BRUNSWICK COUNTY — Three years after its inception, the Bald Head Island Transportation Authority has taken its largest step yet, nearing the goal it was created to accomplish: transition the island’s ferry system from a private to public system.
Tuesday, after dozens of hours-long closed session meetings, the authority’s 11-member board settled on a $47 million price tag it intends to acquire the ferry system for. The board also approved an asset purchase agreement, management transition services agreement, and applied for revenue bond financing approval through the Local Government Commission (LGC).
Related: Two years in, Bald Head Island Transportation Authority still negotiating ferry acquisition
Once the authority gains LGC approval early next month, the deal between the system’s owners, the Texas-based Bald Head Island Limited LLC and N.C.-based Bald Head Island Transportation, Inc., is expected to close in early February.
After a post-closing transition period, the public authority will own and operate a wide network of assets, including the mainland and island marina, 36 acres of mainland vehicle parking, a 2003 and 2006 catamaran, two aluminum monohulls built in 1987, a 2017 tug boat, deck barge, and all of its 12-seat trams.
‘The Alamo’
It’s not every day the legislature creates a brand new government agency. “I think that’s maybe what attracted me to take this appointment,” BHITA Chair, Susan Rabon, said Thursday. Appointed by Governor Roy Cooper, Rabon has chaired the authority since it was first created by Senate Bill 391 in July 2017.
“The whole idea, the day this closes it’ll be status quo as far as somebody getting on that ferry,” Rabon said. “They won’t notice a difference.”
Though she’s relieved to have made it this far in the process, Rabon isn’t celebrating yet. “People have put a lot of time into this. Yes, there are some that think we should have done this faster, but we wanted to make sure we did the amount of due diligence in what we needed to have to move forward to try to market these bonds,” she said. “Let’s take it from here and move forward.”
Unlike the rest of the state’s publicly run ferries, the Bald Head Island system is profitable. In recent years, the state’s ferry systems have been almost entirely subsidized by taxpayers. (In 2012-2013, the state’s ferry system had the second-lowest recoupment rate in North America, only behind Staten Island — a free ferry).
The complex nature of the island’s ferry business operations is partially why the legislature chose this unique path. Another reason, its CEO guesses, is Deep Point Marina’s functional value, tucked in at the mouth of the Cape Fear River in Southport, alongside the region’s most important public assets: Military Ocean Terminal at Sunny Point and the Port of Wilmington.
During Hurricane Florence, the marina hosted the National Guard when Brunswick County was divided into three islands due to flooding. It lost two shingles in the storm.
“Without question, that Deep Point facility, there’s nothing like that on the river. That is the hurricane hole. That is the Alamo for everything down there,” said Chad Paul, CEO of both Bald Head Island Limited and Bald Head Island Transportation. “They really don’t want those assets going into private hands.”
An ‘economic engine’
According to transaction documents, the transportation system will be managed by the sellers (Bald Head Island Limited and Transportation Inc.) after closing until all assets are completely transferred. Paul will serve as the authority’s interim director during this timeframe.
The authority will hire a “town manager” (really, an executive director) once it formally takes over operations from the companies, which may end up being Paul. It also will hire all of the existing transportation employees directly; in other words, it has no plans to outsource the bulk of its operations to another entity.
“We’re switching from an acquisition mode to an operations mode,” Rabon said. “This authority won’t have a profit motive like a private entity would. All kinds of safeguards in place.”
Though the island is home to many of the state’s most expensive homes, it provides a steady (and cyclical, swinging up with tourist season) job market for mainland Brunswick County residents.
Of the 350,000 passengers the ferry system transported to the island last year, one-third were employees and 12% were contractors, according to Paul. Of the 45% of working ridership, nearly all are Brunswick County residents.
“[The transition] puts the ferry service in the position to survive,” Rabon said. “It provides part of the economic engine for the county.”
No strings attached
As a new public entity, the authority is seeking to accomplish a lofty feat. So far, it hasn’t (really) been infused with a dime of public money.
After years of planning and nearly a dozen reports generated by consultants, the authority intends to purchase and operate the ferry system without relying on any public funding.
Since 2018, the authority has received a combined $365,000, according to Village of Bald Head Island finance director, from six payments granted by the village (a public municipality). However, Bald Head Island Limited has reimbursed the village for each of its grant payments to the authority, so the village hasn’t once come out of its pocket to pay for the authority’s operations. Many consultants have agreed to hold off on billing the authority until after the sale is finalized.
Should the LGC approve the proposed transaction, all $56 million in proposed debt will be tied to revenue bonds, completely isolated from any other local government, secured by the assurance of future system revenues.
“The reason why this works is that this system paves its own way,” Paul said. “It’s not part of the state budget, it’s not part of the governor’s budget, this system paves its own way.”
The authority has no credit history. Typically, people can’t take out large sums of debt with no credit history, but as a government entity, the authority’s financial consultants have assured its members that a lack of credit history should not present an issue in securing the transaction, according to Rabon.
Unlike other ferry systems in the state, the authority won’t be governed under the N.C. Department of Transportation (though the NCDOT secretary does get three appointees on the board). Instead, it will essentially regulate itself under the statutes prescribed under the Ferry Transportation Authority Act.
“This is the first-ever maritime authority established in North Carolina, and it’s the first true, real business enterprise authority ever established in North Carolina,” Paul said. “So there’s a lot riding on it.”
(Perhaps the most comparable entity would be the Centennial Authority, created by the legislature in 1995 to oversee the construction and management of the PNC Arena in Raleigh.)
During his tenure as North Carolina State Treasurer, Dale Folwell said he hasn’t overseen a private-to-public transaction of this size.
“It’s very unique. Most of the situations we deal with are with well-established government entities,” Folwell said. “Its uniqueness does not change the fact that the people of the Local Government Commission are going to do their job.”
Both the LGC and underwriters consider credit history when approving bonds, Folwell said. Yet, overall, the LGC is looking for certain assurances.
“It’s assurances that the price is a true reflection of the amount of money that the system may need in the future for maintenance,” he said. “And then who does that cost get paid by?”
Under the Ferry Transportation Act, the authority is mandated to buy the private ferry service at or below its appraised value. The authority intends to hire all 85 of the private transportation system’s employees and keep rates the same — if not eventually lower them.
“There are all kinds of people who use that ferry,” Folwell said. “Some who can afford their own yachts and some who clean the yachts. What I try to do as state treasurer is advocate for the forgotten woman and forgotten man who many have to use that ferry.”
The LGC could vote to approve the issuance of the bonds the first week of January. As chair of the LGC, Folwell said he’s looking for transparency and data when considering approval.
“When we approach these, we focus on being fair and just,” he said. “For the benefit of all the ferry users — those that make their living with their hands, their back and their feet and those that don’t.”
Four to one
Effectively its own municipality, the authority has set out to acquire and operate all of of the ferry system’s assets, comprising four major components: 1. the ferries, Deep Point Marina in Southport and the Bald Head Island marina; 2. the island tram system; 3. barge infrastructure, which lugs supplies and equipment to and from the island; and 4. the mainland vehicle parking program.
Of the four components, only the ferry and tram are regulated, under the N.C. Utilities Commission.
“What we’ve got right now is, we have four, self-contained, vertically top-to-bottom companies that are not integrated that are not interoperable,” Paul said.
The Utilities Commission requires extensive paperwork and pre-approval to change rates, schedules, or other operating features of the ferry system, according to Paul. After the six months of processing it takes to obtain a rate change approval to reflect fuel prices, Paul said the difference is often ineffective.
“By then, now you’ve got a huge fuel surcharge or huge negative fuel surcharge and it becomes unwieldy to manage,” he said.
Once all four components are merged and regulated under the authority, Paul envisions integrating the system’s services and improving customer service.
“Wouldn’t it be nice to be able to buy a ticket that is a universal ticket? It’s your parking ticket, it’s your ferry ticket, it’s your tram ticket,” he said. “There are definite efficiencies by being able to bring them together — and I’m not talking about laying people off. I’m talking about true operating efficiencies and an ability to leverage technology. There’s a big opportunity there.”
Paul is clear in that there are no plans to reduce staff as a result of the transaction or through future operating efficiency improvements.
“You’re not just going to run out and hire a 100-ton ferry captain or a 300-ton tug boat captain. They’re not just walking southeastern North Carolina,” he said. “The whole idea is not just stewardship for the customers and the assets but stewardship for the employees that make it work.”
Under the Utilities Commission, the ferry is limited to offering tickets on a first-come, first-serve basis. After the transaction, Paul hopes to offer 80% of ticket sales by reservation, with the remaining 20% available in-person, first-come, first-serve.
“Just simple things like being able to have an electronic ticket on your cell phone, like when you go to the airport, we really can’t do that right now.”
The holy grail
Though modernized since the Mitchell family first bought it in 1983, Bald Head Island still has an almost magical allure. It remains car-less. Four-fifths of all its acreage, including thousands of conserved acres in its dense maritime forest, will never be developed.
After the 2013 passing of oil tycoon George Mitchell, the patriarch of the island’s original developers, the Mitchell family has slowly divulged its remaining assets. Since he took on the role as CEO in 2010, Paul has overseen Bald Head Island Limited transfer many of its assets into private hands: the restaurants, the Maritime Market, the Shoal’s Club, the Bald Head Island Club, and most recently its residential real estate brokerage sales and vacation rental property management businesses.
“This is it. This is the holy grail. The transportation and the logistic system is the holy grail of what needs to be transitioned,” Paul said.
The series of transitions have taken place carefully and selectively, Paul said, with a watchful eye concerning the long-term stewardship of the island’s assets.
“How many developers or operators stick around for 37, almost 39 years? Not many. Not many,” he said. “They’ve got a vested interest in making sure the legacy has got stewardship behind it.”
Send tips and comments to Johanna Ferebee Still at johanna@localdailymedia.com
