2005-04-15 / News

Ferry Boat Franchise Fees Go Up; City Collect Another $60,000

By Ryan Schlehuber

Ferry Boat Franchise Fees Go Up; City Collect Another $60,000

By Ryan Schlehuber

Boat companies have received a 33 percent increase in the franchise fee they pay the City of Mackinac Island this year. Beginning this month, the three passenger boat companies will pay two percent of their gross passenger ticket income to the City of Mackinac Island, 0.5 percent more than before, because the City Council contends the city is strapped for cash.

The increase could generate about $60,000 for the city. Last year, paying 1.5 percent of gross ticket revenue, the boat lines paid $174,257.96 to the city. The boat companies, had asked for a reduction in the fee.

City Council, at its regular meeting Wednesday, March 30, unanimously agreed to extend the 20-year-old ferry franchise fee for another five years and to increase the fee from 1.5 percent to 2.0 percent of gross ticket sales, despite a plea from Arnold Transit Company, Shepler’s Mackinac Island Ferry, and Star Line to eliminate, or at least lower, the rate to compensate for rising costs of fuel and insurance and a drop in summer tourist traffic to the Island.

The city’s Finance Committee, at a meeting March 8, had agreed to recommend a five-year fee extension at two percent for the first two years and 2.5 percent the following three years. Mayor Margaret Doud said she decided later to recommend a two percent fee for all five years, which is the plan Council adopted March 30.

The new agreement begins April 1 and ends in May 2010, however, Mayor Doud said ferry companies have until the end of April to submit their renewal agreement applications.

The previous agreement, signed in 1984, was for 20 years. It expired last October but was extended into 2005 so politicians could review it.

A shorter, five-year term, said Alderman Michael Hart, also a member of the Finance Committee, will allow the city to adjust the terms to better reflect the general economy of the Island.

The franchise fee was spear-headed in the early 1970s by then-Mayor Clem Gunn, a bonds broker who retired to Mackinac Island and offered to turn the city’s bleak financial picture around. The city was broke and financially powerless and Mr. Gunn argued that the small number of year-around residents could not finance the utilities and emergency services required to accommodate the large influx of tourists in the summers. He looked for ways the summer beneficiaries could contribute to the city infrastructure, including turn-stile gates at the ends of the docks and even a wishing well to collect coins. Lawyers told the city that a tourist head tax was illegal, so the city created a ferry boat franchise fee.

The 1984 ferry franchise agreement, and its controversial fee, was in court for seven years after the city originally adopted the ordinance in July 1977. The expensive legal battle began in Mackinac County’s Circuit Court and ended in the U.S. Supreme Court, where the city’s power to franchise the boat lines was upheld. Under the city’s 1899 charter, which is supported by the U.S. Supreme Court, said Mr. Hart, the city has the power to set fees at any rate it sees fit. It even has the power to dictate the three ferry companies’departure schedules to and from the mainland, but has never invoked that power.

Mayor Doud said the rate increase this year is prompted by the slumping Island and state economy and the higher costs to maintain the city’s public services and facilities.

"We’re not here to gouge people, but they have to realize that the city is a business, too, and we have to keep up our public services," said Mayor Doud at the March 8 committee meeting. "This is not a tax, rather a franchise fee for the right to do business here."

Expenses faced by the city include the upgrading of its water and sewer treatment plants, road repair, street light replacement, a new master plan, renovating the city’s sole public restroom behind the Tourism Bureau, and legal fees, including a case bought against the city by Shepler’s over freight operation restrictions placed on its business license.

Star Line General Manager Tom Pfeiffelmann said the franchise fee increase forces him to reexamine ticket and parking charges for this summer. The ferry company already plans to increase round trip adult tickets from $17 to $17.50 to partially cover rising gasoline and medical insurance costs. He calculates that, based on last year’s ticket, the boat lines will have to absorb another $60,000 this summer.

"That $60,000 is going to have to be passed on to the tourists," Mr. Pfeiffelmann said, arguing that fuel and insurance costs are rising at a ridiculous pace already. "I had ticket prices set for this summer, already, but now I have to go back and look at the figures again. We may have to raise ticket prices again."

Boat companies have been faced with a 40 percent increase in employee health insurance the past two years and, according to Mr. Pfeiffelmann, boat lines are paying at least $1,500 a day for fuel. Shepler’s has argued it pays more than $400,000 per year for insurance and close to $1 million in labor.

"There are three factors that affect ticket prices, cost of health insurance, cost of fuel, and cost of the franchise fee," said Mr. Pfeiffelmann. "The first two are out of control and we are not able to cut anything from our budget anymore. We’re locked in. Something, somewhere, is going to have to give. You can’t totally blame the city, but the franchise fee is a factor."

If the round-trip tickets are $17.50 for adults and $8.50 for children ages 5 to 12, the city’s two percent gross cut for one regular adult ticket and one regular child ticket would be 35¢ and 17¢, respectively, compared to 26¢ and 13¢ at 1.5 percent. The fee is also charged against discount tickets, group tickets, and commuter tickets.

The city, in its budget projections for 2005, estimates it will collect about $225,000 in franchise fees, just under 12 percent of projected revenue, which is $1,902,485.

When the franchise fee was first collected in 1984, adults round-trip tickets were $3.50 each, according to the Finance Committee. Ticket prices have risen 50¢ to $1 each year for at least the last decade.

In 1990, the earliest city record, the ferry franchise fee amounted to $100,906.21. Last year, the city collected $174,257.96, down sharply from $188,629.83 in 2002 and $181,354.80 in 2003, a reflection of a poor tourist season, which Mr. Pfeiffelmann attributes mostly to bad weather.

The boat lines have always been protective of their passenger figures, but Mr. Pfeiffelmann said tourism peaked on Mackinac Island in 1998, when an estimated 900,000 people visited here. He estimates that only about 675,000 people visited last summer.

City of Mackinac Island Franchise Fee Summary

1990-2004

1990 $100,906.21 1991 $110,636.84 1992 $111,352.21 1993 $120,947.48 1994 $132,490.59 1995 $134,008.50 1996 $137,720.26 1997 $149,057.07 1998 $168,768.12 1999 $172,708.70 2000 $173,067.33 2001 $179,510.54 2002 $188,629.33 2003 $181,354.80 2004 $174,882.56

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