By On the occasion of our 20th anniversary
By Gustavo Arellano
By R. Scott Moxley
By Alfonso Delgado
By Courtney Hamilton
By Joel Beers
By Peter Maguire
By Charles Lam
"That's why I left," says Gumbiner, who's also still a little testy about Prevratil's role in an FHP board-of-directors coup that ousted Gumbiner from his own company.
Nonetheless, Prevratil got a 66-year extension of the Queen Mary lease in 1998. He did it by playing on the fears of losing the ship Gumbiner talks about. Prevratil told city officials that without a lease extension, the only way to keep the Queen Mary from sinking under an estimated $40 million in structural repair was to tow the ship to Japan for a few years to work off the cost as a Tokyo casino. The Japanese investors Prevratil insisted were ready to bankroll the deal never showed their faces, but the City Council caved anyway.
"I needed a long-term lease, and I needed some flexibility," Prevratil explains now. "I needed it to get financing for the maintenance an old ship needs. I needed it to get financing for development projects. I think those are the keys to the survival of the Queen Mary. The city agrees with me."
The city certainly acquiesces to Prevratil, anyway. For control of the Queen Mary and the surrounding acreage, Prevratil is obliged to pay the city a base rent of only $25,000 per month, plus a percentage of his profits. But various amendments to the original lease now give Prevratil discounts on those payments—a rent-credit formula that amounts to 9 percent of what he spends on capital improvements to the aging vessel.
Not everybody is comfortable with this partnership, especially because of the way Prevratil presides over the personal empire he is building with public property. If Prevratil has an organizational chart, it must look like a hairball. Merely tracking the money and responsibilities he transfers between the two agencies he heads—the for-profit Queen's Seaport Development Inc. and the nonprofit RMS Foundation—baffles city officials.
Making matters more complex, money flows to and through Prevratil from a variety of public and private sources:
> Prevratil receives hundreds of thousands of dollars in regular Queen Mary subsidies from Long Beach's Tidelands oil fund, a public trust based on a percentage of revenues earned from oil reserves along the city's shore. The State Lands Commission is investigating whether a floating hotel constitutes an appropriate use of those funds.
> Prevratil collects the rent Long Beach earns on the Catalina cruise-ship terminal adjacent to the Queen Mary; he's supposed to relay this cash to the city, but his own records show he doesn't always pass along all of it. Financial statements he submitted to the city show that in 2001 and 2002, Prevratil collected a total of $941,983 in rent from Catalina Cruises but handed over just $542,331 to the city. That's a shortfall of $399,652, city officials pointed out. Prevratil shrugged it off, instructing the city to take the money out of his Tidelands subsidy.
> The parking revenue for the brand-new Carnival Cruise terminal next to the Queen Mary also goes through Prevratil's fingers before it gets to Carnival. There again, things have gotten a little sticky. That arrangement began April 14, 2003, and exactly four months later, Carnival filed suit against Prevratil alleging that he had held onto $185,000 of that money. That suit is ongoing.
Despite all this revenue, Prevratil frequently turns to Nevada developer Barney Ng for more cash. Three refinancing deals with Ng during 2002 alone increased Prevratil's debt to $24.5 million. That shouldn't bother anyone but Prevratil and his creditors, except for this: Prevratil used his lease on the Queen Mary as collateral for these loans, raising the possibility that Long Beach could lose its landmark—or at least see its management turned over to Ng—if Prevratil defaults on his payments.
"It all seems designed to defy accountability," says Traci Wilson-Kleekamp, a Long Beach watchdog. "Nobody in City Hall seems able—or even willing—to explain it to me."
So Wilson-Kleekamp, a housewife and mother of three, has launched her own investigation. She has spent two years requesting city records through the California Public Records Act. Documents continue to dribble in, but huge accounting inconsistencies have emerged involving the rent credits that Prevratil receives in exchange for spending on capital improvements. For instance, records indicate Prevratil claimed about $20 million in such expenses in the three years from 2000 to 2002. But city documents suggest Prevratil actually spent just $3 million.
"The way I figure it, that's about a $17 million difference," says Wilson-Kleekamp. "I have received no record of supporting documentation—invoices, receipts, IOUs, whatever—for the $10 million Prevratil claims to have spent in 2002, nor for the $4.8 million he claims to have spent in 2000. Only in 2001 do city records say Prevratil provided documentation that 'appears to qualify'—but only for about $3 million of the $7.2 million in expenses he claimed qualify for rent credits."
Wilson-Kleekamp has moved to the courts. On Jan. 22, she filed a civil suit in Los Angeles Superior Court claiming that the rent credits Prevratil has received constitute an illegal gift of public funds from the city. Further, she charged that the city has violated the California Freedom of Information Act by withholding documents she has been requesting for more than two years. The suit seeks a ruling that says the parties "have no right or authority to use or expend public funds for private purposes to support the ship's operators" and that "any undocumented or ineligible rent credits should be returned to the city."