New York State Sen. George Maziarz, R- Newfane, and State Assemblyman John Ceretto, R-Lewiston, met with representatives of the New York State Office of Parks, Recreation and Historic Preservation, a group that included a battery of lawyers and commissioner Rose Harvey, last week to discuss the status of boat tours in the Niagara Falls State Park.
They will be sending Parks a list of questions, the two representatives told the Niagara Falls Reporter, in their bid to get fair rent for the public for the lucrative boat tour.
Currently, all boat tours at the base of the falls on both sides of the river are conducted by Maid of the Mist Inc., a corporation owned by Lewiston businessman James V. Glynn.
Glynn's company had leases on both sides of the border since 1971. He lost his long-term lease in Ontario in 2009 when the province decided to put the boat tour concession up to bid.
In February 2012, Hornblower Cruises and Events was awarded the lease, outbidding Glynn's old agreement by more than $300 million over the life of the 30-year lease.
Glynn will continue to operate on both sides of the border for the 2012 and 2013 season. The Hornblower lease in Ontario starts in 2014.
It is unclear who will operate on the New York side in 2014 and onwards.
Clearly, the Canadians did well by putting the boat tour out to bid. In Ontario, Glynn was paying 15 percent of boat tour sales as rent to the Niagara Parks Commission. Competitive bidding brought the rent up to about 40 percent. That translates to about $10 million more in revenue per year.
With the loss of the Ontario lease for Glynn come certain challenges and opportunities in New York. In 2002, Glynn signed a 40-year lease with no competitive bidding. The rent New York Parks agreed to charge him was 4 percent.
Forty years at 4 percent?
Glynn got his New York lease because he argued he had the Canadian lease where presently sit the only dry docks and fuel pumps available, two necessary items -- one to store boats in winter, the other to supply boats with diesel during the season.
Glynn was designated "sole source" and avoided a bid process.
Now Hornblower will lease the same land from the NPC that possesses the dry docks and fuel pumps. Hornblower is under no obligation to allow Glynn to store his New York boats there or fill his boats with fuel.
Consequently, Glynn's 40-year lease, now in its 10th year, may come to an end for the simple reason that he may not be able to operate.
Hornblower is in line to take over the New York tour in 2014.
But was it true that New York needs Canada to operate its boat tour? Or was this amazingly low-rent lease given to Glynn simply in the sweetheart fashion -- by certain friends of his at the State Park -- and the fact that he already had the Canadian lease being a mere excuse to avoid bidding?
In short, with millions at stake, can there be docks and fuel pumps in New York?
According to Maziarz, New York State Parks officials indicated that, while it might be possible to accomplish, there is "almost no chance" of developing docks on the U.S. side in time for the 2014 season.
According to Ceretto, Parks officials claimed that docks and fuel tanks in the bottom of the gorge would take years, because of a required Environmental Impact Study and historical reviews.
Of course, that is Parks' rather offhand position. With millions at stake, I wonder if there has ever been a study done on what it would take to make New York independent of Canada for boat tour operations?
One good bit of news for the New York public, according to Maziarz, is that Parks officials told him that, "if they did create docks, the boat tour would have to go to a competitive bid because Maid of the Mist would not be a sole source anymore."
It is reasonably likely that a high bidder in New York would pay similarly to Hornblower in Canada, thereby boosting the rent from its present 4 percent (about $300,000 per year) to 40 percent (about $3 million). State Parks could net an additional $2.7 million per year -- which, according to published reports, is fair market rent -- and not much different from what other major boat tour concessions pay on public lands.
That Glynn has been getting away with a rent that is at 10 percent of fair market value is like someone paying $70 a month for a $700-a-month apartment. In this case, however, the landlord is you -- the people of New York.
There are a couple of loopholes that might allow Glynn, or his successor in the lease, to keep the New York lease at the 4-percent rate for the remaining 30 years of the lease.
Maziarz and Ceretto both said they would try to close these loopholes if possible. If Glynn cuts a deal with Hornblower to dock his boats on the Canadian side, will that trigger a competitive bid process in New York?
Consider: Glynn can afford to pay pretty bucks to keep the tour since he is only paying one 10th of what Hornblower pays. However, if Hornblower agrees to rent dock space to Glynn, then it would be true that other companies -- if they had the New York boat tour concession -- might be able to rent the same space from Hornblower.
Will that trigger a competitive bidding scenario?
So far, Hornblower executives indicated they are not likely to rent space for docks to what would be their competitor, and in Glynn's case, a competitor who might otherwise be out of business, a competitor who right now has a huge advantage, since Glynn is paying 4 percent and Hornblower will be paying 40 percent for the nearly identical tour.
Hornblower Chief Executive Terry MacRae said he prefers only one company -- his -- to run tours in the gorge and believes Maid of the Mist should "gracefully" exit.
Can Glynn remain?
Could he get fuel delivered down the gorge using existing elevators?
How about boats?
Glynn was able to lower his present New York fleet (two 300-passenger boats) by giant cranes. The smaller New York boats, unlike his larger Canadian (600-passenger) boats, were lowered by crane whole and intact.
Suppose he could arrange to lift boats out and store them outside the park, then lower them in again in spring. Suppose he could get his fuel delivered, eliminating the need for Canadian help -- would that trigger a competitive bid?
It should. Since, if Glynn could do it, others could do it also.
New York's sole source provision applies only if no one else could provide the boat tour service.
What other ways could Glynn, perhaps working with Hornblower, keep the profits and prevent the public in New York from getting fair market rent?
Maziarz, always astute about business, said, "I asked this question of the State Parks: Can the Maid transfer their lease without Parks' permission to Hornblower?"
According to Maziarz, State Parks said no.
Maziarz and Ceretto, however, did discuss with the Niagara Falls Reporter a potential loophole in this.
No. They can't transfer the lease to Hornblower. But Glynn might be able to transfer the benefits of the lease (for a price, of course) to Hornblower.
What would happen if Glynn sold the Maid of the Mist Corp. to Hornblower?
If Hornblower were to buy Maid of the Mist Inc., they would be buying the corporate stock, along with any assets the company has, like its boats and, of course, its biggest asset -- the sweetheart lease -- which if it were to remain in effect for the next 30 years, will see Maid of the Mist Inc. paying $75 million less than fair market rent.
The lease itself is worth tens of millions.
If Hornblower (or investors from Hornblower) bought the legal entity Maid of the Mist Inc., there would be no transfer of the New York lease to another lessee, nothing requiring Parks approval.
The stockholders of Maid of the Mist Inc. might be different, but the lease would be still in the same legal name, Maid of the Mist Inc. Indeed, it might not even be known that such a transfer took place, since private corporate stock transfers are not public.
For example, suppose General Motors had a lease somewhere, and GM had a change of stockholders, even a change of presidents, it is still the same company. A corporation is a separate legal entity able to possess property and rights. Change of stockholders does not change its legal rights or obligations.
Another scenario to keep the New York public from getting fair rent is one where Glynn partners with Hornblower.
What Glynn has is a sweetheart lease. What Hornblower has is the docks and fuel pumps. A partnership of half-a-loaf each might be the best way to keep the public from getting its fair share of rent.
Glynn could take a bundle of Hornblower's money and Hornblower can take the benefit of the sweetheart lease -- unless, of course, Parks and our representatives prevent this.
The questions continue.
Why shouldn't Parks take the position that the lease is invalid, since it was entered into improperly and in violation of law?
Section 163 of the New York State Finance Law reads:
"The term of a single source procurement contract shall be limited to the minimum period of time necessary to ameliorate the circumstances which created the material and substantial reasons for the single source award."
The length of the 2002 lease was 40 years and runs until 2042.
Why did New York State Park officials allow Glynn's lease to run 33 years beyond the expiry of the Canadian lease, if sole source procurement is, as the law states, "limited to the minimum period of time necessary"?
Glynn's lease ended in 2009.
No matter how many questions trouble the public, the answers ultimately must be reduced to this: The New York boat tour must go out to competitive bidding, or Hornblower must get it at a fair market rent.
If not, Glynn or Hornblower -- or, more likely, both -- will probably wind up with Glynn's current New York lease at 4 percent for the next 30 years, and the people of this generation will be deprived of getting anywhere near a fair rent for what may be the premier boat tour attraction in the world, while the people in Canada rake in hundreds of millions to invest in their parks.
Thankfully, we have two representatives -- Ceretto and Maziarz -- who, unlike everyone else, are at least asking the tough questions and defining the issues for the public.
| Niagara Falls Reporter | www.niagarafallsreporter.com | March 27 2012 |