[Note: In the interest of full disclosure, in 2004 the publisher's family purchased at our expense an annual Aquarium family membership. We renewed it in 2005. Our kids love the Aquarium.]

(September 18, 2005) -- The Aquarium of the Pacific, which City Hall assured the public would likely pay for itself, could instead consume an estimated $5.1 million in LB public money in FY 07 and beyond ($4.3 mil already budgeted in FY 06) as part of a plan (details below) floated by Aquarium management that asks the City Council to freeze the Aquarium's base rent at a sum less than half its annual bond debt payments and extend the Aquarium's lease to 2060 (currently expires in 2031) so Aquarium leadership can pursue an expansion plan.

Although the Sept. 20 Council item is agendized as a way to "facilitate privately-funded expansion efforts," the substance of item asks the Council to agree to what amounts to an annual taxpayer bailout formula enabling Aquarium expansion...despite its inability to perform as a basically self-supporting entity originally marketed to LB taxpayers.

In a memo presenting the proposal as a Sept. 20 City Council agenda item, City Manager Jerry Miller stops short of saying the Aquarium's latest request will make it self-sufficient:

"It is our belief that the proposed Implementation Agreement and lease extension would greatly enhance the AoP's [Aquarium of the Pacific's] ability to conduct needed private fundraising activities which will ultimately result in the implementation of the Campus Master Plan [expansion of the Aquarium]," Mr. Miller writes, adding "It is also our belief that the implementation of the Campus Master Plan is the greatest opportunity available to increase attendance at, and provide ongoing support for the AoP, thus leading to the renewal of and reinvestment in the facility at a critical juncture in the AoP's evolution."

City management's memo indicates the Aquarium's Board of Directors approved the terms of the "Implementation Agreement" in concept on August 25, 2005. An Aquarium spokesperson told LBReport.com that the board's August 25 decision was unanimous but refused to make the Aquarium's minutes available (so we don't know exactly which Boardmembers attended and what, if any, discussion(s) ensued).

A request by us to see the Aquarium Board's minutes for the past six months was likewise refused through the spokesperson (so we don't know what discussions in previous meetings may have preceded the Aquarium's request). Despite its consumption of public money, the Aquarium, a private non-profit entity, chooses not to make its Board meetings open to the public.

The Aquarium's Board of Directors currently includes (among others listed in full below) LB Mayoral candidate Bob Foster and 3d district Council candidate Gary DeLong.

Responding to a request by us, Mr. Foster indicated through a campaign operative, and Mr. DeLong told us personally, that they were present at the Aug. 25 Aquarium board meeting at which the decision was made to approve the terms of the Implementation Agreement in concept.

Mr DeLong, who joined the Board in June 2002, added: "The goal of the Board is to increase the Aquarium's financial contribution to the City and reduce the taxpayer burden."

According to City Manager Miller's memo, Aquarium management indicates the expansion will be funded from sources other than City-issued bonds (which could mean private sources but doesn't explicitly rule out taxpayer money from state or federal sources.)

Based on figures cited in Mr. Miller's memo, Aquarium management is now focusing on growing average annual attendance to levels that barely reach or are lower than what some originally told Councilmembers the Aquarium could expect.

In 1995, then-Councilman, now Mayoral candidate, Doug Drummond was part of the City Council which approved selling Aquarium bonds backed by public money. The Council vote came after a City Hall-retained firm forecast that the Aquarium would likely be able to pay its debt service without a taxpayer bailout.

In an August 1, 1995 memo to Councilmembers, signed as approved by then-City Manager James C. Hankla (subsequently appointed to the Aquarium board and LB Harbor Commission), then-Director of Financial Management Robert Torrez wrote in pertinent part:

The financial feasibility report, prepared by an independent firm with input from city staff, forecast (subject to a number of caveats and qualifications) roughly 1.98 to 2.1 million Aquarium visitors a year.

Some LB residents disputed the prediction as overly optimistic, noting that Aquaria elsewhere were losing money and if LB's Aquarium really expected to be self-supporting, investors (bond purchasers) shouldn't require a taxpayer guarantee.

Thanksgiving Holiday weekend, Nov. 2004. No, the Aquarium isn't always like this; we've seen it bustling...and there were people inside, a decent crowd although fewer than we expected.

Their concerns were dismissed as negativism by naysayers.

The Council approved marketing bonds that financed the Aquarium's construction with a City Hall pledge to, in effect, pay their debt service with public money if Aquarium revenue didn't do so. That would be done by tapping LB's hotel room tax within the downtown Redevelopment area and all revenue within the Tidelands Operating Fund (excluding existing obligations). In addition, City Hall agreed to transfer the first $1.5 million in net profit from a City Aquarium Garage to the Aquarium each year.

Within a few years, when visitors and revenue failed to attain predicted levels and the Aquarium began threatening City Hall budgets, then-city management asked the Council to authorize refunding the original bonds by issuing new bonds. In an April 3, 2001 agendized memo, city management said the Aquarium had 1.8 million visitors in its first year of operation but "[s]imilar to the experience of all major aquariums, attendance has steadily dropped since the first year of operation. The Aquarium had 1.5 million visitors in FY 99 and 1.1 million visitors in FY 00. Recent studies concluded that the Aquarium's capacity is 1.1 to 1.4 million visitors per year. The reduction in attendance led to a corresponding reduction in Aquarium revenues."

The primary objective of restructuring the bonds, Councilmembers were told, was to "reduce annual debt service payments" which will "defer all or a portion of principal payments for the first five years, thereby significantly reducing annual bond payments during that period...After five years, the annual debt service for the new issue will increase ($8.3 to $8.8 million)..."

The Council approved the plan and new bonds were sold. Tucked away in the small print of the Preliminary Official Statement for the new bonds were further details: an analysis performed for the Aquarium after its original bonds were sold and visitors and revenue didn't attain predicted levels indicated that "the maximum capacity of the Aquarium may be 1.4 million visitors annually" and "to maintain a positive guest experience, the Aquarium may comfortably accommodate 1.1 to 1.4 million visitors a year." This differed from the original estimate "because it takes into account the actual floor plan of the Aquarium, traffic flow and length of guest stay and other factors to achieve a quality guest appearance."

Exactly how this happened wasn't publicly discussed or pursued.

City Manager Miller, who wasn't City Manager in 2001, acknowledges this scenario in his current memo to Councilmembers in less specific terms. "It became apparent at that time that the physical layout of the Aquarium could not accommodate the 2.2 million visitors it was projected to draw. Since that time, an operational and capacity analysis has been conducted which determined that the Aquarium could reasonably accommodate 1.46 million visitors annually. The capacity analysis revealed that the AoP could not achieve attendance levels necessary to generate sufficient revenues to cover operating costs and the bond payments," Mr. Miller writes.

In his Sept. 20, 2005 memo, Mr. Miller tells the Council "it was anticipated [in April 2001] that the City would likely have to participate in the bond payments to an undetermined level, depending upon attendance and projected increases in unrestricted donations" and the subsequent 9/11/01 terrorist attacks "severely impacted both attendance and donations, resulting in the need for immediate participation by the City to cover the debt service payments."

But both before and after 9/11/01, LB City Hall was pursuing a tidelands trust land swap of major commercial footprints at the Pike to facilitate that development, claiming publicly that the Pike would create a "critical mass" to support the Aquarium (which wasn't meant to be a stand alone attraction, LB officials said).

Four years after the terrorist attacks, neither city management nor current Aquarium management suggest "critical mass" from the "Pike @ Rainbow Harbor" will enable the Aquarium to become self-sufficient as originally marketed to LB taxpayers.

Instead, City Hall and Aquarium management turned to federal taxpayers to facilitate Aquarium expansion, seeking U.S. Economic Development Administration assistance for a feasibility analysis and conceptual plan. The result is a "Campus Master Plan," Aquarium management's reason for seeking the rent freeze, lease extension and an annual taxpayer bailout formula. The new rent, fixed at roughly $3.5 million/year, is believed higher than what the Aquarium pays now but (because it's proposed to be frozen) would amount to annual rent decreases in real terms over time...and doesn't come close to servicing the bond debt that City Hall originally said the operation was expected to cover.

What if the Council says "no"? City Manager Miller's memo says the Aquarium has "developed assumptions and projections which revealed that, without expansion, AoP’s financial condition would deteriorate, possibly increasing the level of the City’s participation in debt service payments."

Aquarium management's plans include the following, as described in the City Manager's memo:

"Two major expansion projects were identified and modeled to determine their prospective impact on attendance and revenues. Both proposed expansion projects, Pacific Visions and Channel Islands Experience, are designed to provide the additional capacity and generate the additional attendance needed to achieve the goal of long-term financial stability. Any such expansion is to be funded from sources other than City-issued bonds."

City Manager Miller's memo says the Aquarium:

City Manager Miller's memo concludes:

Fiscal impact:

The Sept. 20 agenda item is not designated time sensitive. "City Council action is requested on September 20, 2005 to allow AoP to start its capital campaign to raise revenue for its first expansion," City Manager Miller's memo says.

Reaction is pending as we post. Developing.