Why does the city even have a Rochester Ferry Company? The answer most often voiced is that it keeps the ferry debt off the city’s debt ledger.
Why’s that important? Is that enough to have this agency in place?
Well, first understand that the Rochester Ferry Company acts as a middleman for ferry funding.
The company took on a $40 million loan from the Australian Export Finance and Insurance Corporation, bought the boat at auction for $32 million, and stashed away the rest in a reserve.
But while the company took on the loan, the city guaranteed the payback. And why not. Remember who the Rochester Ferry Company really is.
Now comes the latest call by the city leaders to borrow another $11.5 million for the service.
The Rochester Ferry Company plays its middleman role here as well. The city uses the Ferry Company in a roundabout way to get at the money. It’s called a leaseback agreement. The city will "lease" the ferry from the Rochester Ferry Company. Then the city will "lease back" the boat to the ferry company.
The lease agreement makes the city liable for the paying back the $11.5 million loan that the ferry company takes out. Sound familiar?
Sure it does. The company is the city. So, why bother with having this company at all? Why doesn’t the city just borrow the money itself?
The reason, says outgoing Mayor Johnson is it keeps the borrowing off the city’s constitutional debt limit. In a presentation he gave on the ferry project in Boston last summer, Johnson was rather candid on what he viewed as the perils of putting the debt on the city’s ledger. "We would have to spend less on housing and economic development projects, as well as maintenance of streets, parks, and other public infrastructure, in order to raise enough money to buy the boat," he said at this Boston gathering.
Seems reasonable on the surface. That’s $51.5 million in debt on a single project – a risky project. According to the city’s budget book, Rochester has $305 million in bonds and notes that can be counted on its debt limit. Take away the borrowing for schools and you have $136.5 million for city-only debt.
That makes the ferry number look rather… substantial. Remember Ben Douglas, the president of the Rochester Ferry Company’s board, said that selling the boat would give them some money back, but only around $25 million.
So maybe keeping that ferry borrowing off the debt limit gives the city flexibility to borrow for other things. But you might also say that this arrangement is like taking out a second credit card and claiming it gives you more flexibility to ring up more debt on your family. In other words, put the debt anywhere you like – it’s still debt the city must shoulder.
And here is a question worth pondering. Would any credit rating agency – like a Moody’s or a Fitch’s – ignore the $51.5 million in debt on the ferry even though it’s not part of the city’s constitutional debt limit? Or would they consider it when determining the overall health of the city?
So the Rochester Ferry Company’s role seems limited, doesn’t it?
Or could it be useful in other ways? Let’s tackle that in the last installment of this little series.