The Santa Clara County Fairgrounds:

Conclusions 10

• CL1 Page 36
  Contractor storage yards, the RV park, RV storage and vehicle auctions are inconsistent with FMC’s purpose to provide “…county fair and similar educational, cultural, and community functions.”
• CL2 Page 36
  FMC’s bingo games do not comply with many County bingo regulations.
• CL3 Page 37
  FMC’s bookkeeping lacks transparency regarding the actual revenue received from different activities and events, specifically the profitability of bingo and the County Fair.
• CL4 Page 37
  The FMC appears to be using the closed session personnel discussion exception to discuss other business which is not permitted by the Ralph M. Brown Act.
• CL5 Page 36
  The FMC Board exerts inadequate fiscal oversight of FMC’s financial reporting of its operations and has failed to address the numerous inconsistencies in its financial reports.
• CL6 Page 33
  The County chartered a non-profit corporation in 1995 with the mandate to manage the 150-acre Fairgrounds for the County’s benefit. In addition to running the yearly Fair, the vision and mission for the Fairgrounds were to create opportunities for recreation and sporting events, and to celebrate the County’s agricultural heritage. The 2010-2011 Santa Clara County Civil Grand Jury investigated the Fairgrounds and recommended that the County revisit the governance and oversight of the management effort. It found that a lack of fiscal management and a passive FMC Board had resulted in years of losses at the Fairgrounds, resulting in large financial challenges requiring ongoing subsidies from the County. 43 December 13, 2016, Board of Supervisors Resolution. See Appendix 2
• CL7 Page 34
  The 2018-2019 Santa Clara County Civil Grand Jury revisited the situation and found that many of the same challenges continue to weigh on FMC and its management of the Fairgrounds. Despite a $5 million investment by the County in repairs and improvements at the Fairgrounds in 2009 and 2010, the Fairgrounds today has a backlog of $7 million in deferred maintenance. In 2019, the County is projected to spend over $200,000 on health and safety issues at the Fairgrounds. As detailed above, the FMC’s largest source of income is through licenses with anchor tenants and the RV Park, neither of which require significant FMC employee time or is consistent with FMC’s purpose. FMC's financial reports lack transparency, and financial data presented to the FMC BOD and BOS are confusing, inconsistent and misleading. The money used to fund FMC comes primarily from the RV Park and RV/boat storage, and anchor tenants, which in reality benefit few residents of the County. Questionable accounting practices hide an increasingly precarious financial situation, with nearly $1 million in liquid assets reduced between 2008 and 2018. Embezzlement and below market license agreements in the past five years, coupled with opaque financial reporting suggests poor management by FMC and lax financial oversight by the FMC BOD and, ultimately, by the County. Despite an obligation to maintain the property, FMC continues to require substantial County subsidies. The FMC BOD does not always adhere to requirements of the Brown Act. The Grand Jury finds there is little oversight by the BOS of the financial viability of FMC and the ongoing activities at the Fairgrounds. There is no current master plan by FMC or the BOS to develop the Fairgrounds that would be consistent with the FMC’s charitable purpose, "the promotion of any educational, charitable, informational, cultural entertainment or amusement purpose." With the expiration of the Agreement at the end of this year, now is the time to consider the future for the Fairgrounds. If the BOS agrees to extend or revise the Agreement, there should be rigorous County oversight to ensure compliance with the law, and guidelines to ensure use of the Fairgrounds conforms to FMC’s purpose. The Grand Jury recommends that tighter fiscal oversight be exercised by the FMC BOD and the BOS. It is time to polish the County’s diamond in the rough.
• CL8 Page 35
  FINDINGS AND RECOMMENDATIONS Finding 1a The Santa Clara County Fairgrounds is a financially unproductive asset for the County of Santa Clara which is accruing millions of dollars in deferred maintenance and has continually required the County’s financial support to address deferred maintenance. Finding 1b There is no realistic chance that FMC will have sufficient financial ability to address the backlog of deferred maintenance. Recommendation 1 The County should develop a realistic financial plan to address the deferred maintenance of the County’s property and buildings by June 30, 2020. Finding 2a Many of the current uses of Fairgrounds property are inconsistent with FMC’s purpose to provide “…county fair and similar educational, cultural, and community functions.” The County knows that these uses are inconsistent with FMC’s purpose. Finding 2b FMC is not adhering to the Agreement. The County knows that FMC is not adhering to the Agreement. Finding 2c The 25-year old Management Agreement is woefully outdated and in need of review and revision. Recommendation 2 By December 31, 2019, the County should either enforce proper use of the FMC property consistent with FMC’s purpose and the Agreement or revise the governing documents to accurately reflect the use of the Fairgrounds.
• CL9 Page 36
  Finding 3 Contractor storage yards, the RV park, RV storage and vehicle auctions are inconsistent with FMC’s purpose to provide “…county fair and similar educational, cultural, and community functions.” Recommendation 3a By October 31, 2019, the County should evaluate and determine if each of the current uses and activities carried out by FMC at the Fairgrounds comport with FMC’s purpose to provide “…county fair and similar educational, cultural, and community functions.” Recommendation 3b If the report prepared in response to Recommendation 3a identifies uses and activities carried out by FMC at the Fairgrounds that are not consistent with FMC’s purpose, the BOS should prohibit the inconsistent uses and activities by December 31, 2019. Finding 4 FMC’s bingo games do not comply with many County bingo regulations. Recommendation 4a By October 31, 2019, the County should ensure that FMC’s bingo games adhere to the County’s bingo regulations. Recommendation 4b By October 31, 2019, FMC should ensure that the bingo games are in compliance with County’s bingo regulations. Finding 5 The FMC Board exerts inadequate fiscal oversight of FMC’s financial reporting of its operations and has failed to address the numerous inconsistencies in its financial reports.
• CL10 Page 37
  Recommendation 5a FMC should direct its auditor to address and comment by December 31, 2019, on the appropriateness of FMC’s reporting of building improvements and landscaping as capital assets, and the depreciation of those assets. Recommendation 5b FMC should take steps to have FMC’s financial reporting revised to be more transparent and consistent across all its reports by December 31, 2019. Finding 6 FMC’s bookkeeping lacks transparency regarding the actual revenue received from different activities and events, specifically the profitability of bingo and the County Fair. Recommendation 6a FMC should immediately establish a separate account for bingo income consistent with the County Ordinance Code in order to enhance clarity around the financials of bingo. Recommendation 6b By October 31, 2019, FMC should ensure that FMC’s public financial reports accurately reflect the revenue earned by FMC’s bingo operations and the County Fair. Recommendation 6c FMC should seek financial advice on the proper reporting of income from pull tabs which appear to constitute unrelated business income; reporting of building improvements as capital assets and depreciation taken against such assets; and file all necessary tax forms. Finding 7 The FMC appears to be using the closed session personnel discussion exception to discuss other business which is not permitted by the Ralph M. Brown Act. Recommendation 7 The FMC BOD and FMC key staff should undergo training to comply with the Ralph M. Brown Act by October 31, 2019.

No Responses Found 1

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