SSA Finances Show Strength

Financial Condition of Boat Line Contradicts Dire Predictions from Critics Who Charge Authority Is Vulnerable

By JULIA WELLS

The vocal critics and Monday morning analysts peddle doomsday scenarios about the Steamship Authority with increasing regularity, and while the voices may vary, the message is unchanged: The financial condition of the boat line is precarious, the future is riddled with uncertainty, and there is no money to pay for future capital projects.

The latest salvo came last week from former New Bedford city solicitor George Leontire. "The boat line is not being run cost effectively and efficiently. It is in terrible trouble going into the future with an aging fleet and no capital plan for replacement," Mr. Leontire said in an interview.

In fact the record shows quite the opposite.

The SSA operates with no public subsidy; it is conservatively managed and there is ample cash in the bank. Total revenues exceed total expenses every year, and the extra money is carefully salted away in funds set up by the enabling statute that created the SSA. In short, the public boat line that has been the lifeline to the two Islands for more than 40 years may be one of the most financially sound marine transportation companies in the country.

"It's just where you want it to be. It's in good financial shape. We cover 100 per cent of our cost of service. This is a very secure ferry service, and that's one thing I am certain of," declared SSA chief executive officer Fred C. Raskin this week.

"I see a healthy organization, and I think the Steamship Authority has done a tremendous job of managing the books over the last 40 years," said Galen Robbins, the Falmouth boat line governor and chairman of the board.

"Look at the results of last year. Net operating income was a little over $3.8 million. This year we had projected a net operating income of $5.1 million and through July we are running over $1 million ahead of that pace. So through the first seven months, we are well ahead of where we thought we'd be for 2002. That speaks to the kind of financial health the Steamship Authority is in," said longtime boat line treasurer Wayne Lamson.

Cash balances at the boat line tell a similar story. Mr. Lamson said total cash now stands at $23.5 million, up nearly $4 million from last year.

Detailed financial information is published in the SSA annual report.

Total operating revenues last year were $62.8 million, an increase of $4.2 million or 7.3 per cent from the previous year. The additional revenues were generated primarily by two rate increases during the year. Total expenses were $57.3 million, up $1.4 million, or 2.6 per cent from the previous year. Nearly all of the increase was attributable to the cost of the New Bedford passenger ferry Schamonchi, which the boat line bought last year.

New Bedford officials want the SSA to replace the Schamonchi with a high-speed ferry, saying among other things that it will save the boat line from impending financial ruin.

This week Mr. Raskin offered a quick counter-primer.

Before he came to the SSA, Mr. Raskin was the CEO for Midland Marine Enterprises, a barge company that was the only A-rated public marine transportation company in the country.

"Marine transportation is a notorious, thin-margin rust-bucket scrap-for-a-buck business," Mr. Raskin began. He said because the SSA is a public authority of the commonwealth, and the state is an A-rated issuer of debt, the boat line carries the same rating.

"Rating agencies typically limit ratings to the lowest common denominator, so if I am an A company but owned by a C company, I probably won't get a higher rating than my parent company. The reason for that is the parent company always has the ability to suck out value through dividends, management fees and the like. So we are rated A because our parent is rated A. But if we were rated on our own we would be over an A, maybe a double A minus," Mr. Raskin said.

He continued:

"The wizards of Wall Street typically rate companies on two generic tests. One is what I will call income and debt service coverage - how many times does your income cover your debt obligation? That's not a good measure for the Steamship Authority because we are not intending to make money; we are trying to just cover the cost of service. The other type of test is the balance sheet test - short term and long term - how much do current assets exceed current liabilities, and how liquid are you? Our tests are all out of the universe, they are all excellent, we've got plenty of cash."

Mr. Raskin explained the special purpose funds. "A guy like George [Leontire] might say, ‘But all your cash is in little pigeonholes.' Well, those are intended to ensure we should use them for the purpose they are intended for. Those special purpose funds stop the games we have recently seen all over Wall Street. We are going to stick to our knitting and when you look at liquidity, current ratios, quick ratios, we are fine. We've got a lot of assets and the ability to pay our bills. We're in super shape," he said.

Mr. Raskin said the long-range picture is equally healthy.

"Our long-term debt is about 45 per cent of total capital, and that is right about where it should be. That means that over the long term we borrow about half of what we are worth. It doesn't come neatly, it comes in steps - when we build the new Islander we will pay for it all at once, but also we have been paying things off. For a transportation company that is right where we should be. We are conservatively structured, we're sound."

Mr. Lamson and Mr. Raskin both said the SSA is well-positioned to handle its future capital needs, including the refurbishment of the Oak Bluffs wharf and the replacement of the ferry Islander.

Mr. Raskin said it also comes down to choices, and he took a small poke at the futuristic service model that was touted by senior managers at the boat line last year amid repeated public statements about the aging fleet.

"You are what you are, you've got what you've got - make it work. Our customers could have had a new service model and they couldn't come close to affording it," Mr. Raskin said. "But that's not because we're in bad shape. Our average age on our vessels is 24 years and that's a little more than half their useful life. But if you take out the Islander and the Governor you get down to 17 years, and that's not an old fleet, that's a young fleet. That's not a curse, that's a blessing. This is not a high-tech business, this is a low-tech business. And that's good news."

Mr. Robbins agreed.

"We just have to be extremely careful in long-term planning for capital projects like the Islander and the Oak Bluffs wharf," he said. "We cannot continue to rely on rate increases to balance the books, but I sense that the two Island members [of the board] will protect the rate-payers," he added.

Mr. Lamson laid out some hypothetical numbers for replacing the ferry Islander, a project which is planned for about five years from now. He said the cost is estimated at $22.5 million, and at an interest rate of 4.85 per cent the annual debt service requirement would be $1.7 million. Current bonds outstanding at the boat line are $40.5 million.

"At today's interest rates a 20-year bond issue would come to about five per cent of the cost of service on the Vineyard route alone, and that that doesn't take into account any additional revenue," Mr. Lamson said.

The boat line treasurer said money in the replacement fund is growing at a healthy rate; this year he said he expects the boat line to be able to transfer nearly $5 million into the replacement fund. Last year Mr. Lamson recommended that the SSA earmark $3 million a year in the replacement fund for the Oak Bluffs terminal project.

He said by the time construction begins three years from now, there may well be enough money to cover the entire $10 million project cost.

"That's money that we would have had to borrow. An operation that is in financial trouble wouldn't be able to do things like this," Mr. Lamson said.