(April 7, 2005) -- LBReport.com has learned that city management has advised the Mayor and City Council that major elements of LB's downtown beach/waterfront -- publicly touted as successes -- are losing millions of dollars and have done so for some time.

"[T]he city's beach/waterfront area requires significant operating resources, but generates minimal revenue" says a March 26 memo from Marine Bureau Manager Mark Sandoval to City Manager Jerry Miller for Mayor O'Neill and members of the City Council.

Among multiple items, the memo says both the Pike and the Aquarium parking structures -- which were supposed to pay for themselves in parking revenue -- are costing roughly $1.2 million and $500,000 annually.

The memo also indicates:

• Rainbow Harbor Area Fund: (Operations in the Rainbow Harbor and surrounding area) Operating deficit: $6.7 million (revenue: $1.2 million; expenditures: $7.9 million). "In general, this deficit is comprised of the debt service for the development ($3.9 million), the high level of maintenance needed in the area ($1.7 million)..." The Aquarium Parking Structure's operating profit ($700,000) isn't sufficient to cover the Aquarium Structure's bond payment ($1.2 million).

• Tidelands Operating Fund: (All waterfront related revenues and expenditures other than marinas and Rainbow Harbor area). Budgeted revenues: $37.8 million. Budgeted expenditures: $49.2 million. Resulting deficit: $11.4 million. "[T]wo commercial agreements...comprise a large part of this deficit: the subsidy to the Convention Center ($3.4 million) and the subsidy to the Hyatt Hotel ($1.9 million)." Maintenance costs: approx. $3.5 million; rescue boat and lifeguard operations: approx. $4 million; and "the Pike parking structure is...expected to require $1.2 million to cover debt service payments."

• Tidelands funds (w/ expenses controlled by City Mgr: Tidelands Operating fund + Marina fund + Rainbow Harbor fund): Unsubsidized deficit: $17.8 million...offset in part by transfer from Harbor Fund ($9.5 million) and Tidelands Oil Revenue Fund ($6.0 million)...leaving an estimated FY 2006 deficit of $2.3 million.

• Queen Mary & related rent dispute: "The anticipated FY 2006 beginning fund balance will include several million dollars in rent receivables from the Queen Mary. If these disputed funds are not received, then the projected beginning fund balances in FY 2006 would not cover the estimated [Tidelands] deficit [above] of $2.3 million."

  Management includes in its projected structural deficit $1.5 million in annual revenue from Queen Mary operations; if that Queen Mary revenue isn't forthcoming, the structural deficit would increase accordingly.

The memo says the Tidelands Funds "have had a structural imbalance for many years, where ongoing revenues have not matched ongoing operating expenses." It notes that in recent years, high oil revenue helped balance the Tidelands Funds, but "it is apparent that steps must be taken to address this structural deficit."

LBReport.com was provided with a copy of the memo by city management...in response to an inquiry we made following a newstip from a reader. The reader indicated (and we confirmed) that a Downtown Tidelands Development Study, which had been funded by the Tidelands, was ordered discontinued by city management due to the Tidelands financial condition.

The management memo concludes:

The memo was cc'd to City Attorney Bob Shannon, City Auditor Gary Burroughs, Asst. City Manager Christine Shippey, Deputy City Managers Suzanne Mason and Reginald Harrison, Dir. of Financial Mgt. Mike Killebrew and City Council Liaison Jyl Marden.

Developing.