Aquarium May Miss Payment
The Long Beach aquarium, a key part of that city’s waterfront revival, will not be able to make its $8.5-million bond payment this year unless it can reduce expenses and increase visitors, financial reports revealed Thursday.
If the Aquarium of the Pacific cannot meet its obligations, the city of Long Beach has pledged to help the 2 1/2-year-old attraction pay the principal and interest on almost $115 million in bonds sold to investors. While municipal officials would like to avoid that bailout, they stress that there is no danger the facility will close.
For the last several months, aquarium and city representatives have been discussing the possibility of refinancing the debt to reduce annual bond payments. The aquarium also has launched a new business strategy to cut costs and increase attendance, which is about half its projected level.
The latest financial figures “pinpoint the need to refinance,” said Arlo Sorensen, an aquarium board member who heads its finance committee. “We need to get our debts in line. By refinancing, I think we will be OK.”
The aquarium, which opened with much fanfare in June 1998, is a critical component of Long Beach’s effort to turn its waterfront and downtown area into a premier tourist destination in Southern California.
With enough space to fill three football fields under a wavy roof line, the aquarium displays about 12,000 animals from about 550 species, ranging from sharks and sea lions to delicate sea horses and moon jellies.
During its first 12 months of operation, aquarium officials reported about 1.8 million visitors. Since then, attendance has steadily declined to about 1.07 million last year. The original attendance forecasts, prepared before the aquarium was built, called for almost 2 million visitors a year by 2000.
Tammy Brailsford, the aquarium’s chief operating officer, said the attraction, which is operated by a nonprofit organization on city land, has made all its bond payments so far by using surplus funds set aside for that purpose. The next payments are in June and December.
Brailsford predicted that the new business strategy, plus refinancing the bonds to take advantage of current lower rates, will lead to a balanced budget this year.
Unveiled a few months ago, the strategy calls for new displays, more educational programs, increased marketing and plans to double after-hours events and add more behind-the-scenes tours. Last year, the aquarium added a jellyfish exhibit, and outdoor concerts are being planned for evenings.
Those measures have been combined with staff reductions, cost-cutting measures and searches for new sources of money, such as government grants and corporate sponsorships.
Brailsford said the new approach is already responsible for an 11% increase in attendance and an improvement in revenue for late December and January compared with the same period last year.
“If the aquarium sat here and did nothing, we would not be successful. But I believe we have a business plan that will work,” Brailsford said. “I feel a lot better today about the future than I did three months ago.”
Aquarium officials contend that the drop in attendance is normal for recently opened aquariums, based on a survey of eight attractions around the country.
The annual report shows that the aquarium’s total revenue declined from $25.6 million in 1999 to $18 million last year, a $7.6-million drop. Net assets--namely all financial assets minus liabilities--are now about $4.6 million in the red compared with a positive $3.2 million in 1999.
The financial statements show that operating expenses were about $15 million last year and bond payments were about $8.5 million, including principal and interest. Depreciation was about $4.7 million.
Bob Torrez, the city’s finance director, estimates that refinancing the bonds might save the aquarium $2 million a year for three to four years. Consequently, Torrez said, the city might not have to use its revenue from hotel bed taxes to cover the attraction’s debt.
Critics of the aquarium have said that refinancing the bonds might be difficult because of declining attendance and revenue. Potential investors might be discouraged by the risk, they contend.
“They will probably be able to make their next bond payment, but December could be crunch time. By then they will have cannibalized their cash flows and their stated reserves,” said Norm Ryan, an investment banker from Long Beach who spearheaded a successful ballot initiative last year to cut the city’s utility tax.
