Friday, February 5, 2016

The Frost Museum of Science: Is a Deal a Deal?

The Miami Herald and other news sources have recently reported that the Frost Museum of Science has run out of money to finish the construction of its new facility in Museum (ne Bicentennial) Park in downtown Miami. It was originally supposed to open by 2012. 
This community is thus confronted with three choices: 

(1) stick with the deal made by Miami-Dade County and Museum of Science, Inc.: the County would pay up to $175 million of the estimated $275 million needed to construct the new facility, and the privately-run not-for-profit would raise and pay for the rest.

(2) let the taxpayers of [fill in the blank] make up the difference.

(3) allow the Museum structure stand, unfinished, as a monument to another failed attempt to prove that Miami is a “world class city.”

The Unfinished Frost

Cynics might prefer option (3) but expect option (2) to prevail, with the only question which public entity—the County, the City, or the Omni CRA (which is funded by the County and the City and is, for all intents and purposes, the City)—will fork over taxpayer dollars to this private venture.

Before doing anything, however, all three public entities must stand firm and do nothing until there has been a searching and thorough investigation into how we got here. To paraphrase County Commissioner Dennis Moss, as quoted in the Herald, before we know “how do we fix this mess?” we need to know “what went wrong.” 

Since the Museum’s financial statements are secret, there is, as of yet, no public information establishing exactly how much is needed to finish construction and get the Museum up and running, how much the MSM has raised, and what resources are likely to be available for future operations. Yet the MSM has already been receiving millions of dollars of taxpayer money both for construction and pre-opening activities. And the MSM long ago agreed that it alone would be responsible for paying all design and construction costs above the amount allocated for this purpose by the County. 

We need to start with some relevant history.

The owner of the proposed Museum is that not-for-profit corporation, Museum of Science, Inc. It used to operate the science museum on U.S. 1 near Vizcaya. That was shut down last year. 

Over ten years ago, Miami-Dade County voters approved the issuance of general obligation bonds to fund more than 300 capital improvements throughout the County over the ensuing 15 to 18 years, including $175 million for the design and construction of a new science museum on Bicentennial Park, owned by the City of Miami. (The same bond issue covered the Perez Art Musuem, which has since opened.)

Here’s the most important date in the Musuem’s history: in April 2008 a Memorandum of Understanding (“MOU”) was entered into among the County, the City, the Miami Sports and Exhibition Authority (an agency of the City), the Art Museum, the Science Museum, and HASF. The MOU “reflect[ed] the basic business deal among the Parties,” to be formalized in a series of agreements into which the terms of the MOU would be incorporated, and which were. 

The Museum and the County agreed that the County would contribute $175,000,000 for design and construction, with the rest to be provided by the Museum. Specifically, the Museum signed a Cost Overrun Guaranty, whereby the Museum would pay and be solely responsible for all construction overruns. That meant that the County would not be on the hook for a penny over its agreed-upon contribution to design and construction, and that the Museum would be responsible for vigorous fund-raising to cover all other construction costs. The Museum agreed to be responsible for operations, management and maintenance.

On January 21, 2010, the County Commission approved amendments to the Omni CRA Finding of Necessity and Plan to expand the area of the CRA to include Bicentennial (Museum) Park, areas north of I-395, and portions of Watson Island, and to extend the CRA’s life until March 31, 2030. Then-Commissioner Carlos Gimenez voted against the resolution and stated, during the public hearing: “I have really big problems with CRAs and I don’t think I’ll be voting for any more, certainly no more creations of and no more extensions of any in the future.” 

In February 2010 the then-County Manager reported to the County Commission that the total budget for the design and construction of the Science Museum facility would be $272 million, with $175 million coming from the County and the remaining $97 million coming from the Museum, of which, at the time, $22.7 million had been pledged and $5.65 million actually raised. The warning signs were there for all to see.

Now it appears that the Museum has no money to finish the construction, has raised only $35 million in contributions, and has been unable to obtain a construction loan. (It presumably has escaped no one’s attention that Dr. and Mrs. Frost, who won naming rights to the Museum by their pledges, recently announced a $100 million to the University of Miami to support basic and applied science and engineering at UM. A worthy donation, no doubt, but the timing was probably “unfortunate,” as they say in corporate-speak.)

County Mayor Gimenez, who was informed of these difficulties last fall, has apparently devised a plan to convert a promised annual operating subsidy to the Museum of $4 million—money that would be drawn from hotel and convention tax revenue—into an upfront payment of $45 million for construction. In exchange, the Museum would agree not to ask for operating help for 20 years and to restructure its board of trustees to include the seats for county and city of Miami administrators and elected officials. That is a move in the right direction, but it is not enough.

Recently, the Mayor has presented to the County Commission a Report on Feasibility of Extending the Life of the Omni and Southeast Overtown/Park West Community Redevelopment Agencies. In the Report, the Mayor recommended that, if the Commission were to decide to try to seek to extend the life of these CRAs (needed to continue paying down the PAC debt and to provide operating and capital, i.e., construction, subsidies for the Perez Art Museum and the Frost Science Museum), the County should seek to expand its role in the governance of the CRAs. Currently, the County and the City fund the Omni CRA with “Tax Incremental Financing” (TIF), which is the excess of tax collections from the CRA area over a starting baseline; the CRA is governed by the five City of Miami Commissioners. 

The report was “accepted” by the County Commission at its February 2 meeting on a vote of 8-1 (Commission Chair Jean Monestine voting “no” and at least one Commissioner, Levine-Cava, expressing opposition to a CRA bailout), but this acceptance did not connote approval. It remains dicey whether the governing body of the Omni CRA—the five City of Miami commissioners—would vote to spend CRA funds on completing the Museum, not to mention cover its operating deficits. One Commissioner, Ken Russell, has publicly stated he would oppose a CRA bailout, and at least one other Commissioner has privately expressed opposition.

There is a precedent for using CRA funds—limited by state law to financing projects “for the elimination and prevention of the development or spread of slums and blight, or for the reduction or prevention of crime, or for the provision of affordable housing, whether for rent or for sale, to residents of low or moderate income, including the elderly”—to bail out public arts projects built on the basis of pie-in-the-sky projections. In 2007, the City, the County and the Omni CRA agreed that Omni CRA funding would be used to pay the Performing Art Center’s debt service through 2027—over $38 million has been paid so far—and to pay for the City’s capital improvements to the Park. This leads to this lesson: any time you hear a politician or “civic leader” describe Miami as “world-class,” head for the exits and pat your pocket to make sure you still have your wallet. In any event, given the release on February 3 of a scathing Grand Jury Report on the misuse of CRAs in this community, it can fairly be predicted that none of the Commissioners/Board Members running the Omni CRA will vote to use CRA funds to bail out the Science Museum.

This is definitely a game of “hot potato” or dodgeball. The Herald quoted Mayor Giminez as stating: “The public doesn’t want to give any more money to the institution. They were pretty generous to begin with.” Then he added: “The solution is to go to other entities. And to step up their fundraising. … Not opening up is not an option.” The Mayor is apparently happy to hand the hot potato to the Omni CRA, even though over 30% of its annual funding comes from the County. As the Mayor stated: “I’m just saying: Don’t come to the county,” he said. “The [CRA] is not the county.”

As a taxpayer of both the City of Miami and the County, I believe that the issue is not which government instrumentality should bail out this private venture, but whether this should be done, and, if so, under what conditions. No taxpayer funds should be used to complete this job until, for once, local governments decide to look carefully before they leap and make a sound business decision.

First, some basic questions must be addressed before a single penny of additional taxpayer money is spent: 

How much has the Museum raised from private contributions and grants? 
How have those fundraising campaigns been managed and conducted? 
What efforts were made to obtain a construction loan? 
How has the Museum spent its money? 
What are the realistic financial prospects of the Museum if it is completed and opens? 
What external operating subsidies will be needed? 

To answer these questions and others, the records (not just the financial statements) of the Science Museum must be made public and thoroughly analyzed by professionals hired by the County, City or CRA. And an honest, non-pie-in-the-sky must be prepared and aired.

Second, with the above information, a public instrumentality can decide whether to contribute taxpayer funding, alone or in combination with other agencies. and how. The form of payment must be most advantageous to the taxpayers. For example, any such contribution could be conditioned on the Museum raising a portion of the remaining funds, with the public piece not being committed until the required amount of private money is in the bank. The deal could be structured as a loan secured by a mortgage on the property (with repayment presumably not coming from another governmental agency), rather than as an outright grant. Further, any contributing public agency must decide, on the basis of professional, not political, advice, whether and to what extent it must condition any such payments on reforming the governance structure of the Museum. For example, the agency making the payment could insist on majority representation on the Board of Directors of the Museum of Science, Inc., as well as changes in the current management of the Museum, if warranted.

Mayor Gimenez’s reported “plan” appears to lean in the direction of these conditions but they must be made strong…more “shall” than “may.”

Even if the taxpayers are ultimately forced to bail out the Science Museum, if it is done only after rigorously following the type of process I am advocating, that would, indeed, be “world class.” And it would be one big shock to this cynic.