When Is a (Nonprofit) County Fair Not a (Nonprofit) County Fair?

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November 3, 2015; Los Angeles Times

When government turns over management functions of public events and facilities to private nonprofit entities, the public is supposed to get more for its money. Well, not always.

A Los Angeles Times investigation reports extensively on the L.A. County Fair Assn., formed in 1940 to promote the region’s then-booming agriculture industry, crowning prize-winning hogs, teaching children about crops, and showcasing thoroughbred racing.

But over the years, says the Times, “the association has morphed into something resembling a conglomerate, with little connection to farming or livestock. And its managers have become richly compensated, even as the association loses money.”

The association’s empire includes a hotel and conference center, a catering company, and an equipment rental service, all located on the county-owned fairgrounds in Pomona. This allows the association to be exempt from property taxes, as well as taxes on most of its income due to its nonprofit status.

It has received millions of dollars in government grants and support from taxpayers, but it still managed to lose a total of $6.25 million from 2010 through 2013. At the same time, it was paying its top executives large bonuses and incentive pay. The fair’s chief executive collected nearly $900,000 in total compensation in 2013, much more than that of other fair managers in California.

From 2010 through 2013, the executive team received $2.8 million in bonuses and incentive pay, resulting in a total compensation to $8.75 million, according to the article. One public policy professor who studies fairs called it “totally crazy.”

The Times looked at the association’s history and found that as it “became more like a big business, it strayed further from its agrarian roots.” It cites one high-profile example: In August, it booked a rave concert at the fairgrounds, where two young women died of drug overdoses, prompting the cancellation of another rave scheduled for September’s fair.

Unlike most major fairs in California, L.A. County’s is not run by a public agency, so the association has been able to compensate its executives as it sees fit and expand into other ventures. A lease of the County Fairgrounds gives the association control of 500 acres about 30 miles east of downtown in exchange for small shares of some of its revenues, says the Times.

But some worry that the association’s current operations could jeopardize its tax exemption because so little of its business has to do with agriculture. It owns a 244-room hotel and conference center on county land, along with a number of for-profit companies.

The association told the Times that it has embraced the “evolution” of Southern California agriculture, exemplified by competitions for wine, craft beer, extra virgin olive oil, and dairy products. As a private nonprofit, the association is not subject to direct oversight by the Board of Supervisors, but is governed by an 11-member board of directors.

“They present themselves as people who run county fairs, where you milk cows and the kiddies can pet animals,” one neighbor told the paper. “Really, what they’re doing is they’re running a for-profit operation under the guise of being a nonprofit.”

Despite labeling itself as “self-supporting,” the association has received financial assistance from the public sector—county-issued $24 million tax-exempt bonds for a conference center, for example. The county gives it a discount on rent for the fairgrounds, as well.

The association says that the county gets money from a tax that promoters pay to use the fairgrounds. However, that tax is significantly less than what property taxes would be for a similar property that is privately owned.

At one time, the fair was the largest in the nation, but now it’s not even the biggest in California. It drew 1.2 million visitors last year; in recent years, says the Times, other leading fairs have performed better than L.A. County’s, such as the fairs in San Diego and Orange Counties, both of which are run by state agencies. The L.A. Fair doesn’t seem to provide the efficiencies that public subsidies would warrant.

IRS rules say that the association “must have as its primary purpose the betterment of the conditions of those engaged in agricultural pursuits. Activities that only remotely promote the interests of those engaged in agricultural pursuits will not qualify an organization for exemption.” Experts say this places its tax exemption in question, which gives it advantages over competitors that pay taxes, such as nearby hotels and music venues.

The fair no longer hosts 4-H clubs that display animals, and the thoroughbred meets have been moved to a racetrack in Orange County. The association told the paper that it eliminated 4-H clubs because fewer children were showing their animals. Most of the fair is dedicated to carnival rides, market pavilions for nonfarm products, and a concert series.—Larry Kaplan