Savior or sabotage? Village faces pressure from Brunswick, Southport in Bald Head ferry sale

As seen from an approaching Bald Head Island ferry, Deep Point Marina in Southport is a vital asset in Bald Head Island Limited’s ferry operations. (Port City Daily photo/Mark Darrough)

BRUNSWICK COUNTY — Last week, the Brunswick County Board of Commissioners and Southport Board of Aldermen each unanimously passed resolutions supporting a state-created entity, mandated by the legislature to purchase Bald Head Island’s private ferry system.

The county and city’s sign of solidarity with Bald Head Island Transportation Authority (BHITA) is a direct response to the Village of Bald Head Island’s public (yet unofficial) offer to purchase the system for itself.

Related: After objecting to state acquisition, Bald Head Village Council wants ferry for itself


Owned and operated by Bald Head Island Limited LLC, the ferry system is valued at $50.9 million.

The turn of events leaves two public entities (BHITA and the village) competing with one another to purchase a private company (Limited’s ferry operations).

Despite the recent local political gestures in favor of the authority, North Carolina State Treasurer Dale Folwell is siding with the village. Folwell chairs the Local Government Commission, the financial regulatory body tasked with approving debt issued with the transaction.

Delaying the sale any longer will cost more money to re-issue consultants’ estimates. But village proponents say it’s worth the time and extra expense to get it right, while authority supporters say it’s already right.

After years of quiet, closed session discussions that began in 2017, the proposed deal got messy as soon as it was publicly announced. A divisive topic in the region, the village’s recent actions can be seen as either sabotaging or saving the deal — it just depends on whose side you’re on.

Representation

Anchored by the mainland Deep Point Marina in Southport, the ferry system is the only realistic way to access Bald Head Island (save for a private charter or an hours-long low-tide trek from Fort Fisher).

Nearly half of the ferry’s 350,000 annual passengers are employees who live in Brunswick County and work on the island; 10% are full-time island residents.

Village Council, particularly mayor Andrew Sayre, believes the authority’s 11-member governance structure does not adequately represent island interests. The authority board consists of three village, one Southport, one Brunswick County, three N.C. Department of Transportation, and two N.C. General Assembly appointees, with one appointee from the governor.

Sayre and village pro-tem Mike Brown find themselves in the odd position of advocating for the village’s purchase of the system while simultaneously serving BHITA as trustees (whose primary purpose is to execute a sale). BHITA’s attorney could not comment on whether they are able to uphold their fiduciary duty while serving on competing public boards; the men have not responded to requests for comment, and continue to serve and vote on ferry-related items on both boards since the village’s offer.

In an Apr. 12 public letter, Sayre explained his position, describing the 2017 legislation that created the authority as the “brainchild of the Seller.” Intimations made in the Brunswick County and Southport resolutions that the village can’t or won’t look out for regional interests are incorrect, according to Sayre.

“During the three years of deliberation, I along with others became alarmed that the Authority was more concerned with the financing structure rather than the value of the asset and its condition,” Sayre wrote. “The appraisals were not fully analyzed; the Buyer’s due diligence was created from afar and relied heavily on the Seller’s past relationship with the consultant, and deferred capital expenditures and maintenance were not adequately addressed.”

Of chief concern to islanders is the possibility the authority will overextend itself to purchase the system at an inflated price, leaving no room for millions in necessary improvements. “Of equal concern is that the non-Bald Head Island resident Authority members generally have not personally familiarized themselves with the operations of the transportation system during high-traffic times that include not only summer months but all holidays,” Sayre wrote.

Shielded by NDAs and closed sessions, the authority’s purpose and timing left little room for public oversight.

[Support independent, in-depth reporting by subscribing or signing up for Port City Daily’s free daily headlines newsletter]

Ferry for sale

For those supporting the authority, the village’s position as a competitive buyer is an about-face: The village unanimously supported the legislation that created the authority and missed its chance to purchase the ferry.

The issue first came up decades ago, when in fall 1998, the village negotiated with NCDOT’s ferry division about getting a public service to the island. The state wouldn’t subsidize the trip as it does all other routes but was interested only if the village was willing to underwrite all expenses, according to a Limited narrative (NCDOT ferry representatives could not substantiate this because no current staff were around back then).

In 1999, the village passed on the state deal and later signed an agreement with Limited to avoid a lawsuit. The agreement granted the village the first right of refusal to purchase Limited’s ferry operations, should they ever go up for sale. In Sept. 2020, the village terminated the 1999 agreement as part of negotiations with the authority, formally waiving its outdated right of first refusal.

After presenting a long list of grievances with the proposed sale, the village officially wrote to Treasurer Folwell Mar. 22, stating its intentions to purchase the system.

Since then, it does not appear as though the village has taken formal action to make good on its goal. A village spokesperson said she had no further updates when asked whether it had taken steps toward making a formal offer; the topic does not appear on the village’s agenda for its Apr. 15 meeting.

It’s possible the village could obtain a lower interest rate than the authority through a general obligation or revenue bond (backed by either taxes or fares), lowering the overall debt service needed to secure the system, negotiated down to $47 million by the authority. The authority would have to pay double the principal ($49 million including closing costs), at $99 million over a 30-year period through a revenue bond, secured by ticket fares, according to estimates prepared by its financial consultant.

As a brand-new government entity with no credit history, the authority was rated BBB- in January, the lowest investment-grade rating but highest rated unsubsidized ferry system on earth, according to the authority’s bond underwriter.

That rating just expired. Now, it must be re-examined, costing the authority (really, Limited) to tack on another bill to the hundreds of thousands it’s already spent studying the deal with about a dozen consultants.

“They haven’t put forth a plan,” Susan Rabon, BHITA chair, said of the village. “They just said they want to explore it. And they’re not part of the statute. That’s what makes it even more bizarre.”

Negotiations soured after a preliminary presentation was given to the LGC on Dec. 1, per the guidance of LGC staff ahead of the commission’s anticipated early January vote to approve the issuance of up to $52 million in bonds that never materialized.

“That’s when everything started to change,” Rabon said.

Getting on the agenda

At that presentation, Folwell asked whether there was any opposition to the sale. “The CEO misled the Local Government Commission. When I ask a direct question in front of 16 people — ‘is there any opposition to this’ — he said, ‘no,’” Folwell said.

The following week, the authority passed an asset purchase agreement 7-4, with all four dissenting votes cast by island residents: mayor Sayre, pro-tem Brown, Pope, and Dr. Rex Cowdry (an NCDOT appointee).

A week later, Folwell received a letter of objection from the village, the party with “the most to lose and most to gain from this,” he said. When the treasurer asked Limited to instead donate the ferry to the authority (yet another boomerang in this saga), he cited this moment. The treasurer continues to point to this juncture when discussing his position on the transaction.

Chad Paul, Limited’s CEO, refutes Folwell’s assertion, as does Rabon. “He was not lied to. He was told we weren’t aware of any opposition. He was not lied to unless he knew something we didn’t know,” Rabon said. “That really bothered me.”

This month, Rabon — Gov. Roy Cooper’s appointee — met with local officials, Rep. Charlie Miller and Sen. Bill Rabon to organize the resolutions, which passed quickly in Brunswick County and with no discussion in Southport. Miller and Rabon have not responded to requests to comment.

“Everybody signed on originally to this deal,” Rabon said. “The other two entities that are involved in this still feel like the authority’s the right way to go.”

Mandated to execute a deal below its appraised value, Rabon said she’s ready to close on more than three years’ work. “If everybody would work together and collaborate like the legislation has said we should do, I think this can work,” she said.

That is, if the proposal can get back on the LGC’s agenda. “We’re ready to go and it appears [Folwell] is refusing to put us on the agenda,” she said.

Folwell’s role

Having received multiple letters and requests from the authority, Folwell said he’s not interested in responding. He is unsatisfied with the “vagueness” of the authority’s answers, provided after the LGC told them to address the village’s questions.

“The LGC is the only objective party in this transaction,” he said. 

After delaying the item for three months, the LGC plans to review it next month, according to its spokesperson. Once identified issues are addressed, the LGC won’t move “at glacier-like speed,” Folwell said.

The village could be an eligible buyer, according to Folwell. As for securing regional representation on a village-owned ferry system, he said: “All that can be worked out.”

While many island residents are grateful for Folwell’s scrutiny and sunlight on the deal, the treasurer’s high level of engagement has prompted insinuations his motivations aren’t altruistic. Multiple individuals with intimate knowledge of the transaction claim Folwell is invested because of the village’s BHITA appointee, Claude Pope. The former state GOP chairman and cousin of Art Pope — regarded as the godfather of the N.C. Republican party — has not personally donated to Folwell’s campaigns, state records show. However, Art and his wife have donated $30,900 to the treasurer over his past two campaigns.

The prolific donors regularly donate to Republican candidates. For nearly 20 years, they have been unsolicited donors of Folwell’s, he said. Until his first island visit in December, Folwell said he didn’t think he’d ever met Claude Pope.

“This is an attempt to steer away from the secrecy, the lack of governance, and the price that they’re trying to shove down the throats of the people of Brunswick County,” Folwell said of the suggestions. “The calendar is not going to cure the secrecy, the lack of governance and the financial impact this deal can have on the people of Brunswick County. The only thing that can cure that is transparency, good governance and an evaluation that will not be financed on the backs of the working people that have to go that island every day.”

The transaction requires intense scrutiny, Folwell said, like any other major highway. “It’s just a highway over water,” he said.

“You can’t sell a public utility where one side has picked the lawyers, the bankers, the evaluators, everything,” he said. “It’s just got to be much more transparent. And I think that’s why we’re getting these letters with 100 signatures on them.” 

‘It’s a mess’

Island property owner Paul Carey drafted two letters to the treasurer, each with more than 100 signatures from island residents.

“A lot of the frustration with island residents is this has been going on for years and no one has been told a thing,” he said.

BHITA has no website. For years, the island’s property owners association has served as the most comprehensive hub for BHITA meeting documents. Funded solely by grants provided by Limited (funneled through the Village), the bulk of BHITA’s activities occurred in closed sessions as part of the transaction negotiations. Though a public hearing wasn’t required, BHITA didn’t solicit any public comments after announcing its intention to seek LGC approval. They only did so after the LGC told them they should.

“To have no communication to the public for three years, I think is wrong,” Carey said. “And I think it caused a lot of the problem because now people don’t trust them.”

Years worth of crowded holiday ferries and parking lots further disgruntled islanders trying to catch up on the transaction. Carey called recent holiday operations a “disaster,” exacerbated by Covid-19 protocols. Bumped ferries mean four-hour waits for riders on busy weekends, he said, with not enough trams on the island to meet demand. “It’s just complete — it’s a mess,” he said.

The issues aren’t just Covid-19-related, Carey said. They also boil down to deficiencies with baggage handling, symbolized by the mainland marina’s under-utilized double-decker design. “The ferry operations on the mainland, they’re beautiful, but they don’t work,” he said.

Carey said he wishes authority members would refocus on negotiations rather than closing.

“I don’t think they’ve done anything wrong. I think they’re thinking about fulfilling the legislation as opposed to getting a really good solid deal,” he said. “When you’re using every dime to buy the entity and pay the debt service and there’s no money for needed improvements, everyone understands how that translates to even worse service than we have now.”

Going public

As Covid shutdowns reined down last spring, wealthy vacationers and second homeowners flocked to the island to escape bigger cities. Ridership in the first quarter of 2021 broke all-time records.

Dealing with two municipalities — tighter Covid restrictions in Southport versus more open rules on the island — complicated operations, Paul, Limited’s CEO, said.

“The tail can’t wag the dog. Transportation is limited to 100 passengers,” he said Thursday, before Limited’s request from the N.C. Utilities Commission was approved, allowing it to operate at full capacity. “That’s all we can do.”

As for holiday congestion, Paul said it’s impossible for a private ferry to build to accommodate peak demand.

“Unless you are an authority and unless you are state-run and owned, you can’t build for peak demand. You can’t build a system that will financially — where the money coming in is greater than the money coming out, and build for peak demand,” he said. “You can’t staff it, you can’t run it, you can’t schedule it. You can’t do it.”

Regulated by the N.C. Utilities Commission, Limited’s rates are based on the cost of service, capped by a reasonable rate of return. Based on a rate case a decade back, Limited has never reached its 8.33% rate of return. “We’ve never earned it,” he said.

North Carolina’s ferry system is almost entirely subsidized by taxpayers — not fare revenues. Through deregulation under the authority, Paul said removing the profit motive will improve efficiencies.

“The current operating system, the system has grown out of the current process and procedures operations-wise,” he said.

Update: This article originally incorrectly identified Claude Pope as a village council member. Pope is the village’s appointee on BHITA, not a member of village council.

Catch up on the ferry sale saga:

After objecting to state acquisition, Bald Head Village Council wants ferry for itself

State treasurer asks Bald Head Limited to donate $47 million ferry system, company denies request

Trouble in paradise: Bald Head Island Council objects to private-to-public ferry sale

Deep Dive: Inside the three-year, unique, $47 million private-public Bald Head Island ferry transaction

Two years in, Bald Head Island Transportation Authority still negotiating ferry acquisition


Send tips and comments to Johanna Ferebee Still at johanna@localdailymedia.com

Print Friendly, PDF & Email

Comments