BILL ANALYSIS Ó
SENATE COMMITTEE on AGRICULTURE
Senator Cathleen Galgiani, Chair
BILL NO: SB 741 HEARING: 04/16/13
AUTHOR: Cannella FISCAL: Yes
VERSION: 04/10/13 CONSULTANT: Anne Megaro
California fairs: funding. (Urgency)
SUMMARY :
This bill revises 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.
BACKGROUND AND EXISTING LAW :
California fairs have been in existence since 1854 and have
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. 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.
The Division of Fairs and Expositions within the California
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 Agriculture 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
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self-sufficient as of January 1, 2012. The Governor directed
CDFA to form a working group to develop new fair governance and
funding opportunities for DAAs. A consortium of fair industry
representatives and stakeholders was formed to provide input for
CDFA's policy recommendation to the Governor. The consortium
delivered an informal draft comprehensive plan; however, no
official policy recommendations have been presented by the
Administration to the Legislature.
The Little Hoover Commission issued a report in September 2012
titled "Building Value: Modernizing Property Management." An
excerpt from page v of this report states, "State-owned
fairgrounds pose a unique property management challenge now that
the state - as of January 2011 - has stopped funding District
Agricultural Associations. Without funding or state staff, local
associations are on their own to manage and use the 41-state
owned fairground properties. The state should address this
challenge by authorizing the creation of alternative ownership
arrangements, such as joint powers authorities or public benefit
corporations, that would keep the property in public hands, but
allow greater local control and autonomy in managing the
properties."
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.
PROPOSED LAW :
This bill:
1. Consolidates specific revenues generated by racing
associations and fairs to be deposited into the F&E Fund,
to be continuously appropriated and allocated to fairs for
various purposes.
2. Provides that monies within the F&E Fund be used for the
following purposes:
a. For repayment of specified debts, bonds, or
other obligations. These payments shall be made prior
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to allocation for any other use.
b. For repayment of debt incurred for the
construction of a racetrack grandstand at the 22nd DAA
fairgrounds.
c. For the general support of the network of
California fairs.
d. For health and safety repair projects,
regulatory compliance projects, and long-term deferred
maintenance projects.
e. For capital improvements at fairgrounds, with
priority given to renewable energy generation
projects.
f. For the acquisition or improvement of any
property or facility that will serve to enhance the
operation of the fair.
g. For development and operation of
revenue-generating projects at fairs, including
expenses incurred in establishment and operation of
horse racing facilities, industry training,
establishment of pilot projects to restructure the
current fair system, and for projects realizing a cost
savings for more efficient utilization of existing
fair resources. Funds originating from parimutuel
pools of racing fairs may only be used for this
paragraph.
3. Provides that not more than 10% of the remaining
unallocated balance in the F&E Fund be used by the Division
of Fairs and Expositions to provide oversight and
administration of the network of California fairs.
4. Requires the secretary to annually project the available
monies in the F&E Fund, and the secretary shall advise the
Joint Committee on Fairs, Allocation and Classification of
the administrative budget of the Division of Fairs and
Expositions and the additional resources necessary to
oversee the network of California fairs. The secretary
shall also prepare an annual expenditure plan for the F&E
Fund for review and concurrence by said committee.
5. Repeals the requirement that fair projects follow CDFA
project schedules.
6. Repeals the requirement that CDFA perform annual fiscal
audits of the network of California fairs and instead
requires annual reviews.
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7. Requires all fairs to be audited once every three years,
or every year if the DAA's operating budget exceeds $10
million, by a certified public accountant/firm selected by
the fair. This audit shall be included in the fair's
annual statement of operations, along with any
recommendations for improvement by the auditing entity, for
the approval of the secretary. In addition, two or more
fairs may contract for a joint review or audit.
8. Repeals annual legislative appropriations to the
department for oversight and auditing of the network of
California fairs.
9. States declarations and findings of the Legislature that
funding for the network of California fairs is a
cooperative venture and is anticipated to be generated from
multiple sources, public and private. Fairs shall work
collectively to identify and designate new funding sources
to benefit all fairs in the network.
10. Provides that all fairs only pay a share of costs
directly related to personnel administration and no other
state agency administrative costs, except for services
rendered pursuant to specific contracts entered into with
other state agencies.
11. Repeals the requirement that a DAA attain CDFA approval
to sue.
12. Repeals the requirement that CDFA and DGS approve any
activity conducted on fairground property and instead only
requires fair board approval. If the activity is deemed
hazardous, the board must consult with CFDA and DGS to
ensure adequate insurance coverage is obtained.
13. Authorizes the governor to remove for cause a fair board
director upon recommendation of the fair board. Each board
shall adopt a policy determining the vote threshold for
such a recommendation.
14. Repeals the requirement that DAAs provide CDFA written
notification prior to entering into any agreement that 1)
exceeds $100,000; 2) exists for a period greater than 2
years; or 3) builds permanent structures on the property.
15. Repeals the requirement that DAAs seek CDFA approval
prior to entering into a settlement agreement exceeding
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$10,000.
16. Repeals the provision that the state is not liable for
any premium which is offered or award that is made, or on
account of any contract which is made, by any association.
17. Authorizes a DAA to enter into contracts, with the
following requirements:
a. The board shall adopt competitive bidding
procedures for contracts greater than $100,000 and
shall determine whether or not these goods or services
are available through existing DGS contracts or price
schedules.
b. That any adopted contracting standards,
procedures and rules also apply to any subcontract
greater than $100,000.
c. The board is subject to the Small Business
Procurement and Contract Act.
d. The board is subject to the Public Contract
Code for construction contracts exceeding $25,000.
18. Authorizes DAAs to do any of the following:
a. Accept funds or gifts from any person to aid
in the purposes of this part.
b. Conduct or contract for programs and contract
for the purchase or lease of goods and services.
c. Establish back accounts.
d. Approve annual budgets and operate a payroll
system.
e. Make permanent improvements to the real
property of the DAA.
f. Delegate powers to officers and employees for
management and operation of the DAA.
g. Purchase, acquire, hold, sell, or exchange, or
convey any interest in real property for a period in
excess of 20 years, with the approval of DGS.
h. Lease, let, or grant licenses for the use of
real property to any person for whatever purpose as
approved by the board. For leases in excess of 20
years, DGS approval is required.
i. Pledge any revenue, monies or other rights to
payment that shall constitute a lien or security
interest that immediately attaches to the property
pledged, with the approval of DGS.
19. Provides that the title, control, and possession of all
personal property acquired, held, managed, or operated by a
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DAA vests with the association.
20. Repeals the authority of DGS to lease any real property
under the jurisdiction of a DAA.
21. Makes technical changes.
COMMENTS :
Amendments: This bill is double referred to a second policy
committee. Given the time constraints for this bill to be heard
in the Senate, any amendment desired by this committee will have
to be adopted in the second policy committee.
Need for this bill: According to the author, this bill "is
drafted to help District Agricultural Associations deal with the
new reality facing the network of California fairs as they exist
today without state funding. This bill will give fairs the
necessary flexibility to operate more efficiently, save money
and preserve jobs."
Value of California fairs: 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 the 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.
Oversight concerns: Those in opposition state that "the
negative impacts on California fairgrounds outweigh the positive
impacts in the current bill. The only positive aspect of the
bill is restoring horse racing revenue, which is the historical
source of funding for fairgrounds." The opponents' main
concerns are the delegation of purchasing, contracting and
fiscal management to the local level, giving property titles to
DAAs, and the reduced oversight resulting from the increased
length of time between audits. Those in opposition state that
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"reducing oversight of a mostly cash business is a bad idea.
Money laundering at the 32nd DAA shows that problems exist
already and oversight should be increased, not reduced."
Departmental Funding: The committee may wish to consider if 10%
of the remaining unallocated funds are sufficient to cover
CDFA's costs of oversight and administration of the network of
California fairs. In 2011-12, total revenue entering the F&E
Fund amounted to $3.2 million and expenditures totaled $2.6
million. However, these values are diminishing, and it is
projected in the Governor's budget that in 2013-14 the F&E Fund
will see a deficit of approximately $350,000.
Currently, the Division of Fairs and Expositions budget
authority for 2012-13 is $2,832,728. The balance in the F&E
Fund, which includes any prior year carryover and reserves for
economic uncertainties, was $3,484,920 as of February 28, 2013.
State property, state oversight: The committee may wish to
consider if the dollar ($100,000) and duration (20 years)
thresholds for requiring DGS or CDFA approval for DAAs to enter
into contracts, leases, and purchasing agreements or selling or
conveying an interest in real property are appropriate
valuations for sufficient oversight of state property.
Horseracing fees: This bill designates funds originating from
parimutuel pools of racing fairs to be used for specific
purposes, namely developing and operating revenue-generating
projects, establishing and operating horse racing facilities,
restructuring the fair system, and for projects realizing cost
savings. The committee may wish to consider if these funds
should also be used for departmental oversight of racing fairs,
management of this account, or for other purposes.
Contracting for services: The author's office expressed intent
to strike provisions relating to services. These amendments
were inadvertently left out and may be addressed in the second
policy committee.
Double referral: The Senate Rules Committee has doubled referred
this bill to the Senate Committee on Governmental Organization.
Therefore, if this measure is approved by this committee, the
motion should include an action to re-refer the bill to the
Senate Committee on Governmental Organization.
RELATED LEGISLATION :
SB 741 - Page 8
AB 2345 (Ma) of 2012. Held in Assembly Committee on
Appropriations. 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.
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
no longer be paid into the Fairs & Expositions Fund, and instead
provides that 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,
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. Held in Assembly Committee on
Appropriations. Would have transferred the responsibility from
DGS to CDFA to prepare a program for DAAs for delegating
purchasing authority.
SUPPORT :
California Fairs Alliance (Sponsor)
Western Fairs Association (Sponsor)
Cloverdale Citrus Fair
El Dorado County Fair
Imperial Valley Expo/California Mid-Winter Fair & Fiesta (45th
DAA)
Marin County Fair
Nevada County Fairgrounds (17th DAA)
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San Joaquin County Fair (2nd DAA)
Ventura County Fairgrounds (31st DAA)
Patricia M. Kress, member of Western Fairs Association
OPPOSITION :
Orange County Fairgrounds Preservation Society