Form revised May 26, 2009

 

FISCAL NOTE FOR NON-CAPITAL PROJECTS

 

Department:

Contact Person/Phone:

DOF Analyst/Phone:

Parks and Recreation

John Braden/ 386-4334

Jan Oscherwitz/ 684-8510

 

Legislation Title:

 

AN ORDINANCE relating to the Department of Parks and Recreation; authorizing the Superintendent of Parks and Recreation to enter into an agreement with The Seattle Aquarium Society for operation and management of the Seattle Aquarium.

 

Summary of the Legislation:

 

This legislation authorizes the Parks Superintendent to enter into an agreement with the nonprofit Seattle Aquarium Society (“SEAS”) to operate the Seattle Aquarium.  Under the proposed agreement, SEAS will operate the Aquarium for 20 years without an ongoing City operating subsidy.   While the Aquarium facility will remain under City ownership, all “personal” property at the Aquarium will be transferred to SEAS at transition.

 

The City will invest $8 million in capital maintenance by December 31, 2015 and remain responsible for capital maintenance of the buildings and piers for the duration of the agreement.  SEAS will invest $10 million in new or refurbished exhibits and visitor amenities over 20 years, with a $5 million investment in the first ten years.  SEAS is also committing to use its best efforts to fundraise $15 million by 2020.  The agreement gives current City employees working at the Aquarium until December 31, 2014 to decide whether to transfer to SEAS employment or remain in City employment.  For those employees who choose to remain in City employment, the City will endeavor to place them in positions as similar to their current positions as possible, but cannot guarantee that positions will be available.  The City is continuing to explore avenues for allowing current City employees who transfer to SEAS employment to remain in the City retirement system but resolution of this issue, which requires action by the federal government, is at least two to three years away.  For the transferring employees, SEAS expects to offer a benefits package that is comparable to that offered currently by the City.

 

Background:  

 In 1968, King County voters approved a bond measure to fund a regional aquarium to be run by the City of Seattle. The facility, known as the Seattle Aquarium, was completed at a cost of $5.8 million and was opened for operations in 1977.  Since its opening, the City of Seattle has continuously operated the Seattle Aquarium. 

 

For many years, SEAS, a nonprofit corporation formed in 1982, has provided support to the Seattle Aquarium to maintain and enhance its exhibits and vital educational and research programs to build community awareness, interest, involvement, and support for the future growth of the Aquarium.  This support is primarily in the form of raising funds and providing strategic advice.  Since 2004, SEAS has also managed the merchandise concessions at the Aquarium.  In 2007, SEAS began managing food services.

 

Since the early nineties, the City and SEAS have been discussing the possible transfer of operations of the Aquarium to non-profit management.  In 1994, the City-appointed Central Waterfront Citizens Advisory Committee (“CAC”) issued a report entitled “The Central Waterfront Master Plan – Portal to the Pacific.”  Among other things, the CAC recommended transferring management and control of the renovated aquarium to a nonprofit corporation.

 

Over the next decade, the City and SEAS worked toward a vision of a redeveloped Aquarium on the Central Waterfront to be operated by SEAS.  Due to changed economic conditions after the “dot.com” recession in 2001 and the deterioration of Pier 59, which required the City to undertake a major capital improvement project to repair it, SEAS and the City agreed to approach the Aquarium redevelopment in phases, beginning with making extensive structural repairs to Pier 59 and developing a new entrance, exhibit area, and visitor services in the east portion of that pier. 

 

In 2005, the City and SEAS entered into a Memorandum of Agreement authorized by Resolution 30737, which outlined the framework for SEAS and the City to jointly redevelop the Aquarium.  Resolution 30737 also set out the conditions for SEAS to meet before it assumed the long-term management and operations of the Aquarium. These conditions included the successful completion of the Pier 59 project with significant private fundraising, the retention by SEAS of a competent and reputable Chief Executive Officer to manage the Seattle Aquarium, the preparation of a sound business plan for the operation of the existing Seattle Aquarium, and successful management of the gift shop and food services under SEAS’ control.

 

The renovation and expansion of the Aquarium and the supporting piers was completed in 2007.  On February 1, 2008, SEAS submitted a “Completion Report, Phase One Redevelopment of Pier 59, The Seattle Aquarium” to the Parks Superintendent in which SEAS demonstrated how it had met its management and fundraising milestones on the Pier 59 project.  Recognizing SEAS’ accomplishments, the City Council approved Resolution 31080 in August 2008, which requested that the Executive prepare a due diligence report on the feasibility of a successful transition of  the operations and management of the Aquarium to SEAS and set out principles to guide such a transition.  That due diligence report is attached to this fiscal note. The proposed agreement is consistent with the principles set out in Resolution 31080.

 

 

 __X__            This legislation has financial implications.  

 

 

 

 

 

 

 

 

Appropriations: 

Fund Name and Number

Department

Budget Control Level*

2009

Appropriation

2010 Anticipated Appropriation

Parks Fund 10200

Parks & Recreation

K13

 

See note

TOTAL

 

 

 

 

 

Notes:   This agreement requires no ongoing City operating subsidy. The Aquarium is assumed to be a break-even operation in the City budget with annual expenses matching annual revenue.  Positive net income in any given year is contributed to the Aquarium Subaccount while operating losses are absorbed by it. The 2010 Budget assumes that the Aquarium continues under City management for the entire year.  If this legislation is adopted, the City will operate the Aquarium for six months after Council action and will transfer operations to SEAS on the first day of the seven month (“the Effective Date”).  The City will also transfer any funds available in the Aquarium Subaccount on the effective date to SEAS, currently assumed to be $350,000.  SEAS will collect all revenue on or after the Effective Date and will pay all expenses.  SEAS is responsible to cover any operating losses for 2010, including any loss incurred by the City in operating the Aquarium  prior to the Effective Date, and for expenses that other departments incur for providing support services, such as information technology, to the Aquarium.

 

The City will incur some one-time costs related to transferring sick leave and vacation balances from City employees who chose to leave City employment for SEAS employment.  Under the terms of the agreement, the City will pay SEAS for the full value of accrued vacation time and one-half the value of accrued sick leave for each transferring employee.  Payments for accrued vacation will be paid quarterly over a two year period starting the first quarter after the employee transfers.  Payments for sick leave will be paid in equal annual installments over a five year period beginning the year after the employee transfers.  

 

Because employees may transfer to SEAS at any point between July 1, 2010 and December 31, 2014, it is difficult to provide an accurate estimate of the impact in any given year. The outstanding liability for vacation and sick leave for these employees as of September 25, 2009 is about $700,000 and if all the employees were to transfer to SEAS in 2010, the City’s cost in 2011 could be as high as $235,000, although actual costs in 2011 are likely to be much less because at least some employees are expected to remain as City employees for the full five year transition period.  Furthermore, sick leave and vacation balances are a liability the City has regardless of whether employees transition to SEAS. When City employees retire, they receive 25% to 35% of the value of their sick leave balances. This agreement, like the agreement with the Woodland Park Zoological Society, provides the non-profit with 50% of the value of the sick balances, under the assumption that some of this leave will ultimately be taken at full value by employees.

 

On the capital side, the City will retain major maintenance responsibility for the building shell and core and the piers and commits to performing capital maintenance to keep the Aquarium open and operating through the term of the agreement.  In addition, the City commits to provide $8 million toward Capital Maintenance by December 31, 2015.  Some of this funding is already incorporated in the 2010 budget, including $1.457 million for Pier 60 Piling and Corrosion Renovation, Pier 60 Filter Replacement, and Saltwater Pump Replacement.  The remaining amount will be funded in subsequent budgets.

 

Anticipated Revenue/Reimbursement: Resulting From This Legislation:

 

Fund Name and Number

Department

Revenue Source

2009

Revenue

2010

Revenue

Parks Fund 10200

Parks & Recreation

K13

 

n/a

TOTAL

 

 

 

 

 

Notes: As described above, SEAS will reimburse the City for any operating losses incurred at the Aquarium prior to the Effective Date. Since the 2010 budget for the Aquarium is assumed to be break-even, this has no net impact on the 2010 budget.

 

Total Regular Positions Created, Modified, Or Abrogated Through This Legislation, Including FTE Impact: 

 

Notes:   The City is currently pursuing an option whereby City employees who transfer to SEAS employment might remain in the City retirement plan (a “Favorable Ruling”) with SEAS providing the required employer contribution.  This option would require a change in the IRS definition of a government plan which is currently under federal review and is unlikely to occur in less than two to three years. City employees will have the shorter of two (2) years from the date of a Favorable Ruling or five (5) years from January 1, 2010, to determine whether they wish to transfer to SEAS employment or remain in City employment.  For those employees who choose to remain in City employment, the City will endeavor to place them in positions as similar to their current positions as possible, but cannot guarantee that positions will be available.   Due to the uncertainty of when individual employees will transfer to SEAS, no position changes are included in this legislation.  This will be addressed in the annual operating budgets for 2011 and beyond.

 

·         Do positions sunset in the future? 

Yes.  It is anticipated that all Aquarium positions will be abrogated by January 1, 2015.

 

·         Spending/Cash Flow: N/A

 

Notes:

 

·         What is the financial cost of not implementing the legislation?  

The Aquarium has been operating on a break-even basis for the last several years in large part due to the partnership between SEAS and the City. This partnership has been based on the expectation that the Aquarium would ultimately transfer to non-profit management. If this legislation does not proceed, SEAS believes that it cannot maintain the interest of its donors, board and senior members of its staff.  While this impact is difficult to quantify, it may result in the need for general fund resources to support the Aquarium as was the case in the 1980s and 1990s, when Aquarium attendance stagnated at a level of about 600,000 visitors a year.

 

·         What are the possible alternatives to the legislation that could achieve the same or similar objectives?  

There are no alternatives to spinning off the Aquarium to nonprofit operation/management that would achieve the same objectives.

 

·         Is the legislation subject to public hearing requirements: 

Not legally required  

 

·         Other Issues   

There will be impacts to the Aquarium by plans to replace the Alaskan Way Viaduct. The Deep Bore Tunnel construction itself is not expected to disrupt the waterfront or the Aquarium, but the relocation of City utilities from the Viaduct corridor, removal of the Viaduct and construction of the new Western Avenue and Alaskan Way boulevards and Seawall will present challenges to the Aquarium in the 2013-2015 period.  SEAS will need to remain actively involved in the Viaduct replacement planning process to assure the least possible impact on attendance, operations and finances in the near term.  SEAS will also need to coordinate its planning of a future Master Plan with the Committee on the Central Waterfront Partnerships, and the Waterfront Planning parameters subsequently developed by City Council.

 

·         List attachments to the fiscal note below:

Attachment 1 to Fiscal Note - 2009 Seattle Aquarium Transition Due Diligance Report