Should City Council Approve $10.5 Mil Loan -- That Banks Won't Make And Carries "Not Insignificant Risks" To LB's Tidelands Fund -- On Top Of $15 Mil Council Has Obligated LB Taxpayers' Tidelands To Spend For Aquarium Expansion While Its Board Blocks Public Access To Its Meetings And Minutes? Council has opportunity to add condition to the loan to require public notice and public access to Aquarium's governing board meetings, enabling overdue public oversight and transparency in Aquarium's spending of public's money
Should City Council Approve $10.5 Mil Loan -- That Banks Won't Make And Carries "Not Insignificant Risks" To LB's Tidelands Fund -- On Top Of $15 Mil Council Has Obligated LB Taxpayers' Tidelands To Spend For Aquarium Expansion While Its Board Blocks Public Access To Its Meetings And Minutes?
Council has opportunity to add condition to the loan to require public notice and public access to Aquarium's governing board meetings, enabling overdue public oversight and transparency in Aquarium's spending of public's money
|(May 9, 2017, 10:20 a.m.) -- Later today (May 9), LB city management will ask the City Council to approve a $10.5 million loan that city management has acknowledged (agendizing memo here) will carry "risks that are not insignificant" to LB's Tidelands fund, on which the City relies to fund shoreline/beach area needs. City management's agendizing memo indicates private banks won't make the loan to the "Aquarium of the Pacific Corporation" (a privately run non-profit that City Hall allows to run the publicly owned Aquarium) because the Aquarium already carries an existing bond indenture.
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...but some person(s) wanted those annual payments from the Tidelands to the Aquarium Corp to continue no matter what.
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Accordingly, city management recommended and the Council voted to approve making the remaiing $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 reveals 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
City management adds that the $10.5 million loan will include other terms [which apparently didn't impress lender-banks]:
[May 9 management memo] The 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. 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...
How likely is that risk in view of the Aquarium Corp's past performance? During 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."
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 tax return indicated it conducts a [tax return text] "biannual, independent executive compensation study" and its "established philosophy involves surveying the salaries of comparable positions in peer organizations and setting and adjusting salaries and ranges according to the results of these regular market surveys." These included a review conducted in fall 2014 with the next compensation review "scheduled to take place in fall 2016...All approvals are documented contemporaneously in the appropriate meeting minutes." The Corp's 2015 tax return further states: "As an instrumentality of the City of Long Beach...the City has the following control mechanisms: consent to election of Board members, consent to the Annual Budget and to consent to changes to our Bylaws."
LBREPORT.com is unable to report the results of the Aquarium's scheduled 2016 salary adjustments, as well as other Aquarium related matters, because the Aquarium Corp.'s board doesn't routinely allow the public (and the press) to attend its meetings or see its 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 (effectively relegating it to geographic mentions in its address or advertising (e.g. "where the 710 freeway ends in Long Beach.")
On Jan. 21, 2014, LBREPORT.com's publosher, Bill Pearl, testified at the City Council during consideration of an Aquarium related item to urge the Council to require the Aquarium board to allow public and press access to its board meetings. Assistant City Manager Suzanne Frick indicated she'd seek the Aquarium board's position on the matter and she susbequently 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.
At early evening May 8, the Aquarium Corp provided LBREPORT.com with the following 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
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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