Report 98115 Summary - April 1999

California Science Center:

The State Has Relinquished Control to the Foundation and Poorly Protected Its Interests

RESULTS IN BRIEF

In early 1998, the new California Science Center (science center) opened to the public. Formerly known as the California Museum of Science and Industry (CMSI), the science center is now a new state-of-the-art science museum. Its primary purpose is to stimulate Californians' interest in science, industry, and economics.

The science center is located in Exposition Park (park), just south of downtown Los Angeles. The park is perhaps best known as the host site of the 1984 Olympics. The State owns most of the land within the park but leases much of it to the city and county of Los Angeles and the Coliseum Commission to operate other museums and sports venues there.

The California Science Center Foundation (foundation) is an auxiliary organization whose primary purpose is to support the science center through fund raising for science exhibits and educational programs. Since 1992, the foundation has actively raised funds for the new science center and contributed $15.9 million for its exhibits and $19.6 million for educational programs.

In its attempt to utilize a public-private partnership, the State has essentially relinquished governance of the science center to its foundation. While the State has historically controlled science center policy, management, and operations, these functions are now primarily under foundation direction. This is evidenced by the composition of the executive director's management team: six of seven management positions are partially or fully affiliated with the foundation. In addition, the one position compensated fully by the State is currently vacant, and the science center management has made only minimal efforts to fill it.

In 1998, the executive director stated that the foundation has contributed more funds as State funding was reduced, and those who raise funds want input and consultation regarding management of the science center. However, we determined that although the foundation has contributed to enhancing the science center, the State has always been the science center's primary source of support: Public funds have paid the majority of the science center's capital improvements as well as for its programs.

Because the executive director and two deputies serve both the State and the foundation, they may be faced with competing interests. While the new science center and its educational programs are a significant improvement over the former CMSI, state-appointed executives are not properly protecting the State's interests in the science center and the park. Decisions these executives made or actions they took demonstrate their failure to adequately protect the State's significant investment in the science center and further confirms the State's weakened position. Moreover, many of these decisions appear to favor the foundation's interests, which exemplifies our concerns. Specifically, the science center's management failed to protect the State's interest when it:

  • Allowed the State to pay more than $1 million for exhibit maintenance despite the foundation's contractual obligations to maintain its own assets.

  • Permitted the foundation to utilize about $128,000 in net profit to support its operations even though this profit is contractually restricted to improving science center exhibits and education programs.

  • Failed to ensure that the State was reimbursed for expenses it incurred when the foundation rented out the Loker Conference Center and other parts of the science center for special events.

  • Permitted the foundation to charge fees for certain exhibits that are operated and maintained by the State while retaining all such exhibit fees to support foundation operations.

Finally, the science center's management also failed to conduct the State's business in a fiscally responsible and legal manner. In particular, we determined that the science center did not properly manage the State's business when it:

  • Compensated some employees for hours they did not work.

  • Violated state contracting procedures and circumvented state controls in administering contracts.

  • Allowed a food service vendor to operate on its premises without a contract for more than a year.

  • Has only had two valid enforceable contracts for parking operations since 1990-yet parking revenues are just under $2 million annually-and has not employed reasonable methods to verify that the State is receiving all of the parking revenues to which it is entitled and may have no recourse for recouping the lost revenue.

RECOMMENDATIONS

Because the State has a substantial investment in the science center and continues to provide its primary support, the Legislature should re-examine California Government Code, Section 18000.5 and determine whether allowing state employees to render services to a nonprofit corporation for additional compensation continues to serve the State's best interest.

In its attempt to use a public-private partnership to enhance the science center, the State has essentially relinquished governance to the foundation. The State needs to regain management control of the science center so that the State's interests are better protected. Therefore, the State and Consumer Services Agency (agency) should take the following actions:

  • Ensure that science center management utilizes civil servants in management positions to guarantee the State occupies positions of authority that set policy.

  • Consider restructuring the reporting responsibilities of management at the science center so that the deputy director of administration reports directly to an individual at the agency.

  • Make sure that the foundation fully discloses to the Department of Personnel Administration the compensation it intends to provide to science center employees, including all perquisites such as car allowances, and club memberships, and reports annually this information to the Office of the State Controller.

Science center administrators need to properly protect the State's interests in the science center, particularly in its relationship with the foundation. To regain control of its resources, the science center should review and enforce all agreements with its foundation. Specifically, the science center should take the following actions:

  • Require the foundation to pay costs of exhibit maintenance.

  • Require the foundation to retain the proceeds from its gift center and Loker Conference Center operations in restricted funds and limit the use of net revenue from these operations for science center exhibits and educational programs.

  • Immediately prepare Memorandums of Understanding (MOUs) for all exhibits currently housed in the science center and develop procedures to ensure that it prepares MOUs for any future exhibits displayed at the science center.

  • Promptly bill and collect from the foundation amounts owed to the State.

  • Submit current and future agreements that it has with the foundation to a designated individual at the agency for review and approval of terms and conditions in those agreements. The designated individual at the agency should ensure that provisions in any and all agreements are in the State's best interest.

To ensure that science center employees who receive compensation from the State and the foundation mitigate conflicts of interests in the future, these executives should review the relevant laws and regulations and abide by them in their dealings with the foundation and otherwise.

The science center should take immediate steps to obtain valid, enforceable contracts for its food service and parking operations. As such, the science center should do the following:

  • Submit the proposed contract for food service operations to a designated individual at the agency for review and approval.

  • Continue its negotiations with the food service operator and submit the proposed contract to the Department of General Services for review and approval.

  • Immediately prepare the necessary documents to advertise and solicit bids from potential parking lot operators. It should also submit future contracts to the agency for review and approval and work with the Department of General Services to ensure that it completes valid and enforceable contracts.

The Legislature should review the structure of and the relationships among the science center's state board, the foundation's board of trustees, and the Coliseum Commission and determine whether membership on more than one board or commission potentially compromises state board members' ability to protect the State's interests.

The governor should promptly appoint two new members to the science center's state board to replace the members' whose terms expired on January 15, 1999.

AGENCY COMMENTS

While acknowledging the contributions of the public-private partnership, the agency agreed with the concerns set forth in the audit and has pledged to work with both the science center and the foundation to address each recommendation. In addition, the science center recognized that the audit raised many issues it needs to address. Although the science center does not agree with each and every finding, in its response, the science center outlined steps it has begun taking to implement many of our recommendations.


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