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Recommendation to receive and file the Queen Mary Capital Improvements Audit, and revisit Save the Queen's performance of capital improvements subsequent to its next benchmark deadline of December 31, 2009.
DISCUSSION
In November 2007 the City signed an agreement with Save the Queen (STQ) in which STQ agreed to make $5,300,000 of capital improvements through December 31, 2010 in exchange for the City's waiver of percentage rent under the lease. Under the agreement, STQ was required to perform a minimum of $2,800,000 in capital expenditures by December 31, 2008.
We conducted this audit to verify the amount of capital expenditures made by STQ through December 31, 2008 in accordance with the agreement.
According to our audit, Save the Queen completed $2,039,000 in capital improvements through December 31, 2008, significantly less than their obligation. Furthermore, some improvements deviated from the agreed-to capital plan without management approval, and it is City Management's position that $73,622 of these improvements be disallowed as outside the agreement. The details of our audit can be found in the attached report, along with the response of Save the Queen and City Management.
Save the Queen has represented to City Management that it intends to meet all of its remaining capital improvement obligations under its agreement with the City. As part of its attached response, Save the Queen notes that ownership of the entity changed in 2009, and that they nonetheless stand by their capital improvement obligations. The Community Development Department has also indicated that it will be working with Save the Queen regarding these improvements to ensure that they are made. We recommend that City Management closely monitor Save the Queen's performance to ensure that an aggregate of $4,300,000 in improvements are made by the next benchmark date as agreed to in the plan, December 31, 2009. The City Auditor's Office will continue to work with City Management and the City Attorney's Office to ensure that the City's interests in the Queen Mary are protected.
We would like to thank Save the Queen for the time, information, and full cooperation provided to us during this audit.
TIMING CONSIDERATIONS
This item is not time-sensitive.
FISCAL IMPACT
As described in the report, Save the Queen failed to make at least $761,000 in capital improvements as required by their lease with the City. Save the Queen has represented that it intends to make all improvements required under its lease. The failure of Save the Queen to fulfill its lease obligations would result in a lack of improvements to the City's asset, and undermine the City's goal of improving the visitors' experience and generating additional operation revenue at the Queen Mary.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
LAURA L. DOUD, CPA
CITY AUDITOR
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APPROVED: |
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PATRICK H. WEST |
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CITY MANAGER |