BILL ANALYSIS Ó SENATE COMMITTEE on AGRICULTURE Senator Cathleen Galgiani, Chair BILL NO: AB 2490 HEARING: 06/17/14 AUTHOR: Eggman FISCAL: Yes VERSION: 06/11/14 CONSULTANT: Anne Megaro District agricultural associations. SUMMARY : This bill would revise several provisions relating to the state oversight of district agricultural associations. This bill would authorize these fairs to take specified actions without the prior approval of state agencies, authorize the governor to remove fair board members with cause, and reduce the frequency of audits for smaller fairs, among other provisions and technical changes. BACKGROUND AND EXISTING LAW : California fairs have been in existence since 1854, and the network has since grown to encompass 78 fairs statewide. This network of California fairs is composed of 52 district agricultural associations (DAA), 23 county fairs, 2 citrus fruit fairs, and The California Exposition and State Fair (Cal Expo). DAAs are state government entities that are governed by nine-member gubernatorial appointed boards of directors (fair boards). In contrast, county fairs are county government or not-for-profit organizations; citrus fruit fairs are not-for-profit organizations; and Cal Expo is a state agency. In 2009, California fairs generated a $2.85 billion economic impact from consumer sales, $855 million in income for California employees, $127 million in annual state and local tax revenues, and provided 25,000 jobs. Fairs serve the local community by providing a venue for a variety of agricultural and local community events such as livestock shows and competitions, county fairs, trade shows, exhibits, and food, nutrition, and agricultural education. Fairgrounds also serve the state by assisting in emergency preparedness and response. In the event of natural disasters, fairgrounds may be transformed into command centers for CalFire, CalEMA, Homeland Security, law enforcement, and FEMA and also provide shelter for displaced persons and their pets and livestock. The Division of Fairs and Expositions within the California AB 2490 - Page 2 Department of Food and Agriculture (CDFA) provides fiscal and policy oversight for the network of California fairs; and the Department of General Services (DGS) provides oversight for use of state property, procurement, and services contracts (Business and Professions Code §19400 et seq.; Food and Agricultural Code §3001 et seq.). The source of state funding for these fairs has historically been dependent on horse racing license fees, which in recent years have significantly declined. In 2009, the legislature recognized the need for a new source of funding for the continuation of fairs and, thus, continuously appropriated $32 million from the state's General Fund to be paid into the Fairs and Exposition Fund (F&E Fund) [SB 16 X2 (Ashburn)]. However, the 2011-12 state budget eliminated General Fund contributions to the F&E Fund, requiring DAAs to be self-sufficient as of January 1, 2012. Since that time, several bills have been introduced and proposals have been discussed that aim to reduce DAA operating and administrative costs. Given that DAAs are state entities, these proposals have generally focused on reducing state oversight and specified requirements while increasing local decision-making and flexibility. PROPOSED LAW: This bill: 1. Authorizes DAAs to sue without the approval of CDFA. 2. Authorizes the governor to remove for cause any fair board director. 3. Authorizes a fair board, without prior approval from CDFA or DGS, to arrange, conduct or contract for any activity on fairgrounds, except for the following: a. Uninsured hazardous activities as determined by CDFA in consultation with DGS. b. Enter into a settlement agreement over $100,000 without prior CDFA approval. c. Enter into personal services contracts. AB 2490 - Page 3 4. Specifies that nothing in the above provisions should be construed and is not intended to extend or limit personal services contracting. 5. Authorizes DAAs to do the following without the approval of CDFA or DGS: a. Contract, in accordance with all of the following: i. The written policies and procedures developed and maintained by the fair board. ii. All applicable state laws governing contracts except for DGS requirements for the acquisition of goods and information technology services. iii. Competitive bidding for any construction project that exceeds $25,000. iv. May elect to become subject to the Uniform Public Construction Cost Accounting Act and the Small Business Procurement and Contract Act, but exempt from reporting requirements. b. Accept funds or gifts. c. Conduct programs and contract for the lease of goods either independently or in cooperation with any individual, public or private organization, or government agency. d. Establish and maintain a banking account approved by the director of Finance. e. Approve an annual DAA budget and establish a program for paying contracting vendors. f. Contract with any county or county fair association for holding a joint fair. g. Make or adopt all necessary orders, rules, or regulations for governing activities of the DAA, which are exempt from state administrative regulations and rulemaking requirements. h. Operate a payroll system to pay employees. i. Delegate powers of the fair board to officers and employees for the orderly management and operation AB 2490 - Page 4 of the DAA. j. Use or manage any DAA property jointly with any lessee or sublessee for any purpose approved by the fair board. 6. Authorizes DAAs to, with the approval of DGS but not CDFA, to: a. Purchase, acquire, hold, sell, exchange, or convey an interest in real property. b. Make permanent improvements on nearby or adjacent public lands if the improvements materially benefit the DAA property. c. Lease DAA property to any person or public body for whatever purpose approved by the fair board. d. Take out a lien or security interest on a DAA property and pledge revenues, monies, accounts, accounts receivable, contract rights, and other rights to payment. 7. Authorizes DAAs, with the approval of CDFA, to enter into a joint powers agreement. 8. Requires a fair board, other than that of the California Science Center, to adopt and publish competitive bidding procedures for a procurement, contract, or subcontract greater than $100,000 and, with DGS approval, pledge any revenues, monies, or rights of payment pursuant to terms and conditions approved by the fair board. The state shall not be obligated to generate or appropriate funds for payment of these contracts. 9. Requires DAAs to adopt a fiscal review policy and be audited periodically by an independent certified public accountant or firm selected by the fair board. DAAs with budgets exceeding $5 million shall be audited annually, and DAAs with budgets less than $5 million shall be reviewed annually and audited once every three years. However, CDFA may require an audit at other times if the state deems the audit necessary. 10. Increases from $10,000 to $100,000 the threshold requirement for DAAs to obtain CDFA approval prior to AB 2490 - Page 5 entering a settlement agreement. 11. Repeals the authority of the secretary of CDFA to make any state property available to DAAs that has been obtained without cost to the state. 12. Exempts the state from liability for any action, obligation, or commitment made by any DAA. 13. Exempts DAAs from DGS vehicle purchasing requirements. 14. Repeals the requirement that CDFA annually prepare a delegation program for DAAs. 15. Repeals the requirement that CDFA develop purchasing criteria for DAAs and other fairs. 16. Exempts DAAs from recycling and waste management reporting requirements. 17. Makes technical and conforming amendments. COMMENTS : Need for this bill: According to the author, "With the loss of state funding, many have gone through their reserves and have reduced staff, operations and even stopped their annual fair. The cost of complying with state accounting and reporting requirements add an additional burdens and costs to DAAs not receiving state funds." Informational hearing: The Senate Committee on Agriculture held an informational hearing in 2012 titled "The Future of Fairs in California" to examine the financial status of fairs and discuss alternative funding solutions to ensure the vitality of California fairs. Testimony from fair industry representatives acknowledged that many smaller fairs were at risk of closing if alternative funding strategies and/or governance structures were not utilized. Oversight concerns: Those in opposition state that this bill "eliminates or diminishes many of the checks and balances in current law that constrain what district fair boards can do without higher level approval or review." Considering a recent effort to privatize the Orange County fairground, those in opposition question why legislators would want to weaken AB 2490 - Page 6 transparency, oversight and accountability of DAAs. Subsequent amendments: There may be further amendments to address concerns regarding costs incurred for State Fire Marshal inspections. There is question as to whether local inspectors could be identified as acceptable alternatives who could provide the same high quality fire inspections but with lower travel costs. RELATED LEGISLATION : AB 1647 (Bigelow) of 2014. Would repeal the requirement that specified fairs report the number of credential and courtesy passes issued and would repeal requirements that the California Department of Food and Agriculture expend funds relating to exhibits. Currently in the Senate Committee on Agriculture. SB 741 (Cannella) of 2013. Would revise the duties, responsibilities, and powers of the California Department of Food and Agriculture, the Department of General Services, and district agricultural associations in regards to the operation, oversight, administration, governance, and funding of the network of California fairs. In the Assembly Committee on Appropriations. AB 2345 (Ma) of 2012. Would have established the California Fair Network Commission as a nonprofit, mutual-benefit corporation to assess fees for services, manage funds, and provide administration and oversight of California's fairs. Held in Assembly Committee on Appropriations. AB 95 (Budget), Chapter 2, Statutes of 2011. Repeals the $32 million annual General Fund appropriation for the support of the network of California fairs. SBX2 16 (Ashburn), Chapter 12, Statutes of 2009-10 Second Extraordinary Session. Provides that horse racing license fees shall no longer be paid into the Fairs & Expositions Fund, but instead, beginning July 1, 2009, $32 million shall be continuously appropriated from the state General Fund to the Fairs and Exposition Fund for the support of the network of California fairs. SB 1085 (Runner), Chapter 320, Statutes of 2010. Allows the 50th DAA, with consent of the secretary of CDFA, to enter into a joint powers agreement with a nonprofit organization to operate, AB 2490 - Page 7 maintain, and improve the 50th DAA. AB 2250 (Runner), Chapter 452, Statutes of 2008. Authorizes officers and employees of DAAs to receive compensation from nonprofit corporations. SB 281 (Maldonado), Chapter 346, Statutes of 2007. Requires CDFA to develop criteria to be used for the disposal of property by a DAA and Cal Expo. SB 1041 (Denham) of 2006. Would have transferred responsibility from DGS to CDFA for preparing a program for DAAs to delegate purchasing authority. Held in Assembly Committee on Appropriations. PRIOR ACTIONS : Assembly Floor 75-0 Assembly Appropriations 17-0 Assembly Agriculture 7-0 SUPPORT : Western Fairs Association Rural County Representatives of California OPPOSITION : Orange County Fairgrounds Preservation Society