Heavy cost overruns may have caused Occidental Petroleum officials last summer to use accounting devices to switch millions of dollars from the Armand Hammer Museum of Art and Cultural Center books to other corporate categories.
In order to settle a shareholder suit over financing of the center, Occidental had earlier agreed to hold costs for the Westwood facility to $60 million or less. To meet the goal, the oil company had to reduce the price of the museum by $18.4 million from its highest cost estimate.
Details of the bookkeeping transactions and many other cost-cutting decisions are included in internal Occidental documents--some of them stamped "confidential"--that were obtained by The Times.
The documents describe millions of dollars worth of opulent features and details originally planned for the museum--including a $258,000 VIP reception lounge, with a $25,000 fireplace, to house Hammer's personal memorabilia; vast areas of marble floors, and a radiant heating system for an outdoor courtyard. Inclusion of the luxuries had caused the projected museum cost to balloon to more than $78.4 million from an originally announced total of $30 million to $50 million.
The museum, which is under construction in Westwood, is to house the personal art collection accumulated by Armand Hammer, 91, Occidental's chairman. He announced plans to construct the museum, using Occidental money, two years ago after a tiff with the Los Angeles County Museum of Art, to which Hammer had originally pledged his collection.
The budget crisis apparently prompted Occidental to move more than $2 million in costs from bookkeeping accounts reserved for the museum to those of Oxy Westwood Corp., a wholly owned subsidiary that owns and operates Occidental's headquarters building adjacent to the museum site, according to the documents.
The papers include memoranda, meeting minutes and internal reports. Occidental declined to provide any official to discuss the papers and cost overruns. The company also declined to respond to written questions submitted by The Times.
"Regarding your questions about the museum," said Occidental spokesman Howard Collins, "we will have no comment because of pending litigation."
Gary McCormick, vice president of McCormick Construction Co., the museum's general contractor, referred all questions to Occidental. Ronald Asquith, Occidental's vice president in charge of the construction, as well as the firm's outside construction-cost consultant, Deryl Redden, both failed to return calls.
The museum and a subterranean garage are being constructed behind Occidental Petroleum's headquarters. The bottom four floors of Occidental's 16-story office tower are being gutted for conversion to museum space. The museum and office building will be structurally joined.
Occidental Petroleum officials stepped into the museum cost-overrun situation last summer after they agreed to a proposed settlement of a shareholder lawsuit filed to block construction of the museum as an inappropriate use of Occidental money. Cuts left the museum auditorium, library and restaurant as vacant space.
Even with the cuts, the museum budget was between $1 million and $7 million higher than the $60-million objective, which came to be known within Occidental as G-Max-- or guaranteed maximum cost . Court records show that the proposed settlement would be declared invalid if the total cost for the museum was more than $60 million. If the court accepts the settlement, all other litigation against the museum would be concluded.
Attorneys representing shareholders challenging the museum expenses expressed concern that the apparent cost-shifting by Occidental could indicate that the proposed settlement had been circumvented. California Deputy Atty. Gen. Susan Henrichsen, who represents the California Public Employees Retirement System, whose pension plan owns more than 2.4 million shares of Occidental stock, said the apparent shifting of costs "is certainly something one would want to know more about. If the settlement is not really putting a lid on (the price of the museum by artificially shifting budget costs), that's something all the shareholders should know."
Henrichsen, however, was cautious. "I would really be surprised if they (Occidental) would do anything that bold," she said. "If they simply made a bookkeeping transfer to artificially reduce the cost of the museum, I would be quite surprised. If there was some bookkeeping transaction (of that nature), that would be a real serious indication of further problems."