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Sunday, Jun 16, 2024

Fairground’s Best Bet

Is the pending sale of the fairgrounds in Costa Mesa a good deal for local and state taxpayers, as well as for those of us who treasure the annual fair and other entertainment activities there?

Not only is it a good deal, it’s exceptional—both for the considerable revenue it will produce for the struggling state and local governments and for the terms that assure the ongoing operation of the fair, the amphitheater, a weekly swap meet, the equestrian center and other community activities.

The deal even provides continuing employment for state workers.

Opponents of the sale have put up a fierce defense—including lawsuits and legislative maneuvers—against the nearly unanimous vote to sell from state lawmakers.

Their criticism comes down to claims that the state didn’t strike a good deal, the competitive bidding process mandated by lawmakers was “flawed,” and the sale is not in the public’s best interest.

They are wrong on all counts.

This deal was structured by accomplished real estate professionals in the state’s Department of General Services to achieve the highest possible financial return.

The department held an open, competitive 18-month bid process that involved a number of serious bidders.

The result? A $100 million purchase price, a $20 million immediate cash down payment, a fully amortized loan that will produce $225 million in revenue over 35 years, and personal guarantees of payments.

The department called it the “highest and most certain return” to the state.

The best indication of fair market value is always the highest price a willing buyer will pay to a willing seller, with full information, according to economic principles. And the best method to determine and achieve that value—the only method that protects taxpayers—is through an open competitive bidding process.

An appraisal is merely a rough opinion, often biased, and is no match for a competitive bidding process for determining true fair market value.

A cash flow analysis of the fairgrounds—whose average annual cash flow the last two years has been about $3 million—makes its $100 million purchase price very aggressive to any buyer under the final conditions of sale.

As for the public interest, this deal unlocks for the state the innate value of an underperforming asset, turning the fair and entertainment venues over to local business leaders who have pledged to keep and improve the fairground’s current uses.

The deal also:

n Produces $48 million in property taxes to support local government and schools in Orange County.

n Generates substantial annual state income taxes and local sales taxes.

n Subjects the fairgrounds—for the first time—to land use restrictions voted on by the people of Costa Mesa that retain existing uses and character, and prevents unrelated commercial development.

n Permits the state to sweep $10 million to $15 million in local fair district reserves and use them to further address its fiscal crisis.

If the state wishes to sell the note to generate more immediate cash, it easily can do so. Because of the high 6% interest rate, the state likely can realize full face value or more.

These facts are compelling. So is the fact that the state is in a fiscal quagmire. To their credit, lawmakers have been reexamining the wisdom and rationale underlying many state programs.

A supermajority of the state Legislature—including every local lawmaker at the time, save one—voted for the bill that authorized the sale of the fairgrounds to a private party to generate sorely needed cash.

Their rationale? OC’s urban fairgrounds and entertainment facility is not considered a core interest or necessary mission of the state of California.

In his first budget, Gov. Jerry Brown proposed that state taxpayers should no longer be burdened with supporting fairs and the state should explore creative ways for local fairs to operate without state involvement.

Further, in his most recent budget revision Brown proposed the sale of other “underutilized” state-owned properties—including the Los Angeles Coliseum and a major housing project in downtown Sacramento—which “serve no state function and should be sold off to pay debt.”

The pending sale of the fairgrounds in Costa Mesa is a promising model: Its generous terms to the state, the revenue it will generate that will go toward our struggling schools and local governments, and its assurances that existing fairground uses will continue to be operated by an imaginative, well-financed and resourceful owner.

This is a thoughtful, entrepreneurial solution that achieves a number of attractive results for taxpayers and fairgoers in difficult economic times.

I am encouraged that Gov. Brown has resisted playing politics with this sale. He appears to be respectfully awaiting the decision of the Fourth District Court of Appeal that is sorting through the sale’s legal challenges. And Brown has shown discernment and sophistication in determining which sales of public assets are beneficial for Californians, and which are not.

This one is.

Wilson is a former legislative staffer in the administrations of Pete Wilson and Arnold Schwarzenegger, including serving as acting deputy director of the real estate services division at the Department of General Services. He is an adviser to Facilities Management West, Inc., the successful bidder for the OC Fair and Events Center. He lives on Balboa Island. The Business Journal welcomes other views on the fairground.

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