Fairgrounds Swindle: American Fairs appeals the Facilities Management West deal.

A spanner in the works for the deal Costa Mesa made with Facilities Management West to finance the sale of  and manage the OC Fairgrounds for the next 55 years.  Remember American Fairs and Festivals from my earlier articles? The group helmed by the OC Marketplace’s Jeff Teller who had put together a great deal that offered maximum public control of the property, as well as a generous percentage of profit-sharing, but they were shunted aside in favor of the profiteers of FMW?  Well, they are appealing that decision on the grounds that… well, read the letter their lawyer just sent to Allan Roeder, Costa Mesa City Manager.  (This should make the meeting 4:30 Tuesday at CM City Hall to discuss the Fairgrounds deal – at which I plan to speak – even MORE interesting!)

Re: Appeal contesting the sale of the OC Fairgrounds

Dear Mr. Roeder:

Our firm represents American Fairs and Festivals Inc. (“AFF”) in connection with AFF’s proposal dated May 3, 2010 (“Proposal”) to assist the City of Costa Mesa (the “City”) in acquiring the Orange County Fairgrounds (the “Fairgrounds”) from the State of California and ground lease the Fairgrounds from the City.

In response to the City’s request for proposal dated April 7, 2010 (“RFP”), our client submitted a Proposal that satisfied all of the City’s Objectives and requirements as requested in the RFP. However, the City elected to enter into an exclusive negotiating agreement with Facilities Management West (“FMW”) and rejected AFF’s Proposal. In doing so, it is our contention that the City acted improperly by failing to follow its own criteria and setting its stated Objectives aside during the RFP process. As such, we intend to protest this decision as unfair and procedurally flawed.

The City established eight Objectives in its RFP that it asked to be included in a proposal to the City, but the final proposal accepted by the City only arguably satisfied 1 of the 8 (“Objectives”). The Objectives are as follows:

  1. Retain local control over the site,
  2. Preserve the OC Fair and Event Center activities and the community programs currently operated on the site,
  3. Creating an open and transparent govemance plan,
  4. Securing the acquisition without expenditure or risk of public funds,
  5. Ensuring a smooth transition for existing state employees,
  6. Future development must be compatible with the City’s General Plan designation,
  7. Ensuring that additional or intensified uses would be compatible with existing uses,
  8. Potential for economic benefit to the City

The only Objective that was arguably satisfied in the memorandum of understanding (“MOD”) between FMW and the Orange County Fairgrounds Authority was that of Objective 8 (“Potential for economic benefit to the City”). However, even that Objective is suspect, as stated by Orange County Supervisor John Moorlach who believes that the transaction is not fiscally sound and it is only a matter of time before the transaction falls apart. This was also confirmed in our meeting with your own financial advisor whose numbers mirrored our numbers and concluded that the Fairgrounds could not generate substantially more revenue without major changes to the Fairgrounds. Our client was on numerous occasions told that no significant changes would be allowed on the Fairgrounds.

The MOU with FMW does not satisfy any of the other Objectives required by the City.  There is no process for local control or input. FMW is free to operate in whatever fashion it deems appropriate within the terms of its lease and does not have to consider public opinion or even the interests of the City. With respect to Objective 2 (“Preserve the OC Fair and Events Center activities and the community programs currently operated on the site”), there is no procedure in place to assure that the OC Fair and Event Center activities and the community programs remain in place. While the City may meet and make recommendations to FMW about their business plan, FMW is not obligated to implement any recommendations from the City.

The City ignored Objective 3 (“Creating and open and transparent governance plan”) by rendering any govemance plan meaningless.  There is no citizen or City oversite committee.  The City’s only recourse wil be to make recommendations to FMW about its business plan and the recommendations are not binding on FMW.

The City’s Objective 4 (“Securing the acquisition without expenditure or risk of public funds”) is very much in jeopardy because the financial terms of this transaction are not close to the real value of the Fairgrounds. As stated by Supervisor Moorlach:

“If FMW does not remit its payments to the State in full, then the City may have to pick up the slack. This would be untenable at this time in the City’s history. If FMW chokes on this deal and walks, then the residents of Costa Mesa will have to deal with this alligator. An alligator, in real estate terms, is a property that consumes more in debt and operating payments than it spins off in rental income.” (See Moorlach Update, July 8,2010.)

Objective 5 (“Ensuring a smooth transition for existing state employees”) is not discussed anywhere in the MOU. As such, there should be no expectation there wil be a smooth transition for existing state employees working at the site; there may in fact be no transition if employees are laid off to cut costs.

While on its face the MOU addresses Objectives 6 (“Future development must be compatible with the City’s General Plan designation”) and 7 (“Ensuring that additional or intensified uses would be compatible with existing uses”), these Objectives pose serious challenges to FMW. It is clear from even your own financial advisor the Fairgrounds cannot generate revenues necessary to pay the State and the City without a substantial change in use, intensity of uses and intrusive impacts. Costa Mesa residents should expect FMW to develop a business plan which will bring substantial change to the operation of the Fairgrounds. Recently, Orange County Supervisor John Moorlach suggested that “FMW will have to implement a number of interesting ‘business’ maneuvers’ in order to abide by its agreement to the Fairgrounds lease.” Moorlach suggests that this could include increasing ticket costs to the fair, adding additional fairs year-round, providing concerts year-round, building a smaller convention center than the one already available in Orange County, decreasing staff, changing the approach to the weekend swap meet or negotiating new contracts, and finding other ways to rent out its facilities.

Before any lease of the Fairgrounds or any other use or activity can be properly authorized by the City, the contemplated intensified uses most certainly would require a comprehensive environmental review under the California Environmental Quality Act (“CEQA”). If any City should be aware of this requirement it is the City of Costa Mesa. This requirement is clearly outlined in the Califomia Supreme Court’s decision in Concerned Citizens of Costa Mesa v. 32nd District Agricultural Association, 42 CaL. 3d 929 (1986).

The MOU clearly shows that the City’s only priority was to make as much money as possible at the expense of all of its other Objectives. Yet we were told time after time that local control and the other Objectives were the main priority. This misinformiation is a clear violation of the RFP process, a process which Costa Mesa itself established.

The purpose of competitive bidding is to “guard against favoritism, improvidence, extravagance, fraud and corrption; to prevent the waste of public funds; and to obtain the best economic result for the public.”  Graydon v. Pasadena Redevelopment Agency, 104 Cal.App.3d 631,635 (1980); see also, Domar Electric Inc. v. City of Los Angeles, 9 CaL. 4th 161, 173 (1984). We do not see how the City’s decision to choose a proposal that maximizes profit for Costa Mesa but sacrifice all the other important Objectives that the City itself established for the residents of Costa Mesa can ever be the best decision for the public.

Furthermore, in choosing to set aside certain Objectives, the Council gave a preference to FMW that provided them with an unfair advantage. If our client would have been aware that certain Objectives set out by the Council would be ignored, while others were placed on a pedestal, we would have had an opportunity to submit a more favorable proposaL. In effect, the deviation of the Council’s Objectives for the other party gave them an advantage that our client did not have. As such, we are left with no other recourse but to appeal the Council’s decision.

Please consider this letter as putting the City of Costa Mesa on notice that our appeal contesting the sale of the OC Fairgrounds is submitted. Additionally, please forward us a copy of any administrative procedures the City of Costa Mesa intends to adhere to when processing our appeal contesting the sale of the Orange County Fairgrounds. Please also note that given the information we have regarding FMW’s proposed intensified uses on the Fairgrounds, we believe that the City’s lease with FMW is a violation of CEQA. If you have any questions, please contact me at the number provided above.

Thank you for your attention to this matter.

A Professional Corporation
Raul A. Salinas, Esq.

About Vern Nelson

Greatest pianist/composer in Orange County, and official political troubadour of Anaheim and most other OC towns. Regularly makes solo performances, sometimes with his savage-jazz band The Vern Nelson Problem. Reach at vernpnelson@gmail.com, or 714-235-VERN.