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Rigonomics:

Questioning fairgrounds

June 12, 2009|By Jim Righeimer

It seemed like just a small change; in fact, it was only two words. But those two words changed everything. It happened at the end of a contentious three and a half hour “cut the budget” Costa Mesa City Council meeting.

The item before the council was a simple resolution from the council to the state: Opposing the sale, closure and/or relocation of the Orange County Fair and Event Center by the State of California.

This is the second time in five years the city has written one of these resolutions. The issue always comes up when the state is out of money and wants to scare the voters into raising taxes.

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The tactic goes something like this; “If you do not raise taxes, we will sell your fairgrounds.” Even though it is called the Orange County Fair and Event Center, it is owned by the state.

The rocket scientists in Sacramento seem to think it is worth between $90 million and $180 million.

In reading the California Performance Report it became exceedingly clear that the state was valuing the 150 acres as if it were being sold as land for a new housing development.

Only one problem with that assumption: the property has a General Plan designation as “Fairgrounds” and “Recreational-Institutional” zoning.

The state may own the property, but the city of Costa Mesa controls the zoning. This means that whatever happens on that site would have to first be approved by the city.

The real monetary value of the site is based on what you can do on the property. If you can only use it as fairgrounds then the value would be derived from the net income the property could produce as a fairground. Keeping that in mind, let’s look at the financial operations of the asset.

Orange County has one of the most popular county fairgrounds in the state. We have some of the highest attendance records in the state for our county fair.

The swap meet, the OC Market Place, goes 46 weekends a year and on top of that there are all sorts of bookings in the exposition center almost every week the fair is not running. When you add that all up the property brings in about $31 million a year, has expenses of about $28.5 million, and nets between $1.5 million to $2.5 million per year, depending on the economy.

If you take the high number and you put a capitalization rate of 8.5% on the revenue stream, which is how you value all income producing property, it is worth $29.5 million. A far cry from the $90 million the state thinks it is worth.

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