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California State Auditor Report Number : 2016-106

Los Angeles County
Weak Oversight of Its Lease With the Los Angeles County Fair Association Has Likely Cost Millions of Dollars in Revenue

November 10, 2016 2016-106

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning Los Angeles County’s (county) oversight of the Los Angeles County Fair Association (association). The county has a lease with the association that allows the association to operate the Los Angeles County Fair and conduct other activities on land largely owned by the county. Under the terms of this lease, the association must pay rent to the county based on a percentage of the revenue the association receives from its activities on this land.

This report concludes that the county has exercised weak oversight of its lease with the association. In our audit, we found that although the association owns a hotel that operates on county-owned land, the county allowed the association to exclude its hotel’s revenue from its rent calculation for reasons that the county cannot adequately explain. Consequently, the county likely relinquished more than $6 million in rent revenue from 2006 through 2015.

In addition, we found that the association provides its executives with significantly higher compensation than the executives in charge of other large fairs in California receive. For instance, in 2014 the association’s former president received over $1 million in total compensation, and many members of the association’s executive management team earn more than the chief executives in charge of the State’s other large fairs. However, as a nonprofit corporation that is not a public charity, the association is legally allowed to set its executive compensation at levels greater than those set by public entities. Finally, although the association received millions of dollars in public funding related to one of its recreational vehicle (RV) parks, the association failed to maintain the RV park, resulting in it being cited for numerous health and safety violations.

We recommend that to protect its interests and maximize its future revenue, the county should strongly consider ensuring that any potential amendment to the lease includes a revised rent calculation formula that factors in revenue from all of the association’s activities, including revenue from its hotel.

Respectfully submitted,

State Auditor

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