Circle Line-Statue of Liberty Ferry Incorporated, which next month will ask the National Park Service for permission to raise its fares, has apparently paid for more than $1.7 million of its own operations by using a fund meant to pay for capital improvements at the Statue of Liberty and Ellis Island.

The apparent diversion of funds has been going on against the backdrop of a requirement that Circle Line pay 15% of its gross revenues to the National Park Service, with one third of that being placed into a “capital account” for maintenance work on Liberty and Ellis islands, and another 7.5% of its gross revenues to the city of New York. Sources at the National Park Service have told The New York Sun that Circle Line has been allowed to use this capital account as a de facto “piggy bank.”

The disclosure surfaces as Congress and the Department of the Interior have been seeking to generate competition among concessionaires and increase the government’s revenues from the concession business. And it is already raising questions in Congress over the wisdom of extending Circle Line’s concession to run the ferry to the Statue of Liberty.

Rep. Anthony Weiner told the Sun, “I think it’s clear that this capital fund is being used in inappropriate ways and on expenditures that otherwise would have to be paid by Circle Line.”

The contract between the federal government and Circle Line-Statue of Liberty Ferry Incorporated states: “The Concessioner will physically maintain and repair all facilities (both GOVERNMENT and CONCESSIONER IMPROVEMENTS and including the Ellis Island bulkhead and Liberty Island pier and bulkhead) used in the operation. …”

Yet these are some of the projects Circle Line paid for by dipping into that capital account:

* More than $1 million in repairs to the piers and bulkheads at the Statue of Liberty and Ellis Island.

* About $370,000 for marketing the ferries, which included brochures, newspaper and radio ads that also touted Circle Line’s other boats like the Zephyr cruise and Shark speedboat thrill ride, which have nothing to do with the Statue of Liberty contract.

* $120,000 for repair to the seawall at Battery Park, which was damaged by the Circle Line ferries that dock there.

* More than $200,000 for Circle Line’s electronic ticketing system, which now charges ticket buyers an additional $1.75 fee that goes to Circle Line.

* $60,000 for Circle Line boats to meet Coast Guard standards for vessel positioning systems and air conditioning in the ferry pilot houses to keep boat operators cool.

A National Park Service spokesman, Brian Feeney, confirmed that the government had “authorized the funding” of these projects, but he could not explain whether this was a violation of the contract.

The official who oversees the capital account, Cynthia Garrett, the superintendent of the Statue of Liberty National Monument and Ellis Island, declined to comment, Mr. Feeney said.

When asked if his company was using federal capital account money for some of its overhead costs, the president of Circle Line, J.B. Meyer, said, “no comment.”

In addition, a government source told the Sun that the Park Service allowed Circle Line to forward about $100,000 from the capital account to the Statue of Liberty-Ellis Island Foundation, which last year publicized the reopening of Lady Liberty’s base.

Mr. Feeney declined to comment on this issue.

A spokeswoman for the State of Liberty-Ellis Island Foundation, Peg Zitko, confirmed that Circle Line was one of the foundation’s corporate sponsors last year, but declined to say how much the ferry line contributed.

Circle Line raised fares on its Statue of Liberty route in June to $11.50 from $10. A document indicates that it plans to ask for another 50-cent increase next month.

The New York Sun has obtained a copy of a letter from Circle Line’s law firm, Kirkland & Ellis LLP, to Ms. Garrett, the Park Service superintendent at the Statue of Liberty, which says that from now on, Circle Line said it will be “submitting annual requests for fare increases sometime between November 15th and November 30th of every year.”

“Circle Line’s request for yet another fare increase over what is called for in their contract is outrageous,” Rep. Robert Menendez, a Democrat of New Jersey, said. “For the National Parks Service to agree to this increase, and to subsequent increases, without a full review of the Circle Line contract would be an injustice to all who plan to visit Lady Liberty and Ellis Island.”

Circle Line has been able to hold on to its monopoly over the Statue of Liberty route since 1953 through a strong lobbying effort in Washington. One longtime lawyer for Circle Line is George Hartzog, a former director of the National Park Service. In 2003, Mr. Hartzog created the Fran Mainella Award, given by Clemson University and the Hartzog Fund for “leadership by a woman addressing environmental concerns” – and named for the current director of the National Park Service, Fran Mainella.

The last time this ferry route was open for bids was in 1989, when Circle Line won a 15-year contract. At the time, other companies complained that they were locked out by an unfair process. When that contract expired last year, even though other ferry companies wanted to bid, Circle Line was simply given a three-year extension until 2007.

Last year, Mr. Weiner, New York Reps. Jerrold Nadler, Tim Bishop, Edolphus Towns, and Gregory Meeks, and New Jersey Reps. Robert Menendez, Rush Holt, and Steven Rothman wrote to the federal secretary of the interior, Gale Norton, who oversees the National Park Service, asking her to reject Circle Line’s contract extension and put the ferry contract up for competitive bids.

Mr. Weiner told the Sun, “The Park Service extended this contract for three years, the maximum period that it could without congressional approval. This was a way to circumvent oversight and now we see the results. It is becoming increasingly clear, that this service should be opened to bid and that Circle Line practices should be fully opened to the light of day.”

In May, the park service director, Ms. Mainella told Congress: “One area in which we have made improvement is in our concessions program. Passage of the Concessions Management Improvement Act of 1998, which introduced more competition into the concessions contracting process, generated a dramatic change in the way in which the concessions program is conducted.”

The 1998 act was supposed to make the bidding of contracts in the parks more competitive. The National Park Service collects about $38 million a year of the $800 million a year in gross revenues generated by its concessionaires.

Sources estimate that the Circle Line, which is one of about 600 National Park Service concessionaires, will gross about $37 million this year on the Statue of Liberty route. The company nets between 23% and 29% a year, the sources said.

A boat captain for a competing tour line, Jeremiah Driscoll, wrote a self-published book in 1980 called “Crime Circles Manhattan,” in which he charged that politicians helped the Circle Line protect “the greatest monopoly in the history of waterborne commerce.”

With the Circle Line’s contract expiring in 2007, the next chance for other ferry companies to break this long-term monopoly will come next year, when the National Park Service will have to put the contract for the Statue of Liberty ferry route out for bids.