Aquarium seeks help to fix deep problems.

Byline: LARRY BACON The Register-Guard

NEWPORT - The financially beleaguered Oregon Coast Aquarium kicked off a $4 million fund-raising campaign this week in an effort to dig its way out of a mountain of debt.

"We need $500,000 worth of contributions by the end of the year," aquarium board Chairman Al Gleason said, "so we have working capital to get through January, February, March and April."

The aquarium's gate receipts are lowest during those months.

The fund drive comes on the heels of a financial crisis precipitated this summer when board members learned that the nonprofit aquarium's longtime president and chief executive officer had secured an unauthorized $2 million loan to help cover what Gleason described as $3 million in hidden costs for a new exhibit.

The executive, Phyllis Bell, resigned in July after the discovery of the financial problems related to the "Passages of the Deep" exhibit.

The $4 million fund-raising goal, Gleason said, equates to $3 million in costs that Bell did not disclose to the board, plus another $1 million shortfall in previous efforts to raise funds to pay for "Passages," which ended up costing $10.8 million.

The exhibit takes visitors through a 200-foot underwater acrylic tunnel across a huge tank to view thousands of marine creatures in three ocean environments.

Use of operating revenue to try to cover "Passages" costs put the aquarium deeper in debt, and caused vendors of goods and services critical to day-to-day aquarium operations to go unpaid. Since the crisis became public, Gleason, the retired chief executive officer of PacifiCorp and a former Port of Portland president, has volunteered his time trying to put the aquarium's finances in order.

Gleason said $4 million in donations would finish paying for "Passages" and reorganization of the aquarium's debts, after which the organization should be able to get back on a financial even keel.

"I wouldn't be here if I wasn't optimistic," he said.

But he acknowledged that the debt restructuring remains a work in progress, and estimated that it will be February or March before all the pieces are in place.

An audit of the aquarium's finances is nearly complete, and aquarium officials are continuing to work out reimbursement plans for unpaid vendors and reschedule debts with financial institutions. All local vendors have been paid, Gleason said, and by next summer he hopes that those out of town can be paid off. Since July 25, he says, outstanding bills have been reduced by $362,000, and about $450,000 is still owed to vendors.

An investigator from the Oregon Justice Department, working with the Lincoln County District Attorney's Office, began interviewing aquarium officials this week as part of a probe to determine if any laws were violated in the hiding of the financial obligations and loan. Gleason declined to be specific about how Bell was able to secure the loan from Wells Fargo Bank without proof of the authorization required by the board, but said "this was not a well-documented loan."

Auditors will issue a new financial statement for the 2000-01 fiscal year reflecting the loan and previously unstated costs of the "Passages" exhibit, Gleason said.

An offer has been made to Wells Fargo Bank to "reschedule" the $1.75 million still owed on the $2 million secret loan "in a way that works for them and us," Gleason said. He declined to say whether the offer would cover the full amount of the loan and acknowledged that litigation is possible.

The aquarium also is negotiating to reschedule $2,175,000 in debt now due to the Free Willy Keiko Foundation. Most of the money is owed on an agreement to buy out the foundation's lease on the tank the organization built and donated to the aquarium to house Keiko the "Free Willy" killer whale when he was being rehabilitated at the aquarium before his move to Iceland. The tank was converted to the "Passages" exhibit.

Efforts also are under way to extend about $13 million in bonds originally issued to build the 10-year-old aquarium in order to reduce debt service costs of $1.2 million a year. Since April, the aquarium has quit making monthly payments to a bond trustee to cover payments to bondholders, relying on a 12-month reserve fund to meet those obligations. The nonpayment has resulted in the Standard & Poor's rating service downgrading the rating of the bonds to a CCC, which the service defines as "speculative" or noninvestment grade.

The main effect of the reclassification, Gleason says, would be to make it more difficult for the aquarium to issue new bonds, which it has no plans to do. He says bondholders will continue to be paid and the State Treasurer's Office has offered to help convince bondholders to extend the payment period.

Two banks that are owed nearly $2 million in board-authorized loans related to the "Passages" project have agreed to accept interest-only payments indefinitely, Gleason says. To help reduce costs, the aquarium has laid off three of its 66 employees and contracted out its gift shop operations to a concessionaire.

Gate receipts were down 15 to 20 percent this summer just as they were for most tourist-related businesses in Oregon, says Patrick Helbling, the aquarium's acting president and chief operating officer.

Regardless of all the problems, Gleason said, the aquarium should not be regarded as "a failing entity in the ordinary sense." It simply lacked the resources to pay for the new exhibit, he said, and "we didn't know that because it was hidden from us."

An audit determined that all the revenue from the secret loan went to pay the contractor that built the "Passages" exhibit, Mountain States Construction Co. of Sunnyside, Wash.

This week, the aquarium's 25-member board of directors pledged $500,000 over three years from their own pockets toward the $4 million goal and committed to try to use their personal connections to raise an additional $1 million.

The campaign, Gleason said, will focus on individuals and organizations that value the aquarium as an important part of the Oregon economy that provides a valuable educational experience for visitors. So far, potential donors have given a positive reaction in spite of all the negative publicity and indicated that they want to see the aquarium succeed, he said.

For now, the main goal of the fund-raising campaign will be to get the $500,000 needed for immediate operations. The amount needed, Gleason said, is in addition to the three-year board pledges, expected to generate only $175,000 this year.

"If we get $500,000 from the community and others, we can stay current this winter and remain in good shape - for the shape we are in," Gleason says.

CAPTION(S):

Financial problems relating to "Passages of the Deep" cost the Oregon Coast Aquarium dearly.