On Sept. 14, 1999, the LB City Council voted to let the Long Beach Museum of Art Foundation -- a private, non-profit entity City Hall allows to manage and operate the city-owned Museum -- use proceeds from $3.1 million LB taxpayer-backed debt bond to finance expansion of the facility.

[The Long Beach Museum of Art at 2300 E. Ocean Blvd. is separate from and not related to the Museum of Latin American Art on Alamitos Ave.]

In an agendizing memo, city management told the Council and the public that the Long Beach Museum of Art's goal was to repay the bonds by 2004...but made clear that LB's General Fund would be obligated to pay the debt by 2009 if the Museum didn't. LBReport.com obtained the archival memo and provides its salient text below.

At the Council meeting, then-3rd district Councilman Frank Colonna (in whose district the museum is located) made a motion to approve the transaction. He urged unanimity by the Council in approving the transaction, called it a "community partnership" and suggested (and the Council agreed) to dispense with a treasurer's report on the subject.

What took place speaks for itself. It runs just over four minutes (with applause). To hear the Sept. 14, 1999 City Council item, click here [museum rep's address removed].

Councilman Colonna's motion carried 8-0 (Yes: Oropeza, Baker, Colonna, Kell, Topsy-Elvord, Grabinski, Kellogg and Shultz; Absent: Roosevelt).

Below is the salient text of the September 14, 1999 agendizing memo for the item, authored by then-Director of Financial Management, Robert Torrez, and co-signed as approved by then-City Manager Henry Taboada:

September 14, 1999...

SUBJECT: Tax and Equity Fiscal Responsibility Act (TEFRA) Hearing Report and the Financing of Certain Improvements for the Long Beach Museum of Art Expansion Project (District 3)

...This spring, the Long Beach Museum of Art Foundation (Foundation) requested that the City assist it in financing its $6.5 million construction project. The Long Beach Museum of Art is owned by the City and leased to the Foundation under a management agreement...

...In 1985, the City contracted with a private group to operate the Museum. As a result, the Long Beach Museum of Art Foundation was formed as a non-profit, public benefit corporation. Approximately three-fourths of the Museum's permanent collection was acquired while under City operation and remains City property.

Today the City contributes approximately $300,000 annually to the Foundation for collection and record maintenance, safekeeping and exhibition services. Through fundraising and grants, the Foundation raises approximately $800,000 annually for Museum operations.

...In 1985, the Foundation decided to expand the Museum at the current Ocean Boulevard location in order to improve and modernize the facility...

...The total project budget is $6.5 million. To date, more than $3.4 million has been pledged from individuals, corporations, and foundations through a dedicated capital campaign. The pledges are payable over a five-year period...The campaign has commenced its "public" phase and believes it has many prospects and is optimistic based on its strong track record of success.

...After reviewing several alternatives, staff has determined that the best available financing option is...to issue tax-exempt variable rate lease bonds...As currently structured, the principal amount will be approximately $3.1 million. The net proceeds, after costs, will be loaned to the Foundation to partially finance its construction project. The bonds will be structured with a 10-year maturity...The entire $3.1 million of principal will be due at maturity, unless earlier redeemed.

The foundation intends to reimburse the City for all of its costs through the receipt of pledges from its 5-year capital campaign. It has also committed to use these receipts in the following order: (1) to pay current interest and fees related to the bonds, (2) to pay additional costs related to the construction project, up to $1 million (unless increased at the discretion of the City), and (3) to redeem bonds (through optional prepayment). The Foundation's goal is to redeem all of the bonds within five years. The longer, 10-year maturity will allow both the City and the Museum more flexibility should there be a need to expend the targeted redemption date a few years.

FISCAL IMPACT

The City's General Fund will secure the annual debt service payments and other annual costs...The City's obligation to pay debt service is separate from the Foundation's obligation to reimburse the City...

Although the Foundation is confident of their capital fundraising capabilities, there is a risk that the fundraising campaign will not realize all of he pledges made to it. In the event that the Foundation can no longer reimburse the City for the cost of the debt service, the City's General Fund will continue to secure the bonds without subsequent reimbursement from the Foundation.

The proceeds of this financing, in addition to other capital funds raised by the Foundation, will be used to improve and modernize this City-owned facility...

On September 7, 1999 at 9 a.m., a TEFRA hearing to consider this transaction was held at City Hall. The City Treasurer conducted the public hearing, required by Federal tax law regulations. A verbal hearing report will be provided at tonight's City Council meeting...

Nearly ten years have passed. Although the Foundation used the taxpayer bond proceeds to expand the city-owned facility, it has failed to pay the $3 million sum that it said it would pay when City Hall initiated the city-backed debt. (The Museum Foundation replaced its former management with new management a few years ago and has made interest payments.)

The bottom line: LB taxpayers -- who face a $40-$50 million FY10 deficit (spending exceeding revenue) with the prospect of service cuts and fee increases...on top of previous fee increases, "cost recovery" (for previously covered items) and furloughs/reduced service -- could end up paying the $3 million sum by Sept. 1...unless the Council takes measures (that it hasn't taken for nearly ten years) to ensure taxpayers don't pay that sum.

In early 2006, city management was advised of the Foundation's unpaid $3 million sum in a report by the office of then-City Auditor Gary Burroughs. The report was put on the "consent calendar" (no public discussion) and received and filed. LBReport.com reported the story in detail in 2007.

In 2008, City Auditor Laura Doud's office released an audit report on the Museum Foundation, noting the $3 million payment was approaching in Sept. 2009, also reported in detail by LBReport.com.

In 2008, the Council's Budget Oversight Committee (chair DeLong, vice chair O'Donnell, member S. Lowenthal) discussed the $3 million Art Museum Foundation sum. Committee members Delong and O'Donnell both indicated to management that [paraphrase] they did not want the city's General Fund to end up paying the $3 million sum. O'Donnell described the $3 million General Fund sum as a threat to public safety.

On September 9, 2008, the City Council approved a FY09 budget forwarded by city management and Mayor Bob Foster, which included a $3 million sum to pay the debt bond. A week earlier, on Sept. 2, 2008 Councilman Patrick O'Donnell asked City Manager Pat West about the sum...and City Manager West indicated that although the sum is budgeted, city management didn't intend to have LB taxpayers pay it and was working to ensure that didn't happen. To hear Councilman O'Donnell's exchange with City Manager West, click here.

On May 26, 2009, LBReport.com attended a meeting of the Council's Budget Oversight Committee in which an item not specifically on the Art Museum included a city management matrix which indicated management was attempting to finance the $3 million sum. We asked about this at the speaker's podium...and city management revealed that it had since been determined that the financing option would be too costly, and despite management's best efforts there is no plan in place to protect taxpayers from paying the $3 million sum that taxpayers weren't supposed to pay.

LBReport.com reported this...and on June 5, 2009 the Foundation sent a letter to LB Mayor Bob Foster (not publicly copied to Councilmembers who have the voting power to decide the matter) that offered to give City Hall a share of part of a physical facility that the Foundation claims it own...but leaves taxpayers exposed for the $3 million payout.

To view the Museum Foundation's June 5 letter in full, click here.

Although the Foundation hasn't paid the $3 million sum to LB taxpayers, taxpayers are currently paying the Foundation a six figure annual sum -- roughly $569,000 each year during the past several years -- to manage/operate the city-owned museum under a contract with City Hall.

On June 23 at 3:30 p.m., the following City Council item is agendized:

SPECIAL MEETING

1. Opportunity for public comment.

2. Mayor and Council adjourn to closed session.

a. Pursuant to Section 54956.8 of the California Government Code regarding a conference with the City's real property negotiator:

1. Property: 2300 E. Ocean Boulevard Long Beach, CA

City's Negotiator: Patrick H. West, City Manager
Negotiating Parties: City of Long Beach and Long Beach
Museum of Art Foundation
Under Negotiation: Terms and Conditions of Lease

Under state law, Tuesday's closed Council session item is preceded by an opportunity for public comment.