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Extracted from Consolidated Report

This investigation was originally published as part of a larger consolidated report containing multiple investigations. View the consolidated PDF for the complete document.

Santa Clara County Grand Jury • 2010-2011

Grand Jury Report: Santa Clara County Fairgrounds Management Corporation

Published: August 17, 2011 77 pages
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Note: Missing finding numbers detected: F5, F6, F7

Findings 5 findings

F1 Page 8
"The County established FMC as a non-profit to operate the Fairgrounds; however, FMC has not been successful. FMC has operated at a loss and has required County bailout in all but one of the past sixteen years." (cid:9) Santa Clara County (cid:9) Response to 2011 Civil Grand Jury Report July 22, 2011 Fairgrounds Management Corporation Response to Finding 1: The County established FMC as a non-profit entity to manage and operate the Fairgrounds. However, the Fairgrounds historical lack of profitability has as much to do with County's frustrated efforts to secure new private investment and to implement a Fairgrounds revitalization program, as it does with FMC management. The County anticipated that its efforts to implement a program of major new investment and construction would have both created the economic engine to finance new private development on the site and finance reinvestment in Fairgrounds exposition facilities and infrastructure, whether at the current Fairgrounds location or at a new site. The County has undertaken two major revitalization efforts described below, both of which were stymied by factors outside of the County's control, House of Blues (1998-2006) and a developer RFQ/RFP selection process (2007-2009). The County currently has established an Ad Hoc Committee of stakeholders to gather community input and to review and analyze past Fairgrounds proposals and provide the Board with policy recommendations on future redevelopment. House of Blues (1998-2006). In April 2000, the County entered into a Ground Lease with House of Blues for development of an entertainment and performing arts complex, which would have created an 8,300 seat performing arts venue with $32 million of private financing. The County would have invested $7.5 million of its share of proceeds from the House of Blues Ground Lease into a new parking structure and backbone infrastructure. Phase Two of this project would have included County construction of a new 175,000-200,000 square foot, multi- purpose Expo Center and a 60,000 square foot recreational facility to be operated by FMC. The County would have financed the $35+ million cost of these improvements through sale and development of hotel, retail, office and/or housing on the 14-parcel across Tully Road. However, in 2004 this project was suspended by litigation between the City of San Jose and the Downtown Business Association and the County. On August 29, 2006, the Board of Supervisors terminated the project as infeasible in the absence of the County injecting $15 million to cover cost increases arising from delay caused by the litigation (litigation, it should be noted, in which the County ultimately prevailed). Given the lack of a viable Fairgrounds revitalization project in 2006 and 2007, the Board of Supervisors approved a total of $5.5 million of funding for FMC to undertake repair of deferred maintenance and other infrastructure improvements. Fail-wounds Redevelopment 2007-2009. In 2007, the County began soliciting interest of developers through a Request for Qualifications process in order to implement a real estate development project at the Fairgrounds site. The process never progressed to the point of making decisions regarding ultimate uses. However, development options included two scenarios: (cid:9) Santa Clara County (cid:9) Response to 2011 Civil Grand Jury Report July 22, 2011 Fairgrounds Management Corporation 1. Scenario (A) included four elements involving housing on Umbarger Road, commercial development on Monterey Road, and continued public use in the central core area of the Fairgrounds. 2. Scenario (B), "blank canvas" scenario, involved all Fairgrounds acreage, but also would have provided for continued public use of some of the Fairgrounds property as a gathering place for community festivals and similar events, or it would have provided revenue to relocate the Fair to a new south County location. At its meeting of December 16, 2008, the Board of Supervisors approved entering into an Exclusive Negotiating Agreement with Catellus Development Group. This effort, however, was terminated by the withdrawal of Catellus in early 2009 due to economic decline of the real estate market. At its meeting of June 9, 2009, District 2 Supervisor Shirakawa proposed, and the Board of Supervisors approved, formation of an Ad Hoc Committee of stakeholders, chaired by Supervisor Shirakawa, to gather community input and to: (1) review and analyze current and past Fairgrounds proposals; (2) hold public hearings to determine community needs; and, {3) provide the Board with policy recommendations on future re-development. Santa Clara County Response to 2011 Civil Grand Jury Report July 22, 2011 Fairgrounds Management Corporation
F2 Page 12
"In the last sixteen years, the FMC Board has not commissioned — nor has the County requested the Board to commission -- an independent performance audit of FMC, even though FMC's poor performance warrants this type of audit." Response to Finding 2: The County agrees that it has not during the term of the Management Agreement requested the FMC Board to commission an independent performance audit. The County has, however, undertaken its own evaluation of management and operations at the Fairgrounds, as noted above under Response to Recommendation 1.
F3 Page 14
"The County does not hold the FMC Board accountable for its lack of oversight in ensuring FMC meets its contractual obligations, and the FMC Board does not demonstrate the business acumen necessary to effectively oversee FMC. There is a seat vacant (to be filled by the District 4 Supervisor) on the FMC Board." Response to Finding 3: The County respectfully disagrees with Finding 3. A. Throughout the term of the FMC Agreement, the County has held FMC accountable for submitting a balanced annual budget and supporting business plan. In addition beginning in 2009, the County instituted new systems and procedures to ensure greater monitoring and control of FMC's performance, as follows: 1. Throughout the year, the County Asset and Economic Development (AED) Director from the Office of the County Executive meets as needed with the FMC Executive Director and/or the Chair of the FMC Board on significant issues related to operations, budget and policy, in order to anticipate, discuss and resolve issues of concern, often prior to formal proposals being considered at the FMC Board or the County Board of Supervisors level. The AED Director has always attended meetings of the FMC Board on an ad hoc basis. As of December 2009, the AED Director began monitoring FMC Board actions by attending and participating in all meetings of the FMC Board. 2. This heightened degree of County involvement, for example, led the AED Director in early 2010 to initiate discussions with the Chair of the FMC Board around developing a strategy for Executive Director succession planning. Such discussions resulted in an early transition in FMC management. New management, and subsequent management restructuring later in the year, resulted in overall savings in 2010 and continued savings that will accrue in 2011 and beyond. Savings in personnel costs were a significant factor contributing to an operating surplus in 2010. 3. In order to provide more robust early County review and discussion with all FMC stakeholders, the County instituted a new practice in 2009 involving FMC's presentation of its proposed Budget and Business Plan to the Board of Supervisors Finance & Government Operations Committee prior to presentation to the full Board of Supervisors. As a result, the County worked with FMC in the fall of 2009 and early 2010 revising and refining FMC's Budget and Business Plan with the following positive (cid:9) Santa Clara County (cid:9) Response to 2011 Civil Grand Jury Report July 22, 2011 Fairgrounds Management Corporation outcomes, all oriented toward providing greater FMC financial accountability: • In a memorandum dated December 22, 2009, to the County, FMC Board Chair Bill Anderson reported that FMC would be formulating an FMC Dissolution Plan to outline a process, including defining key levels of reserves that would be needed, to wind down affairs of the organization in an orderly manner should the decision ever be made to cease operations. • In a memorandum dated January 4, 2010, from the FMC Executive Director, targets were identified for new revenue generation, and FMC reduced its request for financial assistance from the original request of $500,000 down to the minimum necessary to cover anticipated unrecovered costs of the Annual Youth (4-H and FFA) Fair, or $100,000. • Subsequent discussions with FMC management identified an additional $10,000 of available one-time funds held in an FMC Auction Reserve Fund. • The AED Director, with the support and assistance of FMC Management, brokered collaboration with the Clover Foundation, Inc., supporters of the Annual Youth (4-H and FFA) Event, to undertake first-time-ever fund raising efforts. The Clover Foundation set a fund raising target of $25,000, and the County subsequently relied on a minimum contribution of $10,000. • In a memo dated February 18, 2010, to the Board of Supervisors Finance & Government Operations Committee, the County Executive recommended that the County only allow use of $80,000 from the Fairgrounds Capital Project Fund to cover un-recovered costs associated with conducting the Annual Youth Fair. This
F4 Page 18
"The County, supported by the Office of the County Executive, appears to have only a "land management" concern when FMC is required by contract to pay all expenses of the fair." Response to Finding 4: The County respectfully disagrees with Finding 4. It is true that the County has subsidized the County Fair during five of the last 16 years (1999, 2000, 2001, 2002 and 2010), and in 2007 the County approved a subsidy for both the County Fair and FMC operational costs. However, the County remains committed to revitalizing and/or redeveloping the Fairgrounds in a way that would finance and support continuation of community activities, whether at the Fairgrounds or at another location. In the meantime, the County expects FMC to operate without subsidy from the County, as demonstrated by the following: • While the Board of Supervisors had approved an operational subsidy of $285,000 for 2007 operations, the Board did not approve a similar request on December 11, 2007, for an operating subsidy of $675,000 for the 2008 Fair and FMC operations. • At its meeting of February 23, 2010, after having approved a one-time conversion of $80,000 of capital improvement funds as a subsidy for unrecovered costs of the 2010 County Annual Youth Fair, the Board of Supervisors gave direction to County staff that no further subsidies will be available for any event. • As noted above under Response to Finding 3, District 3 Supervisor appointed one of his own staff with business and real estate experience to a vacancy on the FMC Board in order to both monitor FMC actions and to actively participate in FMC management at a policy level. • As noted above under Response to Finding 3, the Office of the County Executive closely monitors FMC's performance including attendance at all FMC Board meetings, with the objective of intervening early on critical items. • The FMC Executive Director regularly seeks the County's advice regarding significant issues. For example, in an effort to improve event rental revenues, the AED Director worked directly with FMC Executive Director and County Counsel to revise FMC's standard event license agreement to streamline the process of event rental and permitting by the County Fire Marshall. • Similarly, the FMC Executive Director sought support and guidance from the AED Director and the Office of County Counsel in negotiating and preparing an agreement with a major new event promoter for use of the Fairgrounds arena. Santa Clara County Response to 2011 Civil Grand Jury Report July 22, 2011 Fairgrounds Management Corporation
F8 Page 20
"The County is undercharging communications tower renters, effectively diluting potential revenue to FMC." Response to Finding 8: The County agrees that renegotiating these lease rates would be desirable if it were legally possible. However, these are long-term leases, with fixed rent schedules that are not subject to renegotiation until the leases terminate.

Recommendations 12

Agency Responses 1

Government agencies' official responses to this report's findings and recommendations. Click on a response to see the structured breakdown.