In Depth / Perspective
Credulity Then, Debt Now: How 1999 Council Action Left Taxpayers Facing $3+ Million Debt...And Controversial City Hall Plan To Pay For It Now
To our knowledge, the story reported below by LBReport.com has gone unreported to date by LB's other media outlets. Our coverage includes documents and archival audio not available online elsewhere.
(March 15, 2007) -- On Sept. 14, 1999, the LB City Council voted to let the Long Beach Museum of Art -- a city-owned asset whose management City Hall has turned over to a private, non-profit foundation -- use proceeds from $3.1 million in LB taxpayer-backed bonds to finance expansion of the 2300 E. Ocean Blvd. facility.
[The Long Beach Museum of Art is separate from and not related to the Museum of Latin American Art.]
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 also 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 posts 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.
Neither Colonna (a skilled businessman), nor then-Mayor O'Neill nor any other Councilmember said anything about protecting LB taxpayers in the process. In 1999, there was no LBReport.com to report what took place and background materials weren't available on the Internet.
LBReport.com has obtained and posted the archival Council audio of what took place at that Council meeting. It speaks for itself and runs just over four minutes (with applause). We post it in full (minus a museum rep's address which we removed). To hear it, click here.
Councilman Colonna's motion carried 8-0 (Yes: Oropeza, Baker, Colonna, Kell, Topsy-Elvord, Grabinski, Kellogg and Shultz; Absent: Roosevelt).
Today, that debt apparently hasn't been repaid. City Hall's current occupants haven't told LB taxpayers -- put at risk by now-former City Hall officials -- how and why this happened. Instead, city management has offered taxpayers a solution that has quickly become polarizing.
On February 5, 2007, LB's Redevelopment Agency (RDA) governing board faced an item agendized by RDA staff as follows:
Recommend that the City Council approve a contract with Media Management Services, Inc. to develop 6 (six) freeway electronic message center displays within Redevelopment areas; use a portion of the revenue generated by the project to retire the bond obligation of the Long Beach Museum of Art; structure and execute an agreement to provide on-going funds for culture and arts, to be administered by the Arts Council for Long Beach; and support legislation to facilitate the program
The accompanying agendizing memo mentioned that a "LBMA [LB Museum of Art] bond obligation of $3.1 million comes due in 2009" but focused on letting a private firm build and operate "six double-faced high resolution electronic message center displays for outdoor advertising" along parts of the 405, 710 and 91 freeways abutting Redevelopment areas" under a revenue sharing agreement that would give City Hall a share of the ad revenue (detailed in the memo). LBReport.com has posted the memo online. To view it, click here.
RDA staff proposed that the RDA board recommend that the City Council use ad revenue from the signs to retire (pay off) the museum bonds and simultaneously offer part of the ad money to the privately-run "Long Beach Arts Council" (formerly "Public Corporation for the Arts") for what staff called arts and cultural programs.
RDA boardmembers and the public were offered a user-unfriendly map with inked bubbles vaguely indicating where the proposed electronic message displays would be located. To view the map (pdf), click here.
RDA staff said the subject had been already discussed at two study sessions and was already scheduled for discussion at the upcoming Feb. 13 City Council meeting.
Then came public testimony. LBReport.com links below to video of the entire proceeding, indexed by us for quick reference; our text below is a summary with our perspective.
Despite the early hour for the RDA board's meetings (start time is 8:00 a.m.), a long line of speakers formed at the podium. Testimony was as polarized as any we've heard in LB in recent memory.
Speakers from Redevelopment Project Area Committees (PACs), neighborhood groups and community activists variously sandpapered the proposal. One speaker said her spouse considered it "blight for the arts." Another sarcastically suggested that ELB should get the "benefit" of the signs, not just Redevelopment areas already declared blighted. A Los Cerritos neighborhood resident said sign revenue should be used to add cops, not fund the arts. North PAC's chair, her voice shaking in anger, said that if the electronic message signs were such a good idea, one of the signs should be installed atop the LB Museum of Art on Ocean Blvd.
Representatives of several LB arts-related groups -- including the LB Arts Council (which currently receives taxpayer funding but at significantly less than historic highs) -- supported the electronic message signs. Those speaking in favor variously indicated that the electronic message signs could provide a stable and enhanced City Hall arts-funding mechanism offering community wide benefits. One suggested that promoting the arts could reduce crime.
Representatives of the private firm seeking to build and operate the electronic signs (which city management selected through a formal RFP process) made cogent, well-stated points and provided information not included in RDA/city staff's written report. They said the signs would use LED, directional displays and other techniques to reduce neighboring impacts. They would display changing static images, not flashing images. And one in five of the ads would be for the City of LB...to "brand" the city and provide information about upcoming city events (including arts events).
A firm rep said the message signs offered an opportunity to benefit both LB taxpayers and the arts, generating a very significant amount of sales tax revenue...roughly three times the amount generated by a single Home Depot location. And all of this would all be done without city investment, since the private firm would pay to build and operate the signs.
When discussion moved behind the rail, RDA Boardmember Bill Baker indicated bluntly that he considered the electronic message signs to be officially-invited blight...a stinging position since Redevelopment is supposed to fight blight.
Other RDA boardmembers indicated they wanted more information about the signs. RDA Boardmember Terry Jensen said he believed the integrity of the Redevelopment's advisory PAC process wasn't followed and indicated that he'd insist on specific conditions before supporting the signs...and without those conditions he'd oppose them.
Ultimately, the RDA board voted to hold the item over to a future meeting and directed staff to present the item to the Redevelopment PACs for their input before bringing the matter back to the Board.
LBReport.com has linked to video of the Feb. 5 RDA item unedited and in full. To launch it, click here and then "fast forward" on your video player to roughly 53:50 minutes into the meeting for the start of the item.
For quick access, LBReport.com has prepared this index to salient portions of the item:
|Staff report (led by RDA's Pat West)||54:25|
|Public testimony begins||57:50|
|Central PAC chair/Tolkoff||57:50|
|North PAC member||1:01:40|
|North PAC chair/Thuente||1:03:20|
|North PAC member/Angel||1:05:30|
|LB Symphony Orchestra rep||1:06:40|
|Member of the public||1:07:45
|Cal Hts. Neighborhood Ass'n rep||1:08:25|
|Los Cerritos neighborhood resident/Deats||1:09:25|
|Los Cerritos Improvement Ass'n/Kowal||1:11:35|
|LB Opera rep||1:13:20|
|Central PAC member speaking as indiv||1:14:25|
|Media Management Services by firm rep||1:15:30|
|Media Management Services by atty Doug Otto||1:17:35|
|Arts Council of LB/Van Hooten||1:21:00|
|Wrigley Ass'n/South Wrigley/CPAC member||1:23:10|
|Behind the rail Board discussion begins||1:24:30|
|RDA Board Chair Fields||1:24:30|
|Boardmember Arnold (and colloquy with firm rep)||1:34:25|
|Board chair Fields||1:43:20|
|Baker/Jensen colloquy, further from Baker||1:46:30|
|Baker/Jensen colloquy, further from Baker||1:46:30|
|Vote to continue the item||1:49:20|
Although the staff-planned Feb. 13 City Council item on the matter was delayed, city staff quietly included an item on the March 6 City Council agenda that added as part of City's 2007 State legislative agenda (items City Hall wants to pursue from Sacramento) the following under "advertising":
"Research legislation to amend an existing statute to add the City of Long Beach to the five California cities that may consider multiple redevelopment project areas as one area for the sole purpose of outdoor advertising."
When neighborhood activists got wind of this, they hit the ceiling a second time. They urged Councilman Patrick O'Donnell (who chairs the State Legislation Committee) to remove the "advertising" item from City Hall's Sacramento wish list, and he did so. Although excluded from the state legislative agenda adopted by the Council on March 6, the item could come up for discussion at a subsequent City Council meeting.
After presentations to the advisory Redevelopment Area Committees, the electronic message sign proposal is destined to return to the RDA Board for action.
And the matter is almost certain to percolate up to the City Council at some point.
But what about that $3.1 million LB Museum of Art debt -- that those electronic message signs are proposed in part to pay off in addition to providing "arts" funding? [Comment: We presume revenue from the signs could fund whatever City Hall wants; arts funding is what some at City Hall have proposed; the City Council would presumably have the last word on where to allocate the revenue.]
RDA/city staff's Feb. 2007 memo portrayed the electronic signs as part of a City Hall "General Fund debt reduction strategy." But the $3.1 million wasn't supposed to become a General Fund debt. Why did the debt still remain in 2007 when 1999-city management represented that the Museum's goal was to repay the bonds by 2004?
RDA/city staff's Feb. 2007 memo said the Art Museum "has been paying approximately $100,000 in annual interest on the principal since 2000." But city management's September 1999 memo said the LB Museum of Art foundation "intends to reimburse the City for all of its costs through the receipt of pledges from its 5-year capital campaign...The Foundation's goal is to redeem all of the bonds within five years." By our math, that would have been in 2004. So what happened?
Who, if anyone at City Hall, conducted any meaningful oversight of this matter on which there was taxpayer exposure? What did city officials know about the unpaid debt and when did they know it? And if they didn't know about it, why didn't they?
Below is the salient text from the archival September 14, 1999 memo as agendized by then-city management for Council action. The memo was authored by then-Director of Financial Management, Robert Torrez, and co-signed as approved by then-City Manager Henry Taboada stated in pertinent part:
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.
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...
LBReport.com sought but was unable to obtain comment from the LB Museum of Art on these matters. We remain open to reporting it if and when it is received.
The now-former Councilmembers who voted to authorize the publicly-backed privately-run Museum-foundation incurred debt have moved on to other things. So has now-former city management.
LB taxpayers now face the consequences, represented by Council incumbents (a majority of whom put on the May 1 ballot measures that could give them full time pay without requiring full time work and ease their term limits), a new Mayor (who wants voters to give him additional powers) and a new City Auditor (who has vowed greater transparency).
LBReport.com plans to report what they do in response to what you've just read.
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