By Charles Lam
By R. Scott Moxley
By Gustavo Arellano
By R. Scott Moxley
By Gustavo Arellano
By R. Scott Moxley
By HG Reza
Photo by James BunoanNobody even asks anymore how a British luxury liner and World War II troop transport can logically represent a gritty Pacific Rim seaport. People finally accept the Queen Mary for what and where she is. After 36 years tied up and whored out in Long Beach Harbor—five years more than she navigated the North Atlantic Ocean—the grand dame of Great Britain is as LBC as Snoop Dee-Oh-Double-Gee.
"What the Eiffel Tower is to Paris and the Golden Gate Bridge is to San Francisco, the Queen Mary is to Long Beach," declares Joseph F. Prevratil, 65, a man of pudgy panache in fine suits and an elegantly diminishing gray hairline who has played both wet nurse and pimp to the tired old ship for most of the past two decades. "The Queen Mary has become Long Beach's preeminent icon. No question."
That works for Prevratil. He leases the Queen Mary from the city of Long Beach and for the past 10 years has manipulated affection for the publicly owned ship to build a personal financial empire.
It doesn't work quite so well for the city. Long Beach has been pumping money into the Queen Mary since she pulled into port in 1967—paying $3.45 million to save the ship from the scrap yard, spending another $100 million over the next 25 years to trick her out to tourists, and authorizing a series of nonstop subsidies to this day. Along the way, corporations from Diners Club to the Walt Disney Co. tried and failed to make their investments in the ship pay off, too.
Today, the relationships between the ship, the city and Prevratil are so complicated that it's no longer clear who owns the Queen Mary. To take just one example: deeply in debt, Prevratil has used his lease on the city's ship as collateral in loan deals with a Nevada financier. One false move, it seems, and the Queen Mary could end up a floating casino in a lagoon on the Strip.
Exactly what the Queen Mary symbolizes to Long Beach doesn't seem to matter anymore. But what it has cost to keep the ship tethered along Pier J constitutes perhaps the best measurement—in dollars and senselessness—of a civic inferiority complex that reaches back more than 100 years.
Long Beach's leaders have always longed for a larger-than-life image. Evidence of their desperate search for a definitive waterfront attraction goes back at least to 1897, when a few locals spotted a 63-foot finback whale that had strayed into shallow surf. They killed it, picked its carcass clean and displayed the skeleton downtown at Lincoln Park. They nicknamed their trophy "Minnie the Whale," and the editor of a local paper proclaimed that "Long Beach is now in possession of the wonder of the world." For most of the time since, Minnie's bones have been in the Los Angeles Natural History Museum storage facility in Vernon.
The same brand of reckless boosterism has driven Long Beach's relationship with the Queen Mary—and it has driven the city leaders into a corner.
Achieving legitimacy for the ship in Long Beach has come at great cost—and that cost has multiplied the ship's historical weight and political significance. The Queen Mary isn't merely an immense, elegant artifact from a bygone Mother England, anymore. She isn't only the laughingstock legacy of the Britannia Hillbillies who used their Tidelands oil money to buy Long Beach a right-fine piece o' tea-and-crumpets culture. She isn't just the most minor of Southern California's major vacation destinations. Now the Queen Mary means something to the people of Long Beach—no matter how obtusely, no matter how unprofitably. That's heavy. And to the Long Beach politicos responsible for her, that's scary.
"City Hall is terribly frightened of the Queen Mary," says Dr. Robert Gumbiner, the physician who founded the Fountain Valley-based medical-insurance company FHP International—and whose $2 million check in 1993 launched the nonprofit RMS Foundation that enabled Prevratil to get back aboard the ship. "Whatever mayor, city council or city manager is in office at the time, they are frightened that the Queen Mary will somehow turn into a rotting hulk on their watch. As long as they can avoid that, they will do anything."
That's how Joe Prevratil has been able to finagle the five-year lease he signed in 1993 into a contract that gives him beyond-his-lifetime control—through the year 2064—not only of the Queen Mary, but also of approximately 50 acres of valuable, city-owned waterfront real estate that fans out from the ship. That's why the folks down at City Hall so commonly—and so comfortably—refer to Long Beach's most famous symbol and most expensive piece of public property as "Joe's Boat."
This is Prevratil's second go with the Queen Mary. He ran the ship from 1982 to 1988 as president of the Wrather Corp.
"In 1993, the city asked me if I would take the Queen Mary back again," Prevratil recounts. "I said, 'Yes, we'll give it a shot.'"
The "we" was the team of Prevratil and Gumbiner. But Gumbiner says the men had a falling out after Prevratil almost immediately began ignoring the terms of the five-year lease they had signed. Prevratil says that's not true. A January 1995 review by the city auditor reported "substantial noncompliance."
"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."
Prevratil responds incredulously to questions about such things.
"You're confused," he told me repeatedly in the course of our brief conversation. When asked pointedly about the $17 million disparity in rent credits, he said he was "offended" I would even ask. Any apparent problems with the Queen's finances, he said, were strictly City Hall's problems.
Whatever the truth, a number of city documents, some contradictory, show that Prevratil took rent credits for those three years—2000, 2001, 2002—that total between $1.9 million and $2.2 million. In 2002 alone, the city's annual financial statement reports that "rental income from the Queen Mary decreased $1,088,000, mainly due to a one-time rental credit related to certain capital expenditures." Significantly, those expenditures were not itemized.
"How can that be?" asks Wilson-Kleekamp. "The Queen Mary is the symbol of our city! Why would the city of Long Beach stand for such a thing?"
When Gumbiner is presented with this question, the man who once was Prevratil's partner sighs with resignation before he answers.
"As long as Prevratil keeps the Queen Mary off the backs of city officials," says Gumbiner, "they don't care how he does it."
That's certainly the way the city has reacted to Prevratil's claims to rent credits. Many of the expenses cited in the documents acquired by Wilson-Kleekamp appear to fall outside the terms of the city's lease with Prevratil. For example, in 2000, Prevratil claims to have paid business-trends guru Faith Popcorn about $1.2 million for her consulting services. The city has no receipt on file for this work—which should not qualify for a rent discount, anyway, since it's not a capital-improvement expense. In another case, repair work on one of the Queen's auxiliary attractions, the Russian submarine Scorpion, was claimed as an expense—although the terms of the lease permitted discounts only for improvements on the land around the Queen Mary. In fact, an April 2001 note from the city auditor's office points out that "sub expenditures [are] not to be included in rent credit."
But rather than call Prevratil on possible lease violations, in November 2002, the City Council approved the drafting of a new lease. Without public discussion, it ordered new wording to expand Prevratil's rent credit net so that it would include the Queen Mary and other attractions and to make these rent credits retroactive to 1997. Prevratil says he's been operating under the terms of the new lease; the council says it never actually approved the new lease and has hired an outside consultant to point a way out of the morass.
Prevratil's response? "You're confused," he says. "You are mixing up the 9 percent return I get for costs to develop the property next to the Queen Mary. The rent credits are separate from that. We would never take a rent credit we were not entitled to. Besides, the city auditors are always over here checking up on us. We have to show them financial proof of everything, and I can assure you we do."
The Long Beach city attorney's office isn't so definitive.
"Whether there is sufficient backup for the rent credits Mr. Prevratil claimed or whether his expenses meet the provisions of the lease, I don't know," says deputy city attorney James N. McCabe, who handled Wilson-Kleekamp's public-records requests. "But I sent her every scrap of records I could find. I looked in the department of finance, the auditor's office and my files."
Those records hardly suggest a businessman besieged by auditors and city bureaucrats. Assistant city auditor J.C. Squires said there has not been a thorough audit of Prevratil's bookkeeping since the rent-credit provision was inserted in the Queen Mary lease in 1998. "It's been on our to-do list for some time, but our office is so small that we have to prioritize," said Squires. "We are going to request that those documents be gathered and made available for review."
Despite Squires' mention of a 1998 public audit, the most recent audit available on the city of Long Beach website dates back to 1994. Former deputy city auditor Earl Hobbs told the Weeklyhe did an audit in 2000 that was never made public at all. "It didn't look good," says Hobbs, "so they decided not to show it to anyone."
Even the California State Lands Commission, charged with ensuring the appropriate use of Tidelands trust funds, has been unable to excavate financial records from the city. The commission has twice sent letters to the Long Beach city attorney requesting specific documents—on Sept. 6, 2001, and on July 9, 2003. The second letter from the California State Lands Commission asked pointed questions regarding the status of the Queen Mary's rental payments to the city and the rent-credit deal while requesting copies of all leases and amendments relating to the ship. According to city documents, Long Beach officials simply did not respond to either letter.
The political climate for an examination of Prevratil's accounting seems to have improved recently, if only because Long Beach is in such sad financial shape. It faces a projected budget deficit of some $105 million over the next three years. All three prongs of its tourism plan—the Queen Mary, the Aquarium of the Pacific and the Convention Center—cling to life only through subsidies from the city's Redevelopment Agency and Tidelands trust fund.
After a flurry of closed-session meetings in December, the City Council hired an outside consultant to review the city's lease with Prevratil and make recommendations on its future. Mayor Beverly O'Neill used her 2003 State of the City address to pledge a thorough examination of city expenditures and some hard-line belt tightening. Nonetheless, O'Neill refused to be interviewed for this story.
If Prevratil took rent credits undeservedly, it's unclear whether the city could recover its money. Prevratil is already millions of dollars in debt and swimming in lawsuits—involving Prevratil, the for-profit Queen's Seaport Development Inc. and the nonprofit RMS Foundation, according to a 2002 report. Plus, state and federal tax liens surround him.
"We do have concerns about that," said an official in the city auditor's office who requested anonymity. "I guess the city manager would take first shot at it, then the city attorney would get involved. But you can see the numbers. It doesn't look good." He pauses. "Meanwhile, you know, the Queen Mary is sitting over there, like she has for all these years, and we'll see if people even want to ask anymore, how things got that way."