Long Beach museum and city could break ties over bonds

The Long Beach Museum of Art’s future could be at stake, with a dispute intensifying over whether the 59-year-old museum must pay back $3.06 million the city government grudgingly anted up this week to satisfy bond holders.

The museum board had failed to raise that amount to pay the debt from its 2000 renovation and expansion -- and now it says it doesn’t have to.

Consequently, it risks losing $569,000 in annual operating support from the fiscally beleaguered city -- and the prospect of being branded a deadbeat as it tries to raise about $2 million a year from other donors.

Leaders of the nonprofit foundation that operates the city-owned museum point to the text of a 1999 agreement they say absolves it from having to pay back the $3 million. While the museum promised to try to raise all the money, the document appears to leave the city solely on the hook for the principal on bonds issued to fill the $6.4-million expansion’s funding gap.

At City Hall the feeling is that, regardless of what the agreement says in black and white, the museum has a duty to keep its word from 10 years ago -- or as a consequence face a cutoff of the $569,000 in annual support the city provides.

The conflict has flared against a bleak fiscal backdrop as officials struggle to cut $38 million from the $400-million tax-supported general fund portion of Long Beach’s $2.9-billion municipal budget.

If there’s no compromise, the museum’s survival could be threatened, fears Justin Hectus, president of the Arts Council for Long Beach, an independent arts-support group.

“I’m heartbroken that these two groups are standing toe to toe . . . and a resolution hasn’t been reached,” Hectus said. “It seems the rhetoric has been ramped up on both sides. . . . I’m not optimistic that this is going to get better before it gets worse. . . . I hope everyone can stop talking legalese and just start looking at how they can find some sort of middle ground.”

Over the last decade, the museum has paid all the interest and fees on the bonds, totaling $1.06 million, museum Executive Director Ronald Nelson said. Until July, he and the museum board had assumed that the foundation was obligated to pay the $3-million principal as well. Nelson said he was planning for the museum to pay back what it could -- $419,000 -- when he read the original bond agreement for the first time and saw that long-standing assumptions didn’t match what was there in writing. He says the documents show that although the museum had agreed to try to raise the money, ultimately the principal was the city government’s debt to pay, with no reimbursement from the museum.

To pay what it does not legally owe would be a misappropriation of museum money, Nelson said.

The city administration disagrees. “There’s no question that the museum legally was not required to pay back the bond,” said Suzanne Frick, Long Beach’s assistant city manager. But she said it’s also clear from a tape of the 1999 meeting in which city officials approved the financing that museum leaders had vowed to do just that. “The expectation is we would be paid,” Frick said.

She hopes the two sides can negotiate a gradual repayment of the $3 million, perhaps involving a new fundraising campaign, and that the issue will be settled by Sept. 15, when the City Council is expected to cast a final vote on a budget for the coming year.

Mayor Bob Foster has recommended eliminating the $569,000 in support the city normally would pay, noting that the cut is a consequence of the museum’s refusal to pay off the bonds. Even if the City Council reinstates the money, the mayor has a line-item veto that could erase it again unless the council then overrides him by a two-thirds vote.

Nelson said the loss of city funding, which accounts for about 17% of its projected $3.3-million budget, would mean laying off five employees from a staff of 22, closing the museum a second day a week, canceling or postponing planned exhibitions on baseball-related art and the art of the tattoo, and reducing art instruction the museum offers to all fifth-graders in the Long Beach Unified School District.

The museum, which relies on donations for more than two-thirds of its budget, would have to ask its supporters to continue giving while City Hall has accused it of breaking a $3-million promise.

“The PR part of this is difficult,” Nelson acknowledged. “People understand [the museum’s position] once I explain it to them.” Some supporters have urged him not to give in to the repayment demands, he said, but for others, city officials’ criticism “has sent up red flags . . . and it’s going to take some work to make them understand.” He said that even some of those who agree that the museum is acting within its rights have said, “ ‘OK, but this is a really bad situation you’re in, and it’s going to hurt one way or another.’ ”

Nelson said he plans to talk to City Council members, aiming to persuade them that the bond repayment question should be separate from annual funding.

The foundation has run the museum since 1985. If the city cuts funding, the two sides would have 90 days under their agreement for further negotiation. If the museum foundation still isn’t satisfied, it can then pull out of the operating pact unilaterally, taking with it the 1,600 artworks it owns, and leaving the city to figure out what to do with the museum buildings and the remaining 1,400 pieces of art.

“I think it’s inconceivable to get to that point,” Nelson said, “although it certainly has crossed my mind. We really are not looking to end this relationship.”

Frick, the assistant city manager, didn’t want to speculate about what the city would do with its art collection and the picturesque oceanfront buildings and grounds if the foundation pulls out. “Our goal is to come to a resolution with the foundation. The museum is cherished and valued considerably, and closing it would be a very last resort.”

In June, City Councilman Patrick O’Donnell made headlines by broaching the idea of selling art from the collection to help cover the $3-million bond debt. Nelson said that would amount to “a hostile takeover” and ruin the museum’s reputation, given national museum organizations’ guidelines prohibiting sales from a collection, except to raise money to buy other artworks.

Selling art “is not a concept that’s on the table,” Frick said. “I don’t think it ever was . . . It was a comment a council member made, never a formal action or discussion.”

mike.boehm@latimes.com