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    News / Perspective

    About Queen Mary Back-Rent, Bankruptcy Trustee For QM Operator Says...

    (August 1, 2006) -- The bankruptcy lawyer/trustee who legally "stands in the shoes" of QSDI (the debtor-now-in-bankruptcy allowed by City Hall to operate the Queen Mary under lease for an extended period without paying rent until uncovered by a taxpayer-watchdog) has indicated that City Hall and QSDI have both cited reasonable grounds for their respective positions: City Hall saying back-rent is due [we estimate $5+ million at this point] and the debtor saying no rent is due under rent-credits allowed in its lease with City Hall.

    On July 31, asked Bankruptcy Trustee Howard Ehrenberg, Esq. for a general update on the rent item...our question prompted by today's (Aug. 1) due date for city management to present new-Mayor Bob Foster with a proposed FY 07 budget. If the proposed FY 07 City Hall budget parallels the FY 06 budget, it is "balanced" by including the full $5+ million in QM back-rent as an expected receivable item.

    Trustee Ehrenberg indicated the full sum City Hall has sought is not a certainty in the bankruptcy proceeding because the rent amount is disputed. He indicated he is trying to reach a settlement [a figure accepted behind closed doors by lawyers for City Hall] so he can sell the lease and City Hall could be paid [the settlement amount].

    If a settlement isn't reached, the issue would proceed to a trial -- an open, public proceeding -- in which the federal Bankruptcy Judge will hear testimony and rule on the matter.

    Trustee Ehrenberg didn't indicate where in the spectrum ($0 or $5+ million) he believes the rent sum should be. He repeatedly said he is working to reach a settlement on the matter.

    [Our perspective follows] If City Hall agrees to a settlement sum of less than the full $5+ million, this would have to be approved by a majority of the City Council (voting in closed session but eventually disclosable).

    Approving a bankruptcy settlement might avoid awkward disclosures in a trial and produce a more certain outcome...but would also presumably unveil a hole of some magnitude in City Hall's budget (currently "balanced" by assuming City Hall's Tidelands fund will receive the full amount claimed due).

    Last week, LB's Board of Harbor Commissioners approved a budget that includes a transfer of roughly $14.2 million in Port funds declared surplus to LB City Hall's Tidelands Fund, the largest such transfer in the Port's history.

    At the same time, City Hall's Tidelands fund is being currently drained by approximately $5+ million annually to pay Aquarium bondholders (who were supposed to be paid from Aquarium-generated revenue).

    The Tidelands fund provides a revenue source for items including beach clean-up, maintenance and improvement.

    The extent to which a bankruptcy resolution of the rent issue might still leave City Hall exposed to possible additional Queen Mary-related litigation is uncertain at this point.

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