2012-06-09 / Top News

Treaty: City, Ferries Find Compromise

Move Forestalls State Interference; 7% Franchise Fee To End July 1
By Matt Mikus

With the threat of state interference, Mackinac Island City Council reached an agreement Wednesday, June 6, to modify its ferry franchise options for the next 15 years. Starting Sunday, July 1, the 7% ferry franchise on gross ticket sales will end, and the city will receive, instead, $600,000 annually from the three boat lines, adjusted annually for inflation. Ferry companies will be able to set their own rates and schedules, and the Northern Ferry cooperative of Arnold Line and Star Line will be dissolved, and both companies will operate under their own franchises. In addition, only one boat company will provide winter service; the city will no longer require all companies to make the unprofitable runs, and the city will give $100,000 to subsidize whichever boat line operates in the winter.

A meeting of the city’s Transportation Committee Saturday, June 9, at 9 a.m. will hash out details of winter service, which was the primary concern expressed by members of the city council at Wednesday’s meeting, and an ordinance for a new ferry franchise is expected to be drafted by attorneys in time for the city council’s regular meeting Wednesday, June 13.

Serving on the Transportation Committee are Armin Porter, Dan Wightman, and Frank Bloswick.

The city wants to adopt these new franchise provisions in time to stop legislation now pending before the Michigan Senate. Senate bills 1150 and 1151, introduced by 30th District Senator Arlan Meekhof May 29, would repeal Mackinac Island’s right to franchise the ferry boats under its own charter and give much of that power to the Michigan Public Service Commission.

The two bills prompted a hud- dled meeting of boat operators, businessmen, and city politicians at Grand Hotel last Friday, June 1, and, after 10 hours, a memorandum of understanding outlining the framework of the new franchise ordinance was agreed upon by all 14 participants. It was this list of 10 provisions that was presented to the city council at its special meeting Wednesday, June 6. Key to the agreement was to suspend action on the two Senate bills until at least June 12.

Dennis Cawthorne, a government relations attorney, Mackinac Island businessman, and chairman of the Mackinac Island State Park Commission, explained to the city council and large crowd gathered at the Community Hall Wednesday evening that handling the franchise problem locally would be preferable to having the state legislature handle it.

In the past two years, a city-imposed franchise of the ferry lines that required expensive winter operations and a high franchise fee has threatened boat company solvency and left a stream of bad debt with vendors doing business with one of the boat lines.

Friday night’s meeting was called by Grand Hotel President Dan Musser III to address the threat of the legislation in Lansing.

“The idea came about when we had the Detroit Chamber meeting last week,” he said, “where all these people came together to talk about issues without the emotions or egos, and the idea struck me, we should try that here.”

He, his father and hotel chairman, R.D. Musser, Jr., and Mr. Cawthorne worked on a framework and invited representatives from the three boat lines, city council, and business community. Attending were Mayor Margaret Doud and Mayor Pro Tem Jason St. Onge, Bob Brown and Jim Wynn from Arnold Transit, Bill and Chris Shepler from Shepler’s, and Carol Rearick and Linda and Tom Pfeiffelmann from Star Line. Bill and Bradley Chambers of Mackinac Island Carriage Tours, who operate the Island’s horse-drawn freight service, also attended.

Negotiations among the parties spanned two days, ending about 3 p.m. Saturday. Dan Musser III chaired the meeting and said his goal was to find a pragmatic solution that everyone could live with. He said participants agreed the best solution would come from Mackinac Island and not from Lansing.

The resulting 10-point Memorandum of Understanding was agreed to by everyone in the room, Mr. Cawthorne noted.

“Please keep in mind, this is not a perfect document,” Mr. Cawthorne said to the council and citizens. “Not everyone is getting what they want out of this, but if we don’t endorse this document, then what is the alternative?”

Two amendments, addressing concerns about ownership transfers and a potential monopoly, were incorporated into the 10 articles when the city council adopted them. Two council members, Sam Barnwell and Dan Wightman, voted against the adoption of the articles and the amendments, Mr. Barnwell stressing his concern that winter boat service had not been properly addressed.

The memorandum states that on July 1, current franchises will end, along with the 7% franchise fee. New franchises will be issued immediately, containing the following conditions:

• New franchises will be 15 years, with the understanding that after five years, there is a right to enter into a new 15-year franchise. The current franchise agreement is for two years, but previous franchises have been for 20 years, noted Mr. Cawthorne. The 15 years put the boat companies in a better position to secure financing, he said.

• All the boat companies will be able to determine their own schedules and rates, however, the ferry lines will file their schedules and rates with the city. Because schedules have already been printed, rates and schedules may not be changed this year. By next year, Mr. Cawthorne explained, free market compettion, hopefully, will dictate the best ferry rates. Bill Chambers added that schedules would be dictated by demand, and he encouraged businesses, who seek more evening boat service, to put pressure on the boat companies individually to secure the service they need.

• The city will receive $600,000 annually, adjusted for inflation. The annual payment will be split equally among all the operating lines, whether it be one, two, or the current three companies. Last year, charging 7% of gross passenger ticket revenue, the city collected $902,556.72 in franchise fees. Mr. Cawthorne said the flat rate will help the companies budget their expenses and the lower rate will provide some relief from the old fee.

• Exclusive winter passenger service will be up for bid annually, subsidized with $100,000 from the city. That means the city can expect $500,000 net from the franchise fee. In the event that there is no bidder for winter service, the city reserves the right to act in ways necessary or appropriate by law to ensure that offseason services are offered. Local residents with season passes will need to pay an additional $5 each way during the winter months. The boat line operating the winter service will honor resident passes issued by the competing boat companies. The service addressed in the memorandum is ice-to-ice and is not intended to force a boat company to operate when the navigation season is closed in late winter.

Chris Shepler told the Town Crier that, during the memorandum discussion last weekend, the parties discussed the proposition that any ticket from any boat line would be accepted by the winter boat operator, but any ticket would be subject to the $5 surcharge to defer costs of operating from ice to ice. Whether they be commuter, day, seasonal, or residence passes from any boat line, they will all be accepted, but they will all require a $5 surcharge one way. He said the details on this would be worked out at the transportation committee meeting Saturday.

• All franchised boat lines may carry freight year-around, but only one can carry passengers in the winter.

• The ferryboat audit, contracted with Plante Moran of Southfield at the maximum cost of $75,000, will be terminated because it is no longer needed by the city to set ticket prices and franchise rates.

• All action on the proposed legislation in the Senate will be suspended until June 12. If the city council adopts the memorandum and moves forward, the legislation will be dropped.

Two amendments were also approved for the memorandum.

• In the event a franchisee sells or otherwise transfers its franchise, or in the event 50 percent or more of the stock is transferred in the cumulative, the transfer of a franchise is subject to approval of the City. Transactions between members of an immediate family are exempt from this provision.

• In the event that no competition is found to exist, the City has the right to assert its jurisdiction over schedules and fares to the extent permitted by present law.

Language in the two amendments, Mr. Cawthorne said, is still under discussion among all parties.

“We understand that the language is something of a work-in-progress,” he said to the council. “I think the parties all agree on the concept. It’s the language we have to discuss.”

Council members generally accepted the terms of the memorandum, but many still worried to figure out who would provide winter service. Council members Armin Porter and Sam Barnwell said they worried about who would offer winter service, and what that service would include.

Mr. Cawthorne explained that the city council could not force one carrier to provide winter service. Council could require all three boat lines to provide service, but that is not economically sustainable, he said. If residents are concerned about winter service, they should take their concerns directly to the company.

Arnold Line manager Bob Brown told the Town Crier the company is strongly considering bidding for the winter service, and will have a proposal for the Transportation Committee after analyzing the costs and benefits.

Should Arnold Line decide not to bid on winter service, Chris Shepler of Shepler’s Ferry told the Town Crier that they would bid for the service. Mr. Shepler added that they would not be interested in seeking the bid if Arnold Line shows interest in providing winter service.

Star Line’s chief operating officer, Linda Pfeiffelmann, told the Town Crier that her company will investigate providing winter service in the future, but would most likely not bid this year.

The idea of acquiring a year-around icebreaker for Island service, a vision of some members of the council, was dispelled by John Wellington of Sault Ste. Marie, who grew up on Mackinac Island and has been a captain of icebreaking tugs and an expert Great Lakes sailor for decades. He explained how difficult it would be to finance ferry service throughout the winter, and estimated the cost for a vessel strong enough to break the ice safely and efficiently would be between $3 to $5 million. In winter ice, he also noted, the cost of insurance can rise by about 50%.

When operating in the ice, fuel consumption rises dramatically, he said, and the boats take a pounding from the hard ice they must plow through. A Coast Guard icebreaker can push ice below the water, he added, and boats following behind can take a beating when the ice shoots back up into their hull.

“The only people who make any money when you’re breaking the ice are the shipyards that put you back together and the fuel companies,” Mr. Wellington said.

He also noted that the Coast Guard can assist passenger vessels when they get stuck in the ice, but their first obligation is to the commercial lake carriers. A ferry did get stuck in the ice last winter, he noted, and it did receive aid from the Coast Guard, but had an available boat been off somewhere else in the lake, the ferry might have had to wait hours or days for help.

Resident Ron Dufina suggested the Island can rely on air service in the winter, as it has for decades.

One audience member asked what kind of guarantee would be offered that state legislation would not move forward, should the city council approve the memorandum.

Mr. Cawthorne said there would be no guarantee, but by passing the memorandum, the legislation proposed would have little need, and probably would disappear. He noted that people he had talked to in Lansing, including Governor Rick Snyder, had encouraged the city to solve its own problem.

Bill Shepler told the Town Crier after the meeting that the action taken by city council Wednesday, and presumably, June 12, would satisfy the concerns in the Legislature. The bills now reside in the Senate’s Committee on Government Af- fairs. If the memorandum had not been approved at the meeting, he speculated, based on information he received from Lansing, the two bills would have been approved by the committee by Friday and a vote taken on the Senate floor by the end of the next week. A committee meeting scheduled for Thursday, June 7, to read the bills was cancelled after Wednesday’s action on Mackinac Island. (See Terms of Compromise, sidebar story)

Return to top

Click here for digital edition
2012-06-09 digital edition