The Queen Mary with the Spruce Goose Dome in the background. Photo: Brian Addison
The Queen Mary finally has a successor lessee, after the Long Beach City Council voted Tuesday night to end a years-long process and approve a contract with Urban Commons LLC for the ship and its surrounding property.
Negotiations for the new 66-year lease had spanned a few years and was originally approved in November 2015, then re-approved in January after citizens filed a legal complaint that the November vote had violated the Ralph M. Brown Act, a law protecting the public’s right to attend and participate in meetings.
However, complications delayed the contract actually being executed and the city and Urban continued to negotiate for months leading up to last night’s vote. At the core of those talks was how infrastructure needs would be financed and who would bear the burden of the estimated $200 million in improvements needed on board the Queen.
The solution was for the city and Urban to enter into agreement where the city would issue a bond to front basic operational repairs and divert funds collected from Carnival Cruise passenger fees and base rent paid by Urban to repay the $19 million bond. The city would also allocate some $5.8 million from the Queen Mary reserve to elevate the total investment to $23 million. In return, Urban would contribute over $800,000 annually in years 6-10 of the agreement.
Although the investment falls far short of the projected needs of the ship, the up front funding is expected to allow Urban to make the most urgent repairs to public parts of the ship while the city finances the hidden operating parts.
“Under this deal, the city helps finance kind of the structural bones, the utility system, the plumbing, things that make the ship go and they’ll be investing in what makes the ship more money,” said Assistant City Manager Tom Modica.
Although the city’s share depends on issuing a bond and taking on debt, it is not seen as using new money as passenger fees, and rent collected from Urban would normally be placed into a reserve for the Queen Mary and its upkeep. Now the money will go toward paying off the bond the city will issue to help make capital improvements to the ship.
In addition to the $23 million in proposed investments over the first 10 years of the contract with Urban, the city will also pledge $1 million annually from its projected passenger fee revenues toward the construction of a new passenger facility. The city’s Queen Mary preservation fund isn’t expected to begin banking its full annual deposit of around $2.4 million until the sixteenth year of the deal. Under the deal, Urban will also turn over the use of the Spruce Goose Dome to Carnival for the cruise liner’s ability to bring larger ships into Long Beach.
The focus of the conversation leading up to the vote centered on the level of risk the city was about to enter by taking on debt to complete the deal with Urban. Third District Councilwoman Suzie Price—the lone dissenting vote in the 6-1 approval of the item—took issue with the fact that if something were to go wrong with the repayment of the bond or the revenue stream expected at the Queen Mary site, that Tidelands Funds were being pledged as a safety net, potentially delaying already pledged projects.
Tidelands Funds are only available to coastal areas of the city, including Price’s district, which encompasses Belmont Shore, Naples and the site where the proposed Belmont Plaza Pool project sits idle, due to a lack of funding available from Tidelands, mostly attributed to the fall in the price of oil.
“I know the Tidelands revenue doesn’t impact every district but the districts that it does impact involve people who work really hard on projects just like projects in every other district,” Price said. “Just because we need to have some sort of an insurance policy for a debt doesn’t mean we start to put their projects that we’ve committed at risk.”
Price was not the only one that was concerned with the proceedings last night. City Auditor Laura Doud, who was called on by Price to weigh in on the proposal, noted that there had been significant changes in the contract since her office’s last discussion with financial managers, namely the addition of the city now taking on debt to complete the deal.
She said her “overarching concern” was with the estimated $200 million in infrastructure repairs needed for the ship and who would be on the hook for the balance after the city’s initial $23 million investment. Doud requested more time to review the documents prior to the council’s vote, a request that was ultimately denied.
“We shouldn’t overlook the inevitable, it’s a significant problem,” Doud said of the deal’s structure. “The Queen Mary has a history with problems and I feel that we need more than seven days to look at the documents that have been presented, to look at the development, the risk financing, to look and see how this $23 million investment fits into the long-term investment.”
The city is the official owner of the ship but lacks the revenue stream to operate and provide upkeep to the ship on its own. Members of the city staff explained that the city has historically entered into these long-term lease agreements with companies like Urban to help generate money to keep the ship and its operations above water.
According to the city’s financial team, the deal is considered to be “very low risk” given that Carnival is one of the largest cruise lines in the world and faces little likelihood of going out of business during the repayment window of the bond. The city is hopeful that its help in funding some of the repair costs to the ship will allow Urban to invest in other developments that could activate a historic site that had largely meandered under its previous operator.
“The city believes that these changes to the new lease approved by the council last November are consistent with the city’s priorities associated with this project, which include ensuring that Carnival has a facility that will handle future expected larger ships and additional passengers to the Long Beach cruise terminal, commercial development of the land surrounding The Queen Mary, which is integral to the long-term viability of the city’s historic asset,” said Interim Director of Economic and Property Development Kathryn McDermott.