CHANGING FOR THE BETTER

A Guide to Understanding the New Model for Fair Funding

Overview

Grounds for ProtectionBroad Consensus: Fairs are valuable and required rescuing

Grounds for ConcernDownward Spiral: Vanishing source of fair funding

Grounds for New FundingStable Funding Source: Shift to General Fund continuous allocation

Grounds for the Future Infrastructure Project: Leverage stable funding for infrastructure

Grounds for

Protection

The Value & Importance of California Fairs

“Aside from their rich history, California’s fairgrounds are unheralded community assets that must be preserved and protected during these difficult times.”

– A.G. Kawamura, Secretary, California Department of Food & Agriculture

Grounds for

Concern

A Downward Spiral

“State license fees available to fund fairs have steadily declined over the past decade.”-CDFA Division of Fairs & Expositions report citing CA Horse Racing Board records

Grounds for

ConcernSince 2004/2005, total license fee revenue generated each year has been inadequate to fully fund all license fee beneficiaries to the extent allowed by law.

Because the law is silent on funding priorities, the fairs have absorbed each year’s shortfall in its entirety. The chart below depicts the steady decline in license fee revenue to the fairs since 2004/2005. [source: CDFA – Division of F&E]

Grounds for

Concern

The Negative Impact on Fairs

The annual revenue shortfalls in fair funding since 2004/2005 have placed a heavy burden on fairs and fair programs, including:

Beginning in 2008-09, fairs are now required to cover their fair share of property insurance premiums

At a time when the cost of doing business continues to rise annually, the Division of F&E has been forced to freeze base allocation levels to small and medium sized fairs, while eliminating base allocations to larger fairs altogether 69% decrease in infrastructure funding to fairs in 2007-08 represents a $12 million decline when compared to 2001-02 levels

Fair & Exposition Fund reserves used to mitigate annual revenue shortfalls are projected to be fully depleted by June 2010

Grounds for

ConcernAfter 70 plus years, Bay Meadows shuts down; the same operator announces plans to close Hollywood Park.

Magna Entertainment Corporation, the owner of Golden Gate Fields and Santa Anita, sees its stock price drop to 11 cents per share and has filed for bankruptcy. These two horse racing tracks together generate almost 40 percent of fair funding; Golden Gate fields is being auctioned off and its future is questionable.

Grounds for

Concern

How We Got Here

Legalization of a state lottery opens the door for an explosion of:

* Card Rooms

* Indian Gaming (Bingo)

* Tribal Casinos

* Rise of Internet Gaming

These new gaming enterprises undermine the historical monopoly horse racing has had over gaming and contribute to downward funding trend

Grounds for

A New Strategy

Urgent Need to Shift Funding Source

“Given the dire situation confronting us, the fair industry convened to develop a strategy for shifting funds to a more stable source. Swift action was necessary to avert disaster.”

– Rebecca Desmond, Former Chair, California Fair Alliance

Grounds for a

New Strategy

California Fair Alliance Takes Action

Establish need for a stable funding source as No. 1 priority

Develop funding transition options and plan

Meet with key legislators to discuss and share plan

Seize opportunity to mitigate adverse impact of tribal gaming on revenue to fairgrounds

Grounds for

New Strategy

A New Model for Fair Funding Takes Shape

The State’s leaders see the crisis and work to build a solution. They recognize that the General Fund is now receiving millions in new income from tribal gaming, an activity that has had a major impact on Fair Funding. They understand the importance of the fair network, especially the $200 million plus that fairs generate for state and local tax coffers.

Grounds for a

New Funding Solution

The Legislature Takes Action

“It was very clear that the Legislature needed to act to identify a new and more stable source of funding for our fairgrounds.

“It's a bright spot in the budget process that we succeeded in establishing a new funding source for fairs, restored lost revenues and mitigated the unintentional impact tribal gaming has been having on California's historical source of fair funding, while saving thousands of jobs in the process. Additionally, the horseracing industry, and the tens of thousands of jobs that go with it, has been given new life.”

- Senator Roy Ashburn (R-Bakersfield), who authored the new budget legislation to fund California fairs

Grounds for a

New Funding Solution

The Deal: Overview of 2009 Legislative Negotiations

Fairgrounds seek to shift funding base from horse racing to State’s new income stream derived from tribal gaming

Governor and Legislature embrace concept to mitigate loss of revenue

At the 11th hour, the State’s Indian tribes opposed the budget proposal because of their longstanding dispute with California’s horse racing industry

Still committed to restoring fair funding and mitigating shortfalls due to impact of tribal gaming, the Governor and Legislature agreed to mandate in statute a continuous allocation to fairs from the general fund

The State remains whole and benefits from continued stream of tax revenue

Grounds for a

New Funding Solution

Time for a New Funding Plan

On July 1, 2009, and every year thereafter, the General Fund is required by law, to pay $32 million into the Fair & Exposition Fund to support the fair network.

As a continuous appropriation set in statute, this funding is not a component of the states annual budget process.

Fairs remain special fund agencies as the General Fund is obligated to only a fixed sum. Local fair deficits and/or surpluses remain a local responsibility.

All other components of the Fair Funding structure including the annual expenditure plan and the role of F&E in fund management remain intact.

Grounds for

New Funding Solution

Changes Do Not Impact Fair Funding Approval Process

CDFA Secretary will continue to develop annual expenditure plan California Fair Alliance will continue to participate in expenditure planning Legislative Joint Fairs Committee will continue to review and approve expenditure plans

Fair allocations and other special programs will continue to be funded by the F&E fund

Grounds for a

New Funding Solution

Changes DO NOT Disrupt Current Fair Administration & Operations

No Impact or Changes Related to:

Administrative tasks: Purchasing, payroll, accounting, receipt of revenues, etc.

Employment policies

Health benefits

Salaries, vacation time

Retirement programs

Grounds for the

Future

Stable Funding: Key to Infrastructure Projects

“While the new funding system stabilizes funding with restoration of funds, we plan to leverage this foundation for infrastructure bonds necessary to rebuild and improve every fairground in California.”

– Stephen Chambers, Executive Director, Western Fairs Association

Grounds for

Future

Your Role in the Future

Keep your fair relevant and connected to your community

Share the importance of your fair and its local role with key decision makers Be ready to explain and educate your fair’s guests and participants about the new funding structure

Be confident – Fairs are a solid investment and generate $7 for every dollar of state support Support the effort of the California Fair Alliance to secure new funding for fair facilities

Summary

Crisis point

Horse-racing revenues unsustainable

Agreement fairs valuable and require protection

New funding stream needed

General fund is the solution

Easy and transparent transition