Audit Report on the New York City Economic Development Corporation’s Administration of the NYC Ferry Operation

Executive Summary

On February 12, 2016, the New York City Economic Development Corporation (EDC or the Corporation) entered into an Operating Agreement (Agreement) with HNY Ferry, LLC (the Operator) 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.^[1] 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 the Operator 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 $829 million in expenditures related exclusively to NYC Ferry, including roughly $559 million approved for the Operator and a further $270 million approved for other vendors.^[2] Per EDC’s audited financial statements, the net losses of the ferry operations for Fiscal Years 2017, 2018, 2019, 2020, and 2021 were $30 million, $44 million, $53 million, $53 million, and $33 million,  respectively.^[3] In addition, EDC reported approximately $1 million, $7 million, and $9 million in vessel depreciation for Fiscal Years 2019, 2020, and 2021, respectively, and $218 million as ferry operation related net capital assets as of June 30, 2021.

Audit Findings and Conclusion

This audit found that EDC did not disclose over $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 $2.08, $2.10, $3.98 and $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 $66 million in unnecessary expenditures. Furthermore, EDC did not maximize shuttle bus services by fully utilizing the fees paid to the Operator and adopted an inefficient process for collecting landing fees from and reimbursing them to the Operator. 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.

Audit Recommendations

The audit makes 11 recommendations presented in the body of the report.

Audit Response

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.

[1] The NYC Ferry system is part of the services provided by EDC under the Maritime Contract with New York City (the City) in connection with the retention and expansion of waterfront, intermodal transportation, market, freight and aviation development of commerce.

[2] Besides the $559 million funded through EDC’s Executive Committee, the Operator also retained $55 million in ticket revenue from May 2017 through December 2021. In addition, of the approved $829 million, EDC already paid approximately $637 million to the Operator and other vendors for the period up to December 2021, with a remaining balance of approximately $192 million.

[3] The calculation of operating losses excluded capital expenditures other than a component of depreciation.