NEW YORK - No one is laughing at Arthur's Folly anymore.
Arthur E. Imperatore Sr., a tough-talking former trucker, has turned his romantic notion of reviving ferry service in New York Harbor into a $73 million-a-year business that some experts say is a model for privately run mass transit.
His lone ferry of 17 years ago has grown into a fleet of 48 catamarans and other vessels that operate 25 routes between New Jersey and New York. In the past three years, ridership at his company, New York Waterway, has increased to 60,000 daily, and profits have tripled to $6 million a year. His boats carry more than 90 percent of the private ferry passengers in the harbor.
"We are a dedicated, innovative company that has almost single-handedly reinvented a dead industry," said Arthur E. Imperatore Jr., 40, who now runs the company founded by his 77-year-old father.
To the Imperatores and the government agencies and officials who have assisted his company in its rise, New York Waterway's dominance is entirely justified: it was in the business first, was steadfast in its commitment through lean years and has been a proven, reliable operator in meeting the region's growing demand.
But to others, chiefly Waterway's emerging rivals in the industry, the company's virtual monopoly has been helped by what they see as its status as a favorite of government.
The government has given it $27 million in subsidies and $26 million in loan guarantees, and is paying $250 million to build four terminals that Waterway will operate. Some of the financing is the first Federal Transit Administration money ever spent on a privately run ferry terminal.
The company has hired a government regulator who once oversaw the ferry business, and the Imperatores, their companies and associates have plowed a quarter of a million dollars into the campaigns of government officials in Albany, New York City and even Alaska, the home state of a congressman who helps oversee the industry.
Now the U.S. attorney's office in Manhattan and the Port Authority of New York and New Jersey have opened a joint inquiry into Waterway's performance. In addition to investigating claims that Waterway has improperly limited competition by hoarding boats and controlling access to landings, investigators are exploring whether it defrauded the federal government of hundreds of thousands of dollars in emergency money provided after Sept. 11, 2001, an allegation the company has denied.
"I think it's obvious that Waterway has a favorite-son status with the Port Authority," said Bruce Boyle, who runs a ferry service to Manhattan from Jersey City, N.J. He has told regulators that he has been barred from certain landings controlled by Waterway.
The Imperatores say the allegations against them have sprung from similar antagonism. Among those challenging Waterway for a share of the market is New York Water Taxi, whose chairman, Douglas Durst, is an influential Manhattan developer.
"Our accomplishments," said Arthur Imperatore Jr., "clearly have generated envy and resentment among certain other operators who can only benefit from having us under a cloud."
Imperatore's ferry business grew despite the critics who had labeled the project, which had included a never-built $5 billion city, Arthur's Folly. In 1988, the Port Authority hired him to run boats between Hoboken and the World Financial Center to relieve overcrowding on the PATH trains.
For all his pioneering style as a businessman, Imperatore also understood the power of political friendship.
Fund-raising dinners were often held for allies like New York Gov. George E. Pataki or Mayor Rudolph W. Giuliani at the Imperatore family's waterfront restaurant in Weehawken, N.J. Two New Jersey officials who could be counted on in Washington, Sen. Frank Lautenberg and Rep. Robert A. Roe, had ferries named after them. The company hired lobbyists in New York City, Albany, N.Y., Trenton, N.J., and Washington.
Robert Bekoff, who runs ferries in Florida, said he tried to enter the New York market in the late 1990s but gave up after losing $1 million because he could not compete with Imperatore's contacts. "Could I hire people to run and build the boats? No sweat," he said. "Did I have a lobbyist in Trenton, in New York City? Did I know the guy who knew the guy? No."
The Port Authority's former supervisor of ferry programs was among those the company wooed. The supervisor, Donald J. Liloia, was overseeing the ferry industry, including New York Waterway, in 1995 when the company asked if he would join it as a top executive. At that point, Liloia said, he recused himself from direct oversight of Waterway. He took the job three months later.
In 2001, Waterway was operating five routes between Jersey City and Manhattan with little competition. In the two months after the terrorist attacks of 2001, with train tunnels in ruins, Waterway's ridership jumped to 52,000 passengers a day from 33,000. "We had five years of growth in six months," Arthur Imperatore Jr. said.
To the Port Authority, which administered five ferry contracts, all of which were awarded to New York Ferry and two without competitive bidding, the awards made sense. Waterway was well-financed, had plenty of boats and, in one instance, already held the contract to provide the service the government sought to expand. But to other operators, who knew the contracts were potentially worth millions of dollars in subsidies, the awards were not warranted.
Port Authority officials said they still felt a legal obligation to Waterway, which resumed the service last September. They deny the assertion that they have favored the company.
"Up until recent years," the authority said in a statement, "N.Y. Waterway was the only operator to respond to our requests for proposal."
The $27 million that the federal government ultimately provided for emergency ferry service after Sept. 11 was supposed to ensure that boats would be ready when commuters needed them, and it did.
The federal government had agreed to pay to increase ferry services, as much as 200 percent if demand warranted. But the boats were often empty, said Paul Ward, who was New York Waterway's senior operations manager. The runs were unnecessary, he told superiors.
Nonetheless, he said, he was told to run empty ferries late at night to reap the maximum reimbursement.
Ward quit last year when, he said, Waterway officials would not revise the schedule. Waterway takes a different view.
"We didn't have the latitude to make up the schedules," said Bill Bouffard, Waterway's chief financial officer. The government had decided it wanted frequent service, he said, even in the off hours, to replicate the lost PATH service.
Investigators from the antitrust division of the U.S. attorney's office and the Port Authority inspector general's office have interviewed Ward as well as rival ferry operators, marina owners and boat captains. The rivals have told them that Waterway chartered boats it did not need, drove up prices and prevented its rivals from expanding.
Other ferry service operators complained that without subsidies they could not afford to keep running. In one case, a ferry operator, Seastreak, had a tentative deal this spring to lease a boat for $50,000 a month, several operators said. Suddenly it was told it could not have the boat. Waterway had agreed to pay twice the price.
Waterway officials said that the company leased the boat because it needed it, and that they did not know what the other company was offering. They denied creating a spot shortage on the market, or engaging in efforts to block other companies from landing sites. They pointed to the ease with which they rounded up 34 boats last year as part of the city's contingency plan for a transit strike.
Investigators are also reviewing whether the company double-billed the government for some of its emergency ferry services. To provide the additional hours, the company augmented its own fleet with 10 chartered boats. Under its contract with the Port Authority, it was to be reimbursed for its charter costs, plus operating expenses like landing fees, insurance and crew.
But investigators are examining whether the charter fees included some of the same operating expenses that had already been billed separately.
Waterway said the allegations of fraud are mistaken. It did not even earn a reasonable return, it said, because its reimbursement rate was cut. To its mind, the matter is nothing more than a billing dispute.
New York City and Port Authority officials decided it would cost too much to give operating subsidies to private ferries, too. So they decided to finance the construction of ferry terminals instead.
The four terminals being built are an outgrowth of that policy. All will be publicly owned, but operated by New York Waterway under contract. Two will be built next to Waterway's current docks in Weehawken and Midtown Manhattan. The other two will replace the company's landings in Hoboken and at the World Financial Center in Lower Manhattan. All told, more than $250 million in government money will be spent.
Rival companies, which together have collected only a few million dollars in government funds, say the terminals are another unfair bonus. Waterway, whose own terminals were becoming cramped, will not have to pay to land its boats at the new ones. It will keep much of the money from terminal concessions and advertising sales. And New Jersey Transit will build a light-rail system to deliver ferry riders to the Weehawken site.