Interview regarding the Fast Ferry

City: CATS CEO Cornel Martin has listed the issues that have to be
resolved before ferry service can resume. And on a couple of them, at least, we
seem to be fairly close to a resolution. Are we close to resolving all these
issues? What stands in the way?

            Johnson:
I don’t know. It depends on who you talk to. I think the hardest issue to
resolve is the construction of the terminal in Toronto. The
continued delay on their part is really inexcusable. And I don’t know of any
way you can speed up that construction.

            City:
That’s something the Toronto mayor has been blaming on the TorontoPort Authority.

            Johnson:
Yeah.
His point is, that’s the Port Authority’s terrain, and they should be moving
much more aggressively. And I believe that as well, because the Port Authority
was one of the original partners and has been with this project right from the
inception.

            The chairman of the Port Authority,
Henry Pankratz, came to Rochester last August and
essentially signed a memorandum of understanding right on the spot. He saw we
were about to begin our construction. He committed that they were going to
begin their construction. And that never happened.

            I went to Toronto in February
to meet with the new mayor. Construction hadn’t started. And that was when we
expected a May 1 startup date. And they kept assuring us, “Oh, we can get it
together. We’re only going to build on top of a concrete slab that’s already in
place.” Summer came; no construction had started.

            So that’s a legitimate concern for
CATS, and it is one of the conditions of the financial arrangement with their funders: that, before these [escrow] funds were released,
both terminal facilities would be built.

            So CATS isn’t making that up. That’s
been an issue with us, and we’ve done everything we could except send crews
over there to construct the terminal ourselves. Mayor Miller [Toronto Mayor
David Miller], who doesn’t have any legal authority over the Port Authority,
has tried to use the weight of his office. But, as you know, he ran his
campaign on a major issue with the Port Authority. And I don’t know how much of
that entanglement has slowed the process down.

            My hope is that when we are able to
meet with CATS’ financial backers, we can say that everything seems to be
moving well; we finally seem to have some movement in Toronto, and let’s
not jeopardize CATS’ position on just that one issue.

            The Canadian customs issue is not
resolved, but it seems to be on the path to being resolved.

City: Once the ferry project became publicly funded, was CATS
required to open its financial books to the city and state?

            Johnson:
Well, we’ve been going back and forth with them on that. Their view is that
they’re a private company. And I’ve told them consistently: You take public money,
you are a public corporation. We are still at the point of trying to look at
their books. They have not been fully disclosing of that.

            City:
So there’s nothing legally requiring
CATS to make their books public?

            Johnson:
That’s my opinion. I heard the comptroller was trying to figure out what
part of this he might be able to audit. The attitude that they take that they
are a private company is, in my opinion, not correct. They are, at the very
least, a quasi-public corporation because of the amount of dollars that have
been invested.

            City:
Have they been audited by a public
accounting firm?

            Johnson:
No.
Even though the company has been in existence for several years, they take the
position that [regarding the need to disclose financial records] their clock
starts on the day they signed the papers to take possession of the vessel on
June 16. That’s where the public money went [toward purchase of the ship]. It
doesn’t go toward any of the operation. Therefore they wouldn’t be audited for
another year. That’s very important, because all their payments have been —
what’s the word? — forborne for another year. So that wouldn’t have to kick
in until June 2005. So I think they could legally stand on the position that
there is no audit that is subject to public scrutiny.

            Even so, the point that I have been
trying to make is — and CATS will get frustrated because I’m having this
conversation publicly — there can be no face you can put on what they did on
Tuesday [September 7]. You can’t just shut down a public enterprise like this.
You can’t disregard the fact that tens of millions of public dollars have been
spent on the ferry and in ferry-related ventures. And you can’t just say: Oh,
we’re gonna shut it down. And particularly, you can’t
do this after you’ve spent the previous couple of weeks touting how successful
this thing has been.

            We have a member of our staff who
scours the Internet to find anything about the fast ferry. I was just reading
the articles yesterday, saying they have all this data proving that, hey, this
thing is doing great. How the hell can you then turn around and shut it down?
You can’t have it both ways.

            I make no bones about this: I spent
two solid hours on Tuesday with [Deputy Mayor] Jeff Carlson. We were on the
phone with Dominick trying to say: Hold up; this is way too premature.

            I thought I had an agreement with
them that they were not going to make an announcement. Then all of a sudden, I
find out in talking with Joe Spector at the D&C that the release [about the
shutdown] was coming over the fax machine as we spoke. I called Dominick back,
and he said, “Look, we didn’t send it out. Somebody leaked it. But now that
it’s leaked, we’re going to stand by it.”

            City:
So they at least talked with you
before making the announcement, and you knew there was a problem with that
escrow payment.

            Johnson:
Oh, yeah. Look, I’ve known for a few weeks that they were eventually
getting to the point — because of all the expenses they incurred in the early
phase when they were still having problems; they had legal bills and other
vendors they were running up bills with — we knew they were getting to the
point where they’d need to be able to draw down on some funds so they could
begin to satisfy their creditors. I understand that. But at no time was it ever
said, “If we don’t get this money, we’re going to have to shut down.”

City: Do you feel now, looking back on all this, that the city
should have insisted on at least seeing the financials before granting the
loan?

            Johnson:
Well,
I think that we did the best that we could. Remember: We had another
relationship with them [development of the area around the port], and as a
result of that we’ve been insisting on seeing some of their financials. In
hindsight, you can always say you could have done some things differently.
There’s no question about it — particularly with the way this thing has
panned out.

            And I have to say in all honesty,
even today, after having spent the better part of the last two days immersed in
this, that there are still questions that I can’t answer. There are still
answers that have not been forthcoming. There are still explanations that don’t
quite add up.

City: Some people we’ve talked with feel that the ferry concept
has proven itself, but that the problem is with the ownership — that Cornel
Martin is an experienced person who is going to do a good job, but the owners
haven’t managed the company well.

            Johnson:
Well,
I think they’ve opened themselves up to that kind of criticism. I feel that
while they may be money managers, and they may have great experience in the
financial market, they deserve an F for public relations. I just can’t imagine
anyone coming up with a worse scenario than the way these events have panned
out.

            A good friend of mine from out of
town told me yesterday: You know, they’re selling good
will. They don’t have anything tangible. They have a service. The service has
to be one that people have confidence in. If people don’t have confidence in
the service, CATS doesn’t make any money.

            It is extraordinary that they, by
their actions, have continued to yank people around and undermine their
confidence in the service. Even if we could have put this thing back on track
Wednesday morning, just the people who felt betrayed on Tuesday evening would
have been a high hurdle to overcome.

            Why do we need to have these kinds
of stories told over and over again? They tell people,
If you want information, call the number. Well, they’re not answering the
phones over there. Go to the website? The website is shut down.

            I can’t understand why, with the
amount of money they claim to have invested themselves….

            City:
How much is that?

            Johnson:
At least $4 million, they claim. Maybe as much as $6
million. But what I’m saying is, you just don’t
burn away money. Even in the unlikely event they want to get out of this
business, they’d want to get their money back. It’s absolutely
incomprehensible.

            City:
This is becoming a “he said/she said”
thing. Cornel Martin talks about how CATS got approval for the trucks, but it
was yanked away at the last moment. Then CATS didn’t think they’d need to pay
the piloting fees, but that didn’t prove true. What, in your mind, went wrong
here? Is it just that this is a new and relatively untested venture in these
parts?

            Johnson:
I
sincerely wish I could answer that question. But I can’t get inside their
heads. The fact of the matter is, CATS consistently
keeps their cards close to their chests. One of the things I want is a straight
answer at some point. Because it doesn’t add up.

            City:
Back when the city granted the loan,
were you aware that this escrow payment wasn’t secure money?

            Johnson:
Oh,
yeah. That was resolved. CATS didn’t fully finance this deal. They were
counting on borrowed money. And because it’s a new venture, that’s not certain.
The way it’s secured, as I understand it, is there are certain terms and
conditions. Things like: you’ve got to have both terminals built. You’ve got to
have X, Y, and Z.

            Then, of course, these issues about
customs fees and the like allegedly came up without warning. So
because they had to pay these pilotage fees, which
weren’t in their original plan, that erodes their bottom line. So the
lenders say, “Wait a minute; you’re supposed to be paying our money back, and
now your cash-flow situation has changed.”

            Look, one thing I can say: The basic
issues they raise are legitimate. The problem they have, and the reason they’re
encountering so much anger and skepticism from the public, is because there was
never any full-scale articulation of these issues before. My advice to them was
to, first thing, go out and tell the public: “These issues are impacting our
ability to maintain service. And if we can’t get them resolved in a week or
two, it’s going to force us to cut back on service or shut down temporarily.”

            My view is,
if they had done that, we wouldn’t have the kind of frenzy we have now.
Dominick told me they couldn’t do that because people then wouldn’t use the
service. I don’t know if it’s an appropriate analogy, but US Air, Delta, United: They all have their problems, but they still carry
passengers. This notion that they can sell you a ticket at 4
p.m. and you’re counting on riding it back the next day, and
they just sell you a ticket even though they’re not operating the next day —
that’s why there’s so much anger and an unwillingness to give them the benefit
of the doubt. And it’s all self-inflicted. It didn’t have to be this way.

City: After CATS found out they were going to have the pilotage fees, they were going to have the customs fees,
they weren’t going to be able to have the trucks — could they have just held
off on starting the service until all that was taken care of?

            Johnson:
Let
me be very honest and tell you that was discussed particularly with us. Our
view was if they were to have another delay, that
would have been almost deadly. The issue with us was: Can you work your way
through these hurdles? The answer to that was apparently yes, because they
launched.

            They were telling us early on: Hey,
this may keep us from launching. We said: Look, this thing has already had too
many ups and downs. The boat’s been sitting in the harbor for six weeks. People
have been saying this thing is never gonna go. It’s
becoming a big joke. You finally gave a date; you got to stick with the date.

            So I think they came under a fair
amount of external pressure to keep them focused on that last start date. Now
looking back, again in hindsight, it may have been better if they had waited to
get all these issues resolved.

City: Do you think there’s a possibility the ferry might require
some sort of annual public subsidy, that it becomes a form of mass transit?

            Johnson:
The
thing wasn’t designed and conceived that way. Looking at their books, and I
know they will fight hard to keep us out of their books… I mean, right now,
people are already starting to talk about buying it out. I made a suggestion
that if they couldn’t operate it, they wouldn’t have any problems finding
buyers. So people are now thinking that Bill Johnson is saying they should bail
out. I’m not saying that. I think they’ve already demonstrated this is a viable
service. There is no competition yet. So whatever market is there is theirs.

            The fact is,
they’ve demonstrated that they don’t need to run that thing full —
particularly if they get that freight — to break even. We may be a ways away
before there’s any talk of any sort of public subsidy.

            I think the better question is —
and it’s a harsh statement to make about your friends — but can the venture
be better managed? In every aspect. Cornel Martin
knows his business. But Cornel is not an owner of this venture.

This article appears in Sep 15-21, 2004.