By NICK CAHILL
LOS ANGELES (CN) – Los Angeles County relinquished more than $6 million in rent to a county fair operator over the past decade while the nonprofit’s executive salaries skyrocketed, according to a state audit.
The 77-page report, released Nov. 10, says the county hasn’t collected rent on a hotel managed by the Los Angeles Fair Association since 2006, and has provided the association with millions in rent credits to help fund a conference center.
The fair operator’s rent is based on a percentage of revenue generated from the 500-acre complex in Pomona. But according to the state auditor, the county allows the Fair Association – a nonprofit mutual-benefit corporation – to exclude revenue generated by a hotel and conference center that it privately owns.
State Auditor Elaine Howle says the county could not explain why hotel and conference center revenues aren’t included in the lease that was signed in 1988.
“We estimate that the association could have owed the county an additional $6.2 million in rent from 2006 through 2015 alone based on the gross revenue from the operations of the association’s hotel. However, the county appears to have agreed that the revenue earned by the hotel did not meet the definition of gross revenues,” the audit says of the hotel, which opened in 1992.
To make matters worse, the Fair Association has refinanced its debt on the hotel several times without county approval, and won’t have to pay rent until 2039: four years before the 56-year lease expires, according to Howle.
The county also played a key role in the Fair Association’s construction of a new conference center, giving it $12 million in rent credits.
While the Fair Association assured county officials in 2007 that the center would increase revenue and therefore generate higher rent payments, it renegotiated its contract with a hotel operator to include the conference center. As a result, the conference center and the hotel’s revenue have been excluded from the association’s monthly rent, the audit revealed.
The state says the association’s maneuvers, which likely cost taxpayers millions, happened under the county’s watch.
“Had the county conducted timely reviews of the association’s rent calculations, it likely would have uncovered this problem more quickly,” the audit states. The county once went six years without conducting a review.
The stretch of discounted rent has corresponded with major raises for the association’s top executives. The base salaries of other California major county fair executive officers range from $104,000 to $128,000, yet the L.A. association paid its former president $1.2 million in 2007 and more than $1 million in 2014.
“By comparison, we note that the San Diego County Fair generated revenue similar to that of the LA County Fair in 2014, yet its CEO received far less in total compensation,” the audit states.
The county agrees with Howle’s recommendations that it should try to recover back payments and renegotiate its lease with the association. But renegotiating the lease could be problematic, said County Executive David Howard.
“While we generally agree with the recommendations based on what we have seen thus far, as you understand, our ability to implement them may be dependent on cooperation from the [Los Angeles Fair Association],” Howard said in a response letter.
Howle said that whether the Fair Association cooperates or not, the county should update its management policies on the association’s rent calculations.
The Fair Association said it was given a redacted draft of the audit and that the report is “premised on a fundamental misunderstanding” of the association’s longstanding relationship with the county.
“This rewriting of history and reinterpretation of the lease, which was entered into decades ago before the county even corresponded via email, is particularly twisted and defies logic,” the association’s attorney Victor De la Cruz said in a response letter.
Los Angeles County Auditor-Controller John Naimo also recommended that the county try to recoup back payments from the Fair Association.