News and Features: Inquiries
Swan Boats, Sullivan's get sweet deals from city, state
July 06, 2011
the swan boats in the Public Garden and Sullivan’s hot dog stand on Castle Island in South Boston are two of Boston’s most beloved businesses. But the landmark operations are showered with more than just the love of an adoring public; they also enjoy unusually generous leases from their government landlords.
The state’s deal with Sullivan’s, which sits on Department of Conservation and Recreation parkland at the tip of South Boston, and the city of Boston’s lease arrangement with Swan Boats Inc. are weighted heavily in favor of the private businesses. It’s as if officials became so enraptured with the taste of a Sullivan’s snap dog or a serene swan boat ride around the Public Garden lagoon that they forgot they were negotiating a deal on behalf of taxpayers.
The state gave Sullivan’s a monopoly on food sales at Castle Island and didn’t charge the owners any rent at all from 1951 until about 1986. It was then that the Legislature passed a law authorizing the state to lease land to Sullivan’s for the next 45 years. State officials set the initial monthly rent at $400, rising every five years by 20 percent but no higher than the increase in the Consumer Price Index. Currently, the rent is $671 a month.
Low rent wasn’t the only benefit Sullivan’s received. At the time the lease was negotiated, the state was making improvements at Castle Island and wanted Sullivan’s to move to a new spot. The lease agreement required Sullivan’s to pay for the demolition and removal of its old stand, but allowed the restaurant to deduct those costs from future rental payments. The lease also required the state to pay fair market value to Sullivan’s for the new brick building it had constructed if the lease is terminated.
“This is an unbelievable deal for Sullivan’s—just unbelievable,” says Todd Lafleur, who, as the lease program manager for the Department of Conservation and Recreation, reviewed the Sullivan’s deal about a year prior to his retirement in 2009. “I was shocked that a lease could have been written with such favorable terms as Sullivan’s got. It was certainly a terrible deal for the Commonwealth.”
The city of Boston’s request for proposals for the swan boat operation, meanwhile, is written in such a way that only the current operators, Paul and Lyn Paget, can win the contract. That’s perhaps understandable, since the Paget family has operated Swan Boats Inc. since 1877. Nevertheless, the terms of the lease are so favorable to the Pagets and the revenue from the operation so poorly monitored that it’s impossible to tell whether the city is receiving the money it is owed.
During a recent visit to the swan boats, an employee was observed collecting admission fees ($2.75 for adults, $2 for seniors, and $1.50 for children) and throwing the money in a drawer—no cash register, no electronic recording of receipts, no written log.
The current contract between the Pagets and the Fund for Parks and Recreation, a nonprofit entity created by the city’s Parks and Recreation Department, runs from March 2009 through December of this year. It calls for the Pagets to pay the city an annual fee of $5,000 plus 2.75 percent of gross ticket sales and 50 percent of the net income from the sale of souvenirs. The previous three-year contract carried the same terms.
In 2010, the Pagets reported gross ticket and souvenir revenue of $569,000, generating a payment to the Fund for Parks and Recreation of $21,500.
The financial statements of the Pagets indicate the swan boat operation averaged a meager annual net profit of $7,600 from 2006 to 2009, but 2010 was even worse, with the company losing $1,200. It’s difficult to tell why the profits are so dismal, since the financial statements of the Pagets offer few details on the operation’s expenses. For example, the statements don’t disclose how much the Pagets pay themselves.
The Pagets are required to submit quarterly income statements, but they only submit annual statements, and the statements are not audited, contrary to what the contract mandates.
Cohen & Associates, the Boston–based accounting firm for Swan Boats Inc., says in a letter accompanying the financial statement that it has not audited or reviewed the company’s financial statements. “Management has elected to omit the balance sheet, statement of cash flows, and substantially all of the disclosures required by generally accepted accounting principles,” the firm writes.
Jerry Carchedi, assistant commissioner for parks and recreation, says the city waives the quarterly reporting and auditing requirements for Swan Boats Inc. based on a provision in the contract that allows for such waivers. When asked for a copy of the waiver, he produced one, but it was dated 14 days after CommonWealth asked for it. He says waivers for previous years were given orally.
Matthew Cahill, the executive director of the Boston Finance Commission, the city’s financial watchdog, says he thinks an audit should be required to make sure taxpayers are being fairly compensated. He says money from the Swan Boats contract can be used to offset the cost of maintaining the Public Garden.
“The important thing the city needs to know is, really, how much money are we leaving on the table as a result of this,” Cahill says. “How much are they making off of those swan boats is the question and how much is the city losing?”
With the city preparing to lease property on the Boston Common for a restaurant, Shirley Kressel, a Back Bay activist and long-time critic of public-private deals struck by the city, says the Swan Boats deal shows no one in City Hall is watching the store. “The Pagets operate a private business on prime public land in what amounts to a no-bid monopoly, without even meeting the city’s minimal contract requirements, which were tailored to them in the first place,” she says.
Lyn Paget declined to comment.
The oversight of the Sullivan’s lease in South Boston is also lax. The authorizing law for Sullivan’s to lease the land on Castle Island has a provision that requires that compliance with the terms of the lease be monitored every five years and that reports be submitted to the Legislature. No such reports have ever been made to the Legislature, and the only monitoring event occurred in April 2008 when Daniel Sullivan Jr., the owner of Sullivan’s at the time, announced he was selling the business to his son Brendan. The sale prompted a meeting with the state to review terms of the lease.
Notes from the meeting taken by Lafleur, the Department of Conservation and Recreation lease program manager at the time, reflect his astonishment at the terms (“Wow!” he wrote in connection with the building buy-back provision) and his view that “the rent is extremely low, considering the location, type of business, and lack of competition.” Lafleur’s notes, obtained through a public records request, recommend that a review of the lease be done annually, but no one ever followed through. A spokeswoman for the Department of Conservation and Recreation says no one has been actively involved with the lease since Lafleur retired. “The rent comes in and it’s recorded,” she says.
In a telephone interview, Brendan Sullivan talked with obvious pride about the history of Sullivan’s, but when asked about the low rent he responded by saying, “I do appreciate the call,” and then hung up.