Boat Line Sees Price Increases

Steamship Authority Leadership Proposes $68 Million Budget; Vineyard
Passenger Fares Would Rise by 50 Cents

Gazette Senior Writer

Fare hikes for the Vineyard and Nantucket are now on deck at the
Steamship Authority, as boat line managers confront the realities of
keeping a $68 million operation afloat against a backdrop of anemic
revenues and rising operating costs.

This week SSA governors got their first look at a proposed $3.3
million fare increase for the coming year. The fare hike is included in
a preliminary $68 million operating budget.

"I am very unhappy with having to increase rates, but this is
cost driven - it's very difficult to sustain a five per cent
revenue reduction and not increase rates," said SSA chief
executive officer Fred C. Raskin yesterday.

The draft 2004 operating budget was due to be discussed at the
monthly boat line meeting in New Bedford this week, but yesterday the
Thursday meeting was canceled due to impending stormy weather from
Hurricane Isabel.

The meeting will not be rescheduled and the next regular meeting
will be held in New Bedford on Oct. 16. SSA governors are due to vote on
the budget at the October meeting.

Prepared by SSA treasurer Wayne Lamson using actual expenses and
traffic figures from the previous year, the SSA operating budget is
always taken up over the course of three months beginning in late
summer. In August the board adopts a budget policy for the coming year;
in September the preliminary operating budget is unveiled and in October
a final budget is adopted by the board. The budget for capital spending
is taken up separately in November and December. The boat line operates
on a calendar year.

Mr. Lamson said a rate increase will be needed this year in order to
provide sufficient cash flow for the boat line to meet its cost of
service and also to fund its debt obligations.

He is recommending a rate increase of $2.15 million on the Nantucket
run and $1.15 million on the Vineyard run.

The treasurer is recommending that the bulk of the increase on the
Vineyard run be collected through a 50-cent hike on passenger fares plus
a scattering of other small fare hikes. On the Nantucket run, where
traffic volume is lower than on the Vineyard, the impact will be larger,
with a recommendation for increases on passenger, car, freight and
excursion fares.

"On Nantucket it's going to be a bitter pill, I
know," Mr. Raskin said.

Total operating expenses for the coming year are expected to be
$62.8 million, an increase of $539,000 or .9 per cent over projected
expenses for this year. If the rate increase is approved as recommended,
total operating revenues for the coming year are expected to be $68.1
million. Net operating income is projected to be about $4.1 million, and
most of it will be transferred into an array of special funds that are
established by statute - including a sinking fund and a
replacement fund. Sinking fund requirements over the next year and a
half include two bond interest payments of $676,130. A bond principal
payment of $4.1 million is due in March of 2005.

Mr. Raskin said the boat line has held the line on expenses, but a
pattern of declining revenues that began in 2002 has led to the need for
a fare increase.

"Our costs are not galloping along the way they have been in
the past, but we've gotten five per cent taken out of our ribs
this year and that's enough to force a rate increase," he

The formula for sharing the proposed fare hike between the two
Island routes was developed using a cost allocation policy adopted by
the board this year. The policy is aimed at keeping as close a match as
possible between the income generated by each route and the cost of
service for each route.

Cost allocation became something of a political football in recent
years when a handful of Vineyard officials - and Tisbury resident
Arthur Flathers, who has made the issue something of a crusade -
complained that the Vineyard was paying for Nantucket service.

The boat line does not keep separate books for each route, and Mr.
Lamson has said repeatedly that cost allocation is an inexact science at

In fact, Mr. Lamson's analysis shows that cost allocation
achieved a near-perfect balance in 2003. Revenues on the Vineyard run
accounted for 55.8 per cent of boat line revenues while the cost of
service on the Vineyard run was 55.6 per cent of the total cost of
service. On Nantucket, revenues were 44.2 per cent of the whole while
cost of service came in at 44.4 per cent of the whole. Put another way,
two per cent of the cost of service on the Nantucket run was not covered
by revenues.

Mr. Raskin said the recommended rate increase is hand in glove with
the cost allocation policy. "The rate increases we are
recommending are the amounts needed to have each route cover its cost of
service plus a proportionate profit," he said.

Lower traffic volumes, increases in wages and benefits and higher
fuel costs are all projected for the coming year. Decreases in
maintenance and legal expenses are also projected. The advertising
budget is expected to be the topic of some discussion before the budget
is voted on next month. Boat line managers want to spend a total of
$900,000 on advertising next year - an increase of more than
$400,000 - much of it in connection with a plan to launch a
high-end, glossy magazine. The magazine is planned for free circulation
onboard boat line ferries.

The cost of service on the Vineyard run is expected to see a
significant drop next year because of a plan to discontinue SSA service
on the New Bedford passenger ferry Schamonchi. The boat line plans to
convert the Schamonchi to a private operation by putting out a request
for proposals from private operators. The SSA bought the Schamonchi
three years ago for $1.75 million and has been losing huge amounts of
money running it ever since.

The plan to convert the Schamonchi to a private operation is one
piece of a complicated boat line license agreement with New England Fast
Ferry to run high-speed passenger service between New Bedford and the
Vineyard beginning next summer. The license agreement requires the
private ferry consortium to put in a request to run the Schamonchi as
well. The SSA plans to offer a subsidy of $250,000 a year for the
Schamonchi. The boat line has been losing more than $800,000 a year on
the passenger ferry.

In his budget analysis, Mr. Lamson found that discontinuing service
on the Schamonchi will reduce the cost of service for the SSA by about
$1.2 million.

"Certainly the excision of New Bedford, if you will, is a
plus," Mr. Raskin said yesterday.

The cancellation of the meeting this week threw a small monkey
wrench into plans for a bit of pomp and ceremony at what was to mark the
first boat line meeting in New Bedford in more than 40 years.

Former city solicitor George Leontire had also announced that he
will step down from the SSA port council. Mr. Leontire has in large part
led the campaign for the last four years to expand the SSA to include
New Bedford as a port.

Mr. Raskin said yesterday that the boat line remains in sound
financial shape as it prepares for a new year.

"The reason we are in good shape is because we take a
conservative, cautious approach - and that is what we are doing
now," he concluded.