The two ferry companies running between St. John and St. Thomas should not need subsidies, but one is in financial peril for other reasons, a V.I. Public Services Commission technical consultant reported to the PSC Tuesday.
The PSC hired Technical consultant Avery Williams of Dumfries, Va., to look into the financial condition of the two companies—Varlack Ventures and Transportation Services—and whether rates are reasonable and allow the companies to make enough revenue for a normal rate of return after operating expenses.
According to Williams, the current ferry rates are enough to support the 6- to 10-percent rate of return set by the PSC without any subsidies. Varlack Ventures has experienced an increase it its cash flow over the past two-plus years, has low debt and is in reasonably solid financial shape, he said.
And yet while both companies take turns covering the same routes, Transportation Services has higher debt-interest payments, apparently has fewer passengers, and so has a serious cash flow problem, according to Williams.
Transportation Services borrowed heavily a few years ago and has averaged at least $240,000 a year for the least two years, he said. After taking depreciation on the underlying assets funded by the loans as an expense, the company still needed $95,000 a year more than Varlak Ventures to pay that loan principal, he said.
To satisfy that need, Transportation Services deferred paying gross receipts, FICA and V.I. withholding taxes. That deferral resulted in an Internal Revenue Service garnishment, exacerbating an already-poor cash flow situation, he said.
According to Williams, debt principal payments cannot be deducted from revenue before determining the company’s rate of return, so its formal rate of return remains reasonably high, despite having a cash flow problem.
"There is a serious concern as to whether Transportation Services has the ability to remain a going concern," and "needs a cash influx to improve their poor cash flow position," Williams said.
Williams also gave poor marks to a new electronic ticketing system, the St. John Ticketing Company, which is owned jointly by the two ferry companies. While the system stores information electronically, it gathers it manually and without sufficient controls, he said.
"Put it this way; if you had some concerns before, this ticketing system will not address those concerns," he said.
No one from the ferry companies spoke at the meeting, although a Varlack representative arrived partway through the hearing.
The PSC voted to forward the report, with an explanatory letter to the office of Gov. John deJongh and to the Department of Public Works, which disburses the government’s periodic subsidies to the ferry companies.
Voting yea were: Chairman Joseph Boschulte; Donald "Ducks" Cole, Elsie Thomas-Trotman and M. Thomas Jackson, who put in an appearance over the telephone. Absent were members Sirri Hamad and Verne David.
