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  :





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          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