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Swimming With the Sharks

illustration by Sam Turner

Colorado's Ocean Journey will find out this week whether its request for taxpayer support will sink or swim when the Scientific and Cultural Facilities District announces its decision on the aquarium's eligibility.

Whatever the outcome, SCFD boardmembers can safely say they didn't bow to political pressure -- from Ocean Journey or from other organizations opposed to the aquarium's inclusion in the special taxing district -- since they hired two independent consulting firms to help inform their decision.

The SCFD budgeted $29,750 to hire the accounting firm of Gelfond Hochstadt Pangburn and the business consulting company of Horwath Horizon Hospitality Advisors to review the aquarium's financial and business plans. The money will come out of a cash-reserve fund and not from the funding that goes to support Denver's cultural institutions, says SCFD administrator Mary Ellen Williams. The district has hired an independent consultant in the past when it was deemed necessary..

"We do it when we feel we want more information and to really help with the accountability issue," Williams says. "When we have questions and it's outside our expertise, we use a consultant. There have been enough questions raised that the board wants to review Ocean Journey thoroughly."

Gully Stanford, director of public affairs at the Denver Center for the Performing Arts, one of the organizations that could be affected financially if Ocean Journey is allowed into the SCFD, says the move is a good one. "If they were to make any decisions to limit or retain any money that Ocean Journey claims to qualify for, they would want to point to an impartial auditing firm," he explains. "It's like the White House having an outside prosecutor; it's seen as being above the political fray and based solely on the merits of the case."

Five years ago, the SCFD hired an attorney to look into the management of Historic Paramount, the foundation that operates the Paramount Theatre downtown. The foundation had successfully applied for SCFD tax money in 1992, but in 1996, Fey Concert Company, which was co-owned by local promoter Barry Fey and the movie company Universal/MCA, entered into an agreement with the theater that allowed Fey's company to book -- and profit from -- shows at the Paramount. Adding to the muddle, a Universal/MCA executive sat on the board of the Historic Paramount Foundation. SCFD boardmembers were concerned about distributing tax dollars to an organization so closely aligned with a for-profit company. After months of legal wrangling, Historic Paramount was allowed to remain in Tier II, and it continues to receive SCFD money today.

The SCFD was created in 1988, when voters in the six-county metro area approved a 0.1 percent sales tax to help the region's cultural and scientific institutions. For the purpose of distributing the money, these organizations were divided into three tiers. The Big Four -- the Denver Museum of Nature and Science, the Denver Zoo, the Denver Art Museum and the Denver Botanic Gardens -- were the only four groups allowed into Tier I, which receives the majority of the money, about $21.8 million last year. Tier II is made up of eighteen other organizations, including the DCPA, the Children's Museum and Opera Colorado. A third tier consists of 300 smaller nonprofits.

Ocean Journey shocked Denver's cultural community earlier this year when it announced that it would seek Tier II funding despite an earlier promise to its major donors that it wouldn't do so until at least 2004. Full inclusion in the SCFD would give the aquarium more than $2 million a year and allow it to refinance its debt (Ocean Journey announced last month that after next year, it won't be able to make payments on its $57 million bond debt and will default on a $6.1 million loan from the City of Denver). But existing Tier II organizations, many of which are much smaller than Ocean Journey, are worried that that would mean a lot less money for them ("Culture Clash," April 26).

This isn't the first time the SCFD has taken into account the economic viability of an organization rather than just the eligibility criteria, which, according to state statute, says that an organization must be a nonprofit; "provide for the enlightenment and entertainment of the public through the production, presentation, exhibition, advancement, or preservation of art, music, theater, dance, zoology, botany, or natural history or shall be an agency of local government which has such primary purpose"; and have its main office in the six-county metro Denver district, conduct the majority of its business in Colorado, and benefit the residents of the district.

In addition, Tier II groups must have been in existence for at least two years and have a certain operating income (which amounted to $858,000 this year).

In 1989, when the Denver Symphony Orchestra was on the brink of bankruptcy, the unpaid musicians broke away from management and formed the Colorado Symphony Orchestra. But the CSO had no money, and because it hadn't been around for two years, it couldn't qualify for SCFD funding. The DSO, in the meantime, filed a reorganization plan that entailed using its SCFD money to pay the musicians and refund ticket holders for canceled concerts. But the SCFD refused to give the DSO its portion of the tax dollars because boardmembers were concerned that the organization wasn't viable and because it wasn't holding any performances.

Eventually, the two organizations merged and came up with a financial plan. At that point, the SCFD gave the new Colorado Symphony Orchestra the $1.26 million it had been holding in escrow. For the next decade, the CSO experienced financial stability -- thanks in large part to SCFD funding and economic good times. (Recently, however, the CSO announced that it is in trouble again, claiming a budget deficit of close to $500,000.)

Ocean Journey CEO Doug Townsend is aware that the SCFD acted outside the scope of the state statute when it denied the Denver Symphony funding based on its economic instability. But he says the aquarium's attorneys have carefully reviewed the SCFD's eligibility requirements, and that if Ocean Journey is denied admittance into the SCFD based on its finances, then suing is "an option that is available to us," even if that means tying up money for other organizations until the situation is resolved (the SCFD allocates tax dollars in September). "We have said all along that we're concerned about other groups," he says. "But we're also concerned about ourselves.

"It is our position that we can't be legally denied entry," Townsend adds. "From our conversations with our legal counsel, we meet those eligibility criteria. There's a lot of disagreement out there. Some SCFD boardmembers say we meet the criteria but then turn around and say that that doesn't mean the board will let us join."

But the SCFD's Williams points out that "one of the roles of the board is to take that fiduciary responsibility. When the board makes a distribution, we want to make sure it's used for an organization that is able to operate and serve the community. If we end up distributing the money to Ocean Journey, we want to make sure it's used in that year."

Nevertheless, the SCFD is not using outside help to review the applications of other nonprofit groups that have applied for district money this summer, including the Denver Film Society, E-Town and Historic Denver.

The SCFD is expected to announce its decision on August 9.