BILL ANALYSIS Ó
Bill No: SB
741
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2013-2014 Regular Session
Staff Analysis
SB 741 Author: Cannella
As Proposed to be Amended: April 23, 2013
Hearing Date: April 23, 2013
Consultant: Art Terzakis
SUBJECT
California Fairs: funding
DESCRIPTION
SB 741is an urgency measure that makes numerous substantive
and clarifying changes to existing provisions of law
governing the operation, oversight and funding of the
network of California fairs. Specifically, this measure:
1)Adds findings and declarations to the Food and
Agriculture Code stating that funding for the network of
California fairs is a cooperative venture and is
anticipated to be generated from multiple sources, public
and private. Also, declares that fairs shall work
collectively to identify and designate new funding
sources for fairs to be utilized for the benefit of all
fairs in the network.
2)Clarifies that revenues generated by racing associations
and fairs shall be deposited into the Fairs and
Exposition (F&E) Fund and may be expended for various
purposes that enhance the fairs, including among other
things, for capital improvements at fairgrounds, with
priority given to renewable energy generation projects,
and for expenses incurred in establishing and operating
horse racing facilities and training. Also, deletes
existing provisions requiring satellite wagering license
fees be deposited into a separate account in the F&E
Fund.
3)Provides that excess funds generated in the F&E Fund may
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be used for: (a) capital outlay to California fairs for
fair projects involving public health and safety; (b)
fair projects involving major and deferred maintenance;
(c) fair projects necessary due to any emergency; (d)
projects that are required by physical changes to the
fair site; (e) projects that are required to protect the
fair property or installation, such as fencing and flood
protection; and, (f) the acquisition or improvement of
any property or facility that will serve to enhance the
operation of the fair.
4)Stipulates that not more than 10% of the remaining
unallocated balance in the F&E Fund may be used during
any year by the Division of Fairs and Expositions for
oversight and administration purposes involving the
network of California fairs.
5)Requires the Secretary of Food and Agriculture
(secretary) to annually project available monies in the
F&E Fund and advise the Joint Committee on Fairs,
Allocation, and Classification of the administrative
budget of the Division of Fairs and Expositions and the
additional staff and resources necessary to oversee the
network of California fairs. Also, requires the
secretary to prepare an annual expenditure plan for the
F&E Fund for review and approval by the Joint Committee.
6)Repeals an existing requirement that all state designated
fairs have their books and accounts audited annually and
instead requires that all fairs that receive money from
the F&E Fund have their accounts examined and reviewed
annually and audited every three years by an independent
auditor rather than the California Department of Food and
Agriculture (CDFA).
7)Requires fair boards with annual budgets exceeding $5
million to conduct an annual audit by an independent
certified public accountant selected by the board. Fair
boards with annual budgets of less than $5 million must
have their accounts reviewed annually and audited every
three years by an independent certified public accountant
selected by the board. Also, permits CDFA to require an
audit sooner than referenced above if it deems it
necessary to protect the interests of any fair.
8)Repeals an existing requirement that fair boards must
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receive approval of the CDFA before they can file a
lawsuit, or settle a lawsuit for more than $10,000. Also
eliminates the requirement that the Department of General
Services (DGS) must approve any activity on the property
owned by the fair board, but retains the requirement that
"hazardous activities" may be conducted only upon the
determination by CDFA that adequate insurance coverage is
provided.
9)Grants the Governor the authority to remove a fair board
member for cause upon the recommendation of a fair board.
Also, requires the fair boards to adopt a policy and
procedure, including the vote threshold necessary, for
removal of a board member.
10)Eliminates the requirement that the CDFA and the DGS
must approve all contracts, purchases or leases of land
or other property by the fair boards.
11)Repeals the requirement that fair boards provide CDFA
written notification prior to entering into any agreement
that: (a) exceeds $100,000, (b) exists for a period
greater than 2 years, or (c) builds permanent structures
on the property.
12)Requires fair boards to incorporate competitive bidding
procedures into all contracts and subcontracts over
$100,000.
13)Provides that, if the estimated costs of any
construction project or similar work exceed $25,000, the
fair board shall solicit bids in writing and shall award
the work to the lowest responsible bidder or reject all
bids. Also, makes it explicit that district agriculture
associations (DAAs) shall be subject to all applicable
provisions of the Public Contract Code.
14)Adds provisions to the Food and Agriculture Code
authorizing fair boards to do any of the following:
a) Accept funds or gifts from the federal government
or any person for fair purposes.
b) Contract for programs and contract for the purchase
or lease of goods.
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c) Establish and maintain financial accounts.
d) Approve annual budgets, operate a payroll system,
establish a program for paying vendors and contract
with other fairs for the purpose of holding joint
fairs.
e) Make permanent improvements to the DAA's real
property.
f) 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.
g) Lease, let, or grant leases for the use of real
property, as approved by the board. For leases greater
than 20 years, DGS approval is required.
h) 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.
15) Makes other technical, clarifying and conforming
changes, as specified.
EXISTING LAW
Existing law governs fairs and expositions in this state,
including the California Exposition and State Fair, county
and district fairs, and citrus fruit fairs.
Existing law divides the state into agricultural districts
and authorizes 50 or more persons who are residents of a
district to form district agricultural associations for the
purpose of holding fairs, expositions, and exhibitions, as
specified.
Existing law provides that district agricultural
associations (DAAs) are state institutions governed by a
board of directors whose members are appointed by the
Governor.
Existing law provides that the California Department of
Food and Agriculture (CDFA) is responsible for providing
oversight of activities carried out by each California
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fair, including, but not limited to, conducting fiscal and
performance audits of county fairs and citrus fruit fairs
that are either requested by the fair or that the
department deems necessary, and conducting, or causing to
be conducted, annual fiscal audits and periodic compliance
audits.
Existing law authorizes an association to carry out
specified duties with the approval of the CDFA and the DGS,
including contracting and leasing its real property.
Article IV, Section 19(b) of the Constitution of the State
of California provides that the Legislature may provide for
the regulation of horse races and horse race meetings and
wagering on the results.
Existing law grants the California Horse Racing Board
(CHRB) the authority to regulate the various forms of horse
racing authorized in this state.
Existing law establishes the Fair and Exposition Fund to,
among other things, allocate moneys for the support of the
network of California fairs. Existing law requires certain
license fees from satellite wagering to be deposited into a
separate account in the Fund, and continuously appropriates
those moneys for specified purposes, including, among
others, the payment of expenses incurred in establishing
and operating satellite wagering facilities at fairs.
Existing law authorizes the CDFA to make and administer
loans from the fund to any fair in the network of
California fairs, as specified.
BACKGROUND
Brief History of California's Network of Fairs: The
"Network of California fairs" includes 78 different fairs
divided into four categories: (1) 52 district agricultural
associations (DAAs) which are state government entities
governed by a board of directors appointed by the governor;
(2) 23 county fairs which are county government or
not-for-profit organizations; (3) 2 citrus fruit fairs
(Cloverdale and San Bernardino Orange Show) which are
not-for-profit organizations; and, (4) the California
Exposition and State Fair (Cal Expo), a state entity.
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Prior to the passage and enactment of SB 16 X2 (Ashburn) of
2009, license fees assessed from the wagers made on horse
racing were deposited to the credit of the F&E Fund which,
in addition to providing general support for the annual
budget of the CHRB, supplemented the income of the State's
network of fairs. At that time, the law guaranteed the
Fair and Exposition (F&E) Fund would receive $40 million
annually from license fees. SB 16 X2 eliminated the
license fee on wagers as a means of helping the struggling
horse racing industry. In addition, it deleted the $40
million "guarantee" from law. This amount is, instead,
distributed to the racing associations and horsemen and
horsewomen. The bill also provided that the state funding
for the network of California fairs shall be a continuous
appropriation of $32 million annually from the General
Fund.
The $32 million General Fund support for the network of
California fairs was eliminated in the 2011-2012 Budget due
to the state's growing fiscal problems, thus requiring the
fairs to be 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.
Purpose of SB 741: According to the author's office, this
measure is intended to help DAAs deal with the new reality
facing the network of California fairs as they exist today
without state funding. The author's office notes that this
bill is an attempt to start the process of moving fairs
away from state oversight and providing them with some
ability to operate more as private businesses or non-profit
agencies. It is the author's belief that SB 741 will give
fairs the necessary flexibility to operate more
efficiently, save money and preserve jobs.
Arguments in Opposition: Opponents argue that the negative
impacts on California fairgrounds outweigh the positive
impacts in the current bill. Opponents have expressed
concern with provisions in the bill that delegate
purchasing, contracting and fiscal management to the local
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level and give title to certain types of property to the
DAAs. Additionally, opponents are mindful that reduced
oversight resulting from the increased length of time
between audits is a bad idea because fairs generally
operate as cash business. Opponents reference the fact
that "money laundering at the 32nd DAA (Orange County Fair)
shows that problems exist already and oversight should be
increased, not reduced." Opponents are also concerned with
new language that allows for the removal of board directors
for cause. Opponents argue that "the view of who is a
'problematic director' should lie with the majority of the
board. Furthermore, opponents have expressed concern that
SB 741 would allow the "contracting out" of services.
Value of California Fairs: According to information
provided by the Senate Committee on Agriculture, 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.
In addition, fairgrounds serve the state by assisting in
emergency preparedness and response. Furthermore, 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.
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.
Milton Marks "Little Hoover" Commission: The Milton Marks
"Little Hoover" Commission on California State Government
Organization and Economy issued a report in September 2012
titled "Building Value: Modernizing Property Management"
which urged the Governor and Legislature to put the job of
state property management into the hands of a new state
department. The Commission recommended that "the Governor
use the reorganization process to consolidate and focus all
property management functions statewide under a new
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department." The Commission also recommended that "state
leaders develop policy and a strategic plan for property
management with the goal of maximizing the value of the
state's real property assets for better program outcomes,
greater transparency and enhanced accountability."
With respect to fairs, the report noted, "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 Commission suggested that legislation should be enacted
that provides more flexibility to district agricultural
associations to pursue strategies that support and sustain
the mission of local fairs. Specifically, the Commission
stated, "the legislation should enable the state to
transfer state-owned fairground property to a joint powers
authority, whose membership includes the district
agricultural association and local governments, established
to keep the property in public hands and expand options for
communities that support the association's missions and
local economies."
Senate 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.
According to committee staff, "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."
PRIOR/RELATED LEGISLATION
SB 398 (Galgiani) 2013-14 Session. Would provide that
revenue raised by racing associations, from their mandated
charity racing days, may be distributed to a nonprofit
corporation or trust that has as its sole purpose the
support of recognized fairs within the network of
California fairs. (Pending in Senate Appropriations)
AB 1069 (Dickinson) 2013-14 Session. Among other things,
would revise the powers of the Cal Expo board of directors
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and DGS with respect to real and personal property, and
would specify that title, control, and possession of all
personal property acquired, held, managed, or operated by
Cal Expo vests with the Fair. Also, would specify that the
proceeds of any lease, sale, or other agreement shall
become the property of Cal Expo and shall be made available
to the Fair, as specified. (Pending in Assembly
Appropriations)
SB 1253 (S. Runner) 2011-12 Session. Among other things,
would have authorized the 28th DAA, with the consent of the
CDFA, to enter into a joint powers agreement (JPA) for the
purpose of creating a joint powers agency to operate,
maintain, and improve the facilities and functions of the
28th DAA. Also, would have authorized the JPA to accept
the donation of, acquire, own, sell, or lease real property
and to pledge its property or revenue for the sale of bonds
to construct, equip, and furnish related facilities, except
that the bill would have prohibited the JPA from selling,
divesting, or pledging real property owned by the state
without statutory authorization or the express consent of
the CDFA and the DGS. (Died in Assembly Appropriations)
AB 1204 (Dickinson) 2011-12 Session Session. Would have
changed Cal Expo to an independent governing body that
reports to the State Fair Leasing Authority, a Joint Powers
Authority, rather than the Legislature; moved all revenues
derived by Cal Expo, including sale of real property, from
the general fund to Cal Expo; and, permitted Cal Expo to
enter into contracts outside of DGS oversight and
requirements. (Died in Assembly Appropriations)
AB 2345 (Ma) 2011-12 Session. Would have established the
California Fair Network Commission as a nonprofit
mutual-benefit corporation to assess the fairs fees for
service and administrative oversight, as, specified. (Held
in Assembly Appropriations)
SB 1085 (G. Runner), Chapter 320, Statutes of 2010.
Authorized the 50th DAA, with the consent of the Secretary
of Food and Agriculture, to enter into a joint powers
agreement for the purpose of creating a joint powers agency
to operate, maintain, and improve the facilities and
functions of the 50th DAA. Also, allowed the state to
transfer authority of the 50thDAA, the Antelope Valley
Fair, to a Joint Powers Agency.
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SB 16 X2 (Ashburn), Chapter 12, Statutes of 2009 Second
Extraordinary Session . Among other things, eliminated the
$40 million floor on the amount the horse racing industry
is required to pay annually for support of the network of
California fairs, the CHRB, and the Kenneth L. Maddy Equine
Analytical Chemistry Laboratory at UC Davis. Other than
the supplemental 1% assessed against fair meets, it also
eliminated the license fee on horse racing wagers and
provided that beginning on July 1, 2009, and annually
thereafter, $32 million shall be appropriated from the
state's General Fund and paid into the F&E Fund for the
financial support of the State's network of fairs.
AB 22 X4 (Evans), Chapter 20, Statutes of 2009 Fourth
Extraordinary Session. Among other things, authorized the
sale of the Orange County Fairgrounds.
AB 12 X4 (Evans), Chapter 12, Statutes of 2009 Fourth
Extraordinary Session. Among other things, provided that in
lieu of all amounts payable prior to July 1, 2009, as
shortfall amounts, the sum of $5.5 million shall be paid by
racing associations and fairs from the amount available for
commissions, purses, and breeder awards, as determined by
the CHRB, into the State Treasury to the credit of the F&E
Fund over a period of 6 years in order to meet obligations
of moneys owed from previous fiscal years.
AB 2250 (S. Runner), Chapter 452, Statutes of 2008. Among
other things, authorized an officer or employee of the
state to receive compensation from a nonprofit corporation
formed exclusively to aid and assist a DAA, as specified.
SB 281 (Maldonado), Chapter 346, Statutes of 2007. Among
other things, required the CDFA to develop criteria to be
used, subject to the approval of DGS, for the disposal of
property by a DAA and Cal Expo.
SB 1041 (Denham) 2005-06 Session. Would have required
CDFA, instead of DGS, to annually prepare a purchasing
delegation program for DAAs, as specified.
Proposition 3 of 1933. Legalized parimutuel wagering on
horse racing in California. With the passage of Proposition
3, the stated purpose of the new law was for the
"encouragement of agriculture and breeding of horses."
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Furthermore, Proposition 3 included a "commitment for the
continuous funding of the fairs of California with an
annual allotment of racing revenues to be used for health,
safety and maintenance projects."
SUPPORT: As of April 19, 2013:
California Fairs Alliance (co-sponsor)
Western Fairs Association (co-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)
San Joaquin County Fair (2nd DAA)
Ventura County Fairgrounds (31st DAA)
Patricia M. Kress, member of Western Fairs Association
OPPOSE: As of April 19, 2013:
Orange County Employees Association (OCEA)
Orange County Fairgrounds Preservation Society
Service Employees International Union (SEIU)
FISCAL COMMITTEE: Senate Appropriations Committee
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