and the government agencies and officials who have assisted the company in its rise, New York Waterway's dominance is entirely justified: it was in the business first, was steadfast in its commitment through lean years and has been a proven, reliable operator in meeting the region's growing demand.

But to others, chiefly Waterway's emerging rivals in the industry, the company's virtual monopoly has been helped by what they see as its status as a favorite of government.

The government has given it $27 million in subsidies and $26 million in loan guarantees, and is paying $250 million to build four terminals that Waterway will operate. Some of the financing is the first Federal Transit Administration money ever spent on a privately run ferry terminal.

The company has hired a government regulator who once oversaw the ferry business, and the Imperatores, their companies and associates have plowed a quarter of a million dollars into the campaigns of government officials in Albany, New York City and even Alaska, the home state of a congressman who helps oversee the industry.

Now the United States attorney's office in Manhattan and the Port Authority of New York and New Jersey have opened a joint inquiry into Waterway's performance. In addition to investigating claims by rivals that Waterway has improperly limited competition by hoarding boats and controlling access to landings, investigators are exploring whether it defrauded the federal government out of hundreds of thousands of dollars in emergency money provided after Sept. 11, 2001, an allegation the company has denied.

"I think it's obvious that Waterway has a favorite-son status with the Port Authority," said Bruce Boyle, who runs a ferry service to Manhattan from Jersey City. He has told regulators that he has been barred from certain landings controlled by Waterway.

In New York, ferry feuds date back two centuries to the rivalry between Col. John Stevens, a maritime engineer, and Robert Fulton, whose steamboats dominated the harbor. The Imperatores say the allegations against them have sprung from similar antagonism. Among those challenging Waterway for a share of the market is New York Water Taxi, whose chairman, Douglas Durst, is an influential Manhattan developer.

"Our accomplishments," said Arthur Imperatore Jr., "clearly have generated envy and resentment among certain other operators who can only benefit from having us under a cloud."

An Industry Is Reborn

Arthur Imperatore Sr. displayed a gambler's nerve in 1986 when he opened the first ferry service in two decades between New Jersey and Manhattan.

He had already earned a fortune as the owner of a short-haul trucking company, APA Transport. His businesses were a major distributor for The New York Times. He was celebrated for having stood up to organized crime.

"The trucking industry," he once said, "is not to be confused with Sunday school."

But real estate was a new venture for Mr. Imperatore when he bought two miles of dilapidated New Jersey waterfront between Weehawken and West New York. He envisioned a $5 billion Venetian city, complete with tree-lined canals, hotels and town houses.

The ferry would help to market the development by making Manhattan more accessible. It ran to a run-down railroad pier the company had bought at West 38th Street, and it quickly developed a nickname, Arthur's Folly. To his critics, Mr. Imperatore's plan was a testament to hubris. But unlike prior ferry operators, he had recognized the need to use buses to shuttle customers from remote waterfront landings to Midtown office towers.

"Arthur was a visionary," said Gene Heller, who as an executive at Hartz Mountain sold a ferry business to the Imperatores in the late 1980's.

Mr. Imperatore's city never came to pass, but his ferry business grew. In 1988, the Port Authority hired him to run boats between Hoboken and the World Financial Center to relieve overcrowding on the PATH trains.

The company lost money for its first seven years, officials said. But Mr. Imperatore added routes and pressed employees on the little things, like litter in the parking lot. "The old man, in my mind, carved something out of nothing," said Robert Bekoff, a former New York ferry operator.

A Flurry of Networking

For all his pioneering style as a businessman, Mr. Imperatore also understood the power of political friendship.

Fund-raising dinners were often held for allies like Gov. George E. Pataki or Mayor Rudolph W. Giuliani at the Imperatore family's waterfront restaurant in Weehawken. Two New Jersey officials who could be counted on in Washington, Senator Frank Lautenberg and Representative Robert A. Roe, had ferries named after them. The company hired lobbyists in New York City, Albany, Trenton and Washington.

"Mr. Imperatore courted everyone and everybody he could," said Jack Davis, a former Port Authority ferry official. He recalled a party on Mr. Imperatore's 142-foot yacht on a Halloween night 10 years ago with other authority executives and the mayors of towns along the New Jersey shoreline.

Mr. Bekoff, who now runs ferries in Florida, said he tried to enter the New York market in the late 1990's but gave up after losing $1 million because he could not compete with Mr. Imperatore's contacts. "Could I hire people to run and build the boats? No sweat," he said. "Did I have a lobbyist in Trenton, in New York City? Did I know the guy who knew the guy? No."

The Port Authority's former supervisor of ferry programs was among those the company wooed. The supervisor, Donald J. Liloia, was overseeing the ferry industry, including New York Waterway, in 1995 when the company asked if he would join it as a top executive. At that point, Mr. Liloia said, he recused himself from direct oversight of Waterway. He took the job three months later.

Within a year, Mr. Liloia said, he had helped New York Waterway draft its bid for a contract with the Port Authority, which it ultimately won. The agency's ethics code at the time barred former employees from representing outside vendors for two years after their departure. Mr. Liloia said he attended only one meeting about the contract and does not recall ever being told of such a restriction.

An Unexpected Demand

By 2001, New York Waterway had expanded to the point where it had five routes to Manhattan just from Jersey City and little serious competition. Then the World Trade Center was attacked.

On that day, Waterway boats spent hours transporting survivors. On subsequent days, with PATH tunnels in ruins, many commuters turned to ferries, and other companies began eyeing the market.

In two months, Waterway's ridership jumped to 52,000 passengers a day from 33,000. "We had five years of growth in six months," Arthur Imperatore Jr. said.

In fact, officials feared that without the ferries, the economy of Lower Manhattan might itself collapse. To help, the federal government agreed to subsidize four new ferry routes and increase service on another. Other companies were seriously contending for business. But all five contracts went to New York Waterway, three of them without public bidding.

To the Port Authority, which administered the contracts, the awards made sense. Waterway was well financed, had plenty of boats and, in one instance, already held the contract to provide the service the government sought to expand. But to other operators, who knew the contracts were potentially worth millions of dollars in subsidies, the awards were not warranted.

New York Water Taxi challenged several of them, including the decision not to seek bids on a $3 million contract to carry people from Hunters Point in Queens to Manhattan.

Port Authority officials at the time said they had to award the contract to Waterway because it had a lease on the authority's landing at Hunters Point, from which it had operated for years.

But Waterway had shut down service there months earlier, citing low ridership, and, with the authority's permission, had not paid rent in several years.

Water Taxi said the lease was a flimsy reason to abandon public bidding. Authority officials said they still felt a legal obligation to Waterway, which resumed the service last September. They deny the assertion that they have favored the company.

"Up until recent years," the authority said in a statement, "N.Y. Waterway was the only operator to respond to our requests for proposal."

A Flood of Help

The $27 million that the federal government ultimately provided for emergency ferry service after Sept. 11 was supposed to ensure that boats would be ready when commuters needed them, and it did. Paul Ward, who was Waterway's senior operations manager, recalled in an interview the many nights he watched ferry after ferry plow into the waters between Hoboken and Lower Manhattan. He did not like what he saw.

The federal government had agreed to pay to increase ferry services, as much as 200 percent if demand warranted. But the boats were often empty, he said. The runs were unnecessary, he told superiors.

Nonetheless, he said, he was told to run empty ferries late at night to reap the maximum reimbursement.

"The captains and crews complained that they were being forced to work overtime and they're not even carrying anybody," Mr. Ward said. "We weren't helping anybody, just putting money in New York Waterway's pockets."

Mr. Ward quit last year when, he said, Waterway officials would not revise the schedule. Waterway takes a different view.

"We didn't have the latitude to make up the schedules," said Bill Bouffard, Waterway's chief financial officer. The government had decided it wanted frequent service, he said, even in the off hours, to replicate the lost PATH service.

Investigators from the antitrust division of the United States attorney's office and the Port Authority inspector general's office have interviewed Mr. Ward as well as rival ferry operators, marina owners and boat captains. The rivals have told them that Waterway chartered boats it did not need, drove up prices and prevented its rivals from expanding.

Anthony Colasanti, vice president of New York Fast Ferry, which went out of business earlier this year, said companies without subsidies could not afford the higher prices.

"We were growing," Mr. Colasanti said. "We could've kept growing. But we couldn't get boats."

In one case, a ferry operator, Sea- streak, had a tentative deal this spring to lease a boat for $50,000 a month, several operators said. Suddenly it was told it could not have the boat. Waterway had agreed to pay twice the price.

Waterway officials said that the company leased the boat because it needed it, and that they did not know what the other company was offering. They denied creating a spot shortage on the market, or trying to block other companies from landing sites. They pointed to the ease with which they rounded up 34 boats last year as part of the city's contingency plan for a transit strike.

Investigators are also reviewing whether the company double-billed the government for some of its emergency ferry services, they have said. To provide the additional hours, the company augmented its own fleet with 10 chartered boats. Under its contract with the Port Authority, it was to be reimbursed for its charter costs, plus operating expenses like landing fees, insurance and crew.

But investigators are examining whether the charter fees included some of the same operating expenses that had already been billed separately.

Waterway said the allegations of fraud are mistaken. It did not even earn a reasonable return, it said, because its reimbursement rate was cut. To its mind, the matter is nothing more than a billing dispute.

Four New Terminals

Mass transit has long been a low-margin business, and everything from the subway system to private bus lines survives on government subsidies. But more than a decade ago New York City and Port Authority officials decided it would cost too much to give operating subsidies to private ferries, too. So they decided to finance the construction of ferry terminals instead.

The four new terminals being built today are an outgrowth of that policy. All will be publicly owned, but operated by New York Waterway under contract. Two will be built next to Waterway's current docks in Weehawken and Midtown. The other two will replace the company's landings in Hoboken and at the World Financial Center. All told, more than $250 million in government money will be spent.

At two of the facilities, Waterway will pay something toward construction — $2 million at the Midtown terminal. It will also pay the city $150,000 in annual rent, absorb the maintenance costs and kick in an escalating percentage of its ticket revenues.

The company currently charges $3 to $15 per trip, depending on the distance. The PATH train fare from New Jersey to Manhattan is $1.50.

Rival companies, which together have collected only a few million dollars in government funds, say the terminals are another unfair bonus. Waterway, whose own terminals were becoming cramped, will not have to pay to land its boats at the new ones. It will keep much of the money from terminal concessions and advertising sales. And New Jersey Transit will build a light-rail system to deliver ferry riders to the Weehawken site.

New York City officials, however, say the terminals will actually foster competition. Other operators, for example, will be able to land in Weehawken and Midtown, something they could not do while the terminals were privately owned. They will also, under the contract, be able to use Waterway's buses. The other companies will have to pay Waterway for these services.

"It's troubling that our competitor has control of a government facility and it's being left to them to set the rates that we will have to pay," said Mark Baker, chief business officer for New York Water Taxi.

City officials say New York Waterway will not be able to abuse its role.

"The lease explicitly calls for nondiscriminatory access to connecting buses and access to docking rights and terminal facilities," said Tom Cocola, a city transportation spokesman.

The city has tried before to have ferry operators share a city-owned landing, Pier 11 near Wall Street. But Waterway took to running the pier, announcing departures, distributing schedules and directing boats to landing slips. Water Taxi complained its boats were kept waiting or were not announced.

Mr. Bouffard of Waterway said no one mentioned any problems to his company. "Somebody has to be the traffic cop," he said.

Looking to the Future

Rival ferry operators say the city's administration of Pier 11 is typical of what they see as public officials' nonchalance toward regulating the ferry industry, even as it has become more lucrative.

The Port Authority does not charge Waterway anything to land its boats at public property. The company pays just $2 a year in rent, plus maintenance costs, for the right to have its moorings on public property. When the new terminals are built, the rent increases to $20 a year, plus maintenance and a share of excess profits above 8 percent.

New York City does charge to land at its piers. But the city only recently billed the companies for charges dating back to 2001. Waterway, which the city says owes $1 million, is disputing the fees.

Going forward, transportation analysts say, an expanding network of ferries will likely provide relief for crowded train lines and traffic-choked bridges. But they say the region will have to decide in the coming years whether the market is better served by a single, financially healthy operator — to whom the government becomes increasingly wedded as its dominance extends — or an assortment of competing rivals.

Carter Craft, program director for the Metropolitan Waterfront Alliance, which promotes greater use of ferries, is among those who say government must do more to foster meaningful competition.

"That's the only way," he said, "you will bring prices down to the point where it's not just stockbrokers riding to Wall Street."

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