Council Votes Council didn't add condition to enable public notice and public access to Aquarium's governing board meetings for public oversight and transparency
Council didn't add condition to enable public notice and public access to Aquarium's governing board meetings for public oversight and transparency
|(May 10, 2017, 11:30 a.m.) -- As carried LIVE on LBREPORT.com, on motion by Councilwoman Jeannine Pearce, seconded by Councilwoman Suzie Price (LB's two Tidelands-impacted Councilmembers), the City Council voted 6-0 (Supernaw, Andrews, Uranga absent, with Supernaw and Uranga present earlier but exiting prior to the item and not returning) to approve a $10.5 million loan to the privately run "Aquarium of the Pacific Corporation," a non-profit that City Hall allows to run the publicly-owned Aquarium. Council approval came amid city management promises to keep Councilmembers informed of any change in Aquarium circumstances that would affect financial aspects of the project. Mayor Garcia, who was present earlier in the meeting, also exited prior to the Council item.
City management had advised in writing (agendizing memo here) that the loan will carry "risks that are not insignificant" to LB's Tidelands fund on which the City depends to fund shoreline/beach area needs...and indicated that private banks wouldn't make the loan to the Aquarium Corp because the Aquarium already carries an existing bond indenture.
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In a May 9, 2017 city staff presentation to the Council and public, Assistant City Manager Tom Modica called the $10.5 million a "bridge loan" and said an additional term had been added (in addition to those indicated in the city staff's agendizing memo) that would further protect the City: a "cash from the loan must be from new bond proceeds or the Tidelands operating reserve and any other cash source needs to be approved by the City Council" (so bond sums or operating reserves would be used, not temporary borrowing of any project cash, Mr. Modica said.)
Mr. Modica said the Aquarium "continues to fundraise. Right now they have about a $10 million goal. The Aquarium has let us know that they believe that they will have that in hand or pledged by the end of the year so $43 million would be have [sic, speaking rapidly and extemporaneously] raised to date then that would be the final $10 million that would be raised. The City does sit on the Aquarium board. We have an ex offico member who is there and is able to participate in the discussion and make sure that we're getting updates. As part of the terms they will be giving progress reports every six months...and a variety of information about where the money would be coming from and how those funds would be expended. There is also a very complicated document called our 'Implementation Agreement' that is from the last time that we did a debt issuance for the Aquarium and continues to guide the way that we interact with the Aquarium legally, and that has a number of protections and safeguards that the Aquarium is to be reporting out to the City. We get those reports regularly and we expect more reports in the future specifically on this project."
Councilwoman Price thanked staff for "clarification of some of the areas of concern, primarily that Tidelands projects that have been committed won't be impacted without further direction of Council" and acknowledged a notable amount of risk associated with the item. Price said that as a result, "it's justified and warranted for us to have additional reporting requirements so we are involved more intimately with the progress and the financials that the Aquarium will be relying upon for this $53 million expansion project." She said "it's my expectation as a member of this Council, and I'm sure my colleagues share this expectation, that any change in circumstance that would be experienced by the Aquarium from now until the fundraising goals are met, that that change in circumstance would be communicated to us so that we can be in a less reactionary position and we could do some advance planning if in fact there is a change in circumstance."
Mr. Modica responded, "We will certainly be keeping the Council informed if there's any material change, that's something we've agreed to with the Aquarium."
City management's May 9 agendizing memo said the $10.5 million loan will also include other terms "intended to protect the City; provide financial and operation information to allow the City to better assess the Corporation's financial status; clarify various financial matters; and, allow the Corporation to get other loans subject to City approval and compliance with the 2012 bond indenture and other requirements."
[May 9 management memo] These other terms include requiring the Corporation to secure the City's permission for major expansions or discretionary repairs, maintaining the existing Challenge Grant terms, acknowledging that not all project funding has been secured, notification by the Corporation of any non-timely payments or default, large Project change orders, or changes to the Project schedule, use of appropriate funding sources for any loan repayments, providing reports in a timeframe, form and content satisfactory to the City; and, the Corporation's commitment to acknowledge the major donor status of the City with permanent recognition and finding an appropriate location for "LONG BEACH" lettering...
Less than five months ago (Dec. 20, 2016), the City Council voted 9-0 to obligate LB taxpayers to spend $10.7 million from LB's Tidelands (in annual payments of between $1-1.7 million through FY2025) to help fund an Aquarium Corp desired $53 million expansion ("Pacific Visions.") That followed $4.3 million in annual budgeted allocations from LB's Tidelands fund that began in FY13 with a $1.5 million payment [city management memo agendizing text] "as a non-binding program to grant City Tidelands funds to the Corporation to encourage donations" to the Aquarium expansion ($15 million from $1.5 million per year for ten years.) When oil prices slumped and all Tidelands funded projects were under review, the City held off making one annual payment.
City management then recommended (Dec. 20, 2016 agenda item) and the Council voted to approve (9-0) making the remaining $10.7 million a binding contractual Tidelands obligation for taxpayers (annual sums payable to the Aquarium Corp of between $1 mil-$1.7 mil through FY2025.)
The public was told at the time [Dec. 20, 2016 agendizing memo text] "Much of the private contributions for the Pacific Visions Project have been received or pledged...The Corporation is planning to borrow money to construct the Pacific Visions Project. To satisfy the needs of the lending institution that provides a loan, the City's Grant payments to the Corporation will need to have priority over all Tidelands operating needs, except for debt service payments on existing Tidelands bonds (the Aquarium and Rainbow Harbor) and any Tidelands bonds expected to be issued in the future." And the Council and the public were further told "The Corporation must have an executed loan or line of credit or equivalent that provides cash for any construction costs not available from cash/pledges or contributions."
But in the May 9, 2017 Council item, city management revealed that private banks wouldn't make such a loan:
[May 9 management agendizing memo] The Project is expected to be funded by pledges received from donations and grants, including a $15 million Challenge Grant from the City. Some of the donations and grants will be received over time, and fundraising is not yet complete. Accordingly, the Corporation needs $10 million in net proceeds from a loan to provide for cash flow during construction of the Project. The Corporation was not able to secure a bank loan, due in part to the restrictions of the 2012 Aquarium Bond Indenture. However, the Corporation expects to be able to secure bank financing for an equipment lease and subsequent conversion to ownership when the equipment lease ends...
How big a risk would that be to the City?
[May 9 management agendizing memo] FISCAL IMPACT
No Aquarium Corp reps testified at the May 9 Council meeting. At early evening May 8, the Aquarium Corp provided LBREPORT.com with a statement in response to an invitation by us earlier in the day for comment/response on the matters of the Aquarium Corp's requested $10.5 million loan, compensation paid to its executives and public access to its governing board meetings and minutes:
Pacific Visions Bridge Loan Statement from the Aquarium of the Pacific
At the May 9, 2017 Council meeting, no Councilmembers publicly inquired about or questioned compensation paid the non-profit to Aquarium Corp. leadership. The Aquarium of the Pacific's tax return for the 2015 tax year (visible on its website) indicates it paid its President/CEO, Dr. Jerry Schubel, $490,372 (reportable W2/1099 Misc sum) plus other compensation of $68,781 totaling $559,153 in 2015. It also paid seven other VPs in the non-profit corporation between $113,315 and $184,817 plus other compensation.
The Aquarium Corp's 1995 tax return indicates the board was scheduled to review its compensation levels amounts in fall 2016, an action that would presumably be documented in its minutes, but the Aquarium Corp hasn't allowed public access to its meetings or minutes. At one such board meeting over ten years ago, the board voted to remove the name "Long Beach" from the Aquarium's official name (leaving it to geographic mentions in its location address or advertising (e.g. "where the 710 freeway ends in Long Beach.")
On Jan. 21, 2014, LBREPORT.com's publisher, Bill Pearl, testified at the City Council during consideration of an Aquarium related item and urged the Council to require the Aquarium board to allow public and press access to its board meetings. Then-Assistant City Manager Suzanne Frick indicated she'd seek the Aquarium board's position on the matter and she subsequently advised LBREPORT.com that the Aquarium Board had expressed its view to her that it didn't want the public or press present at its meetings. Other privately run Long Beach entities that receive city monies -- including the LB Convention and Visitors Bureau and Downtown Long Beach Associates -- have for years allowed public and press access at their governing board meetings.
In its May 9, 2017 action, the Council could have added a condition to the loan requiring that the Aquarium Corp board provide public notice and public access to its board meetings and minutes, which would have enabled public oversight and transparency, not simply notifications to City Hall officialdom.
During former Mayor Beverly O'Neill's administration, now retired city management recommended and now-retired Councilmembers approved an agreement with the Aquarium Corp that now requires LB taxpayers to pay roughly $6 million annually [source: Dec. 20, 2016 city management memo, paragraph 1] to cover a portion of the Aquarium's debt service that now retired city officials previously told the public the Aquarium would almost certainly be able to pay from its own revenue, attendance and operations. Taxpayers who questioned this at the time were derided as "naysayers."
In the public interest, LBREPORT.com provides
The first Aquarium-related agenda item (#23) was a "receive and file" item that included presentations by Kajima, a financial feasibility report then being finalized by Coopers & Lybrand (retained by Kajima), an independent consultant retained by city management to review Coopers & Lybrand's report, a VP from Goldman Sachs, an Aquarium boardmember and then-City Manager Hankla. Our coverage of this item begins with presentation of the financial feasibility report.
The second item (#24) was a Council action item approving use of public money to back the Aquarium bonds. It included presentations by then-Deputy (now Ass't) City Attorney Heather Mahood and then-City Manager Hankla. We've posted salient portions of these agenda items, meaning some speakers and statements aren't included and we've indicated edits/omissions with a "whoosh" sound.
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