Testimony of Deputy Comptroller Maura Hayes-Chaffe and Senior Policy Analyst Sindhu Bharadwaj Before the New York City Council Committee on Economic Development and the New York City Ferry System

“Good morning/afternoon and thank you to Chairs Brooks-Powers and Farías and the entire Transportation and Economic Development Committees for the opportunity to testify on behalf of New York City Comptroller Brad Lander.

“My name is Maura Hayes-Chaffe, Deputy Comptroller for Audit. I am here to testify regarding the audit of the Economic Development Corporation’s administration of the NYC Ferry Operation, which was issued this summer. I am also joined by my colleague, Sindhu Bharadwaj, Senior Policy Analyst for Transportation, Sanitation, and Infrastructure, who will address policy considerations.

“By way of background, EDC entered into an Agreement with Hornblower to operate the ferry system on February 12, 2016. The initial period of the Agreement ran from May 1, 2017 to April 30, 2023 and was extended for a further five months – through September 30, 2023 – in December of 2021. This Agreement was supplemented by a series of additional agreements and various forms of official correspondence which governed, among other things, the acquisition of vessels, early termination and early activation of agreements to operate the East River route, revenue-sharing with the operator, and various other matters.

“Our audit was commenced with three objectives in mind: to determine whether EDC properly documented and disclosed all costs of the ferry operation; whether it diligently monitored the ferry operation for and on behalf of the City; and whether the Operator accurately reported ferry ridership and ticket revenue and complied with the other terms of the Agreement.

“Audits of this nature are conducted to improve NYC’s financial position, to provide transparency and reliable information about NYC government, and to assess effectiveness and efficiency.

“The auditors reviewed financial records related to the period from June 2015 to December 2021 and determined that EDC did not disclose the full extent of ferry expenditures, that the extent of per-passenger subsidies was both under-estimated and under-reported, that certain costs were incurred unnecessarily, and that EDC did not adequately enforce key terms and conditions of the Agreement with the Operator or review documentation to ensure that payments were accurate, fully substantiated, and justified.

“Specifically, the audit found that:

• EDC did not disclose $224 million in expenditures, that were related exclusively to ferry operations, as part of the ferry system’s actual cost. This consisted of approximately $181 million in capital expenditures and $43 million in operating expenditures.
• EDC underreported the net operating losses experienced by the ferry system, and therefore the true cost of the per passenger subsidy. The auditors determined actual net operating losses, which totaled approximately $301 million between February 2016 and December 2021, and divided this amount by reported ferry ridership, to arrive at an actual subsidy that ranged from just under $12 to over $14 per passenger between FYs 2018 and 2021. This is roughly double the projected subsidy of $6.60 per passenger and between $2 and $4 more than the reported subsidy levels between FYs 2018 and 2021. The variance is due in part to EDC’s exclusion of landing maintenance costs, certain personnel expenses, and depreciation expenses from its calculations.
• The auditors identified $66 million in unnecessary expenses, including an estimated $34 million in questionable vessel acquisition costs, $24 million associated with the early termination of Billybey’s operation of the East River route, $3 million in unnecessary Vessel Service Hours payments, $4 million in inappropriate fare policy payments and $1 million in excessive homeport reimbursement to the Operator.
• The auditors found that EDC did not adequately plan for expiration of the current agreement with Hornblower, and as a result, extended the current term of the contract, rather than expeditiously issuing a new RFP.
• The auditors also found that EDC did not enforce certain contract terms and conditions, or review documentation needed to verify Hornblower’s compliance with such terms and conditions prior to making payment. Findings in this category include $3 million in unsubstantiated East River early activation payments, over $330,000 in unjustified incentive payments, and a further $540,000 in unwarranted start-up milestone payments. EDC did not ensure that all insurance requirements were met, did not enforce ferry and shuttle bus trip reporting requirements, or adequately review invoices and service requests prior to authorization and payment.

“The audit made 11 recommendations to address the findings. EDC agreed with two of the recommendations, partially agreed with three, disagreed with four, and stated that it was already in compliance with two of the recommendations.

“EDC agreed in response to the audit to expeditiously initiate an open competitive bidding process to procure and select a succeeding operator at the minimum reasonable cost – and we are pleased to note that the RFP has since been issued.

“EDC also agreed to establish a protocol to ensure that “on” and “off” counts match, to account for gaps and missing ticket numbers, and to conduct continuous reviews to ensure the accuracy of reported ticket revenue.

“EDC partially agreed with the recommendation to disclose all ferry related expenditures in its financial statements. Although it agreed to increase transparency by finding another mechanism for reporting all expenses, EDC declined to include such expenses in its financial statements.

“EDC partially agreed with the recommendation to use true net operating losses in calculating the subsidy but reiterated its intention not to include depreciation expenses in such calculations.

“EDC partially agreed with the recommendation to enforce certain terms and conditions, such as meeting insurance and ferry and shuttle trip reporting requirements, but it refused to revisit payments or documentation related to early activation.

“EDC also declined to consider several recommendations, including the recommendation that it recoup approximately $12 million from Hornblower, for overpayments identified in the audit.

“We believe the audit and its recommendations have the potential to improve transparency, promote integrity, strengthen trust, and identify opportunities for improvement, and it is to be hoped that EDC will ultimately hold Hornblower, and any successor Operator, accountable for all contract terms and conditions, and improve its fiscal oversight over the ferry operation. We encourage EDC to revisit each of the recommendations and to reconsider implementation, across the board.

“While much work remains to be done, we appreciate EDC’s recent issuance of a new RFP and its willingness to increase transparency of its fiscal reporting, albeit outside of its financial statements. The fare changes announced by Mayor Adams following our audit report and implemented earlier this week also represent a step in the right direction.

“Thank you once again, Chair Brooks-Powers and Chair Farías, for the opportunity to testify today and for your attention to this matter. I now turn this over to Sindhu to provide additional testimony.”

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“Thank you, Maura.

“My name is Sindhu Bharadwaj, I joined the New York City Comptroller’s office last week as Senior Policy Analyst for Transportation, Sanitation, and Infrastructure. Thank you for the opportunity to testify here today. The findings Maura shared raise important policy questions about the NYC Ferry Operation. We are pleased to support the reduced fare program proposed in Council Member and Chair Amanda Farías’s Intro 0236-2022, to ensure the ferry system serves as an affordable means of transportation for New York City students relying on it as an essential connection to school.

“Ensuring the long-term viability of the NYC Ferry and supporting reduced fare options for those who need them requires revisiting the current fare structure. The Comptroller was pleased to see EDC swiftly enact a modest fare increase in response to our office’s audit, raising fares from $2.75 per trip to $4 and offering additional discounts to seniors, people with disabilities, and Fair Fare participants. However, we believe that the steep per-ride cost of ferry subsidies calls for consideration of a more dynamic pricing model, featuring higher fares on weekends and for noncommuters, in order to better support lower prices for low-income households and students who need them the most.

“As of 2021, rides to school or work accounted for just one out of every four trips taken on the system. EDC’s own data on rider demographics shows that ferry riders’ median income is $95,000 systemwide, and even higher on the most utilized routes. This is more than double that for subway and bus riders which stand at $40,000 and $28,000, respectively. The per-ride subsidy is even higher than it is for express bus or commuter rail trips. Indefinitely subsidizing ferry trips for all riders, a cost that totaled approximately $301 million between 2016 and 2021, without attention to need or capacity to pay, is not the most effective use of public resources.

“The City should consider a tiered or dynamic fare pricing model where ticket prices could vary based on trip purpose, time of day, distance traveled, and differentiate between city residents and visitors. Similar policies are already in place in other large cities offering ferry service, including San Francisco and Seattle. Under such a structure, the City could set higher fares for lines that serve populations with higher median incomes than the system average. Fares for the Rockaway route, where average weekend ridership is nearly triple that of weekdays, could also vary by day of the week. Deploying larger City subsidies for working-class commuters who live in the Rockaways but commute to Manhattan on a daily basis makes more sense than for New Yorkers – of whom the Comptroller is proud to be one – who love to take the ferry to the beach a couple of times each summer.

“A revised fare structure would align with other premium transit options, better match operating costs, and help preserve affordability for those relying on the ferry system as an essential transportation service.

“We are now happy to answer any questions from the committee about our testimony.”

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