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Will Del Mar Buy The Fairgrounds?

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The proposal that the State of California sell the Del Mar Fairgrounds to the City of Del Mar has created a lot of questions and some controversy. We look at pros and cons of the proposed sale as well as questions about the sale price and whether Del Mar will be able to come up with the money.

The proposal that the State of California sell the Del Mar Fairgrounds to the City of Del Mar FOR $120 million has created a lot of questions and some controversy. With several of the principals involved, we look at pros and cons of the proposed sale, questions about the sale price and whether Del Mar will be able to come up with the money.

GUESTS: State Senator Christine Kehoe (D-San Diego), author of the proposal

Richard Earnest, Mayor, City of Del Mar

Barry Nussbaum, President of the Board of Directors, 22nd District Agricultural Association

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This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

MAUREEN CAVANAUGH: I'm Maureen Cavanaugh, and you're listening to These Days on KPBS. Horse racing, hats, carnival rides and deep fried Twinkies. That's what most San Diegans associate with the Del Mar Fair Grounds. But right now the famous fair grounds can also be associated with controversy. Last week a preliminary agreement was announced between the state and the city of Del Mar for the purchase of the fairgrounds and race track. The proposed sale is part of the governor's strategy to raise money for our cash strapped state by selling off some high value properties. But the sudden announcement of the agreement, the price tag of the property, and the qualifications of the new owners have raised concerns of some about the future of the fair grounds, Christine Kehoe is with us. Good morning senator Kehoe.

CHRISTINE KEHOE: Good morning Maureen. How are you?

MAUREEN CAVANAUGH: I'm great, thank you for being here. Richard Ernest is mayor of the city of Del Mar. Good morning.

RICHARD ERNEST: Good morning, Maureen, thanks for inviting me.

MAUREEN CAVANAUGH: Barry Nussbaum is president of the Del Mar Fairgrounds board of directors.

BARRY NUSSBAUM: Good morning, nice to be with you.

MAUREEN CAVANAUGH: Senator Kehoe, how did the proposal that the state sell the fairgrounds to the city of Del Mar come about? What was the genesis of that?

CHRISTINE KEHOE: Well, it's evolved over the last couple of years, in 2009, if you you remember, the budget before this budget, the governor proposed selling off high value properties across the state to help bring in rough news and balance the state budget, Del Mar was on the list. I was surprised and I thought, I don't want Del Mar to get sold to the highest bidder, and who knows what kind of development would take place right there in the river valley, hotels or shopping centers or whatever. And I started to look into it, and I think -- I can't speak for Del Mar on this, but I think they had the same reaction as us. And from that time to this, Del Mar went ahead and negotiated with the governor's office. But I'll tell you why I got into it in the first place. When I saw that the governor could put the Del Mar Fair Grounds up for sale at any time, I thought San Diegans have a big stake in the future of the fair grounds, it's 400 acres, along the coast, along the San Diegito river, one of the last coastal river here in San Diego, and I think having it in local hands, local control, that it remains publicly owned, that Del Mar and its neighboring cities will preserve and enhance the beautiful, natural environment. That's why this is important to me.

MAUREEN CAVANAUGH: Now, as I said, a preliminary agreement was ark announced but actually to accomplish this sale, a bill has to be approved of that's my understanding at least, and it was introduced, AB181 was introduced by lory Saldona a as part of the budget discussions which you cosponsored, tell us what you would, senator, what are the provisions of the bill? In other words, how much money are we talking about, who's gonna run the Del Mar Fair Grounds? What does it say is gonna happen.

CHRISTINE KEHOE: AB181 is very much similar to the bill that was in last year's budget for Orange County's fair grounds which are also in the process of being sold. It authorizes the California department of general services to sell the Del Mar Fair Grounds for a hundred and $20 million with the net proceeds going into the state's general fund. It also establishes a nine member, nonprofit board of direct offer of proofs made up of the residents of the city of Del Mar, the city of San Diego, Solana beach, the county of San Diego, and the San Diegito joint river authority. And it has some other strictures in it about using Del Mar as certified local coastal plan until a new one is adopted honoring union personnel contracts that are current with workers now. And requires a report to the legislature. So that is what it does, technically's few other little things.

MAUREEN CAVANAUGH: How did the $120 million figure come up? I know a lot of people think that that area of prime real estate should be valued at a lot more than that.

CHRISTINE KEHOE: Well, I think Richard Ernest, the mayor of Del Mar would be the better one to discuss that, but I think from my vantage point, and Del Mar is in my state senate District, so when they came to me with this proposal, I was more than happy to get involved and I do support it strongly. That hundred and $20 million I think is a reasonable maybe even a fair value for the fair grounds if you consider that Del Mar does not want to commercially develop it. It is not gonna be a shopping center. It is not gonna be a thousand condominiums. It will -- much of the land is not buildable because it's in the San Diegito river valley. We want to maintain, though, tracks, the race track operation and the fair grounds. And I think it's reasonable, and it was a negotiated price, that's what the governor asked for, and the city of Del Mar met the governor's terms.

MAUREEN CAVANAUGH: Gotcha. Okay. Mayor Richard Ernest of Del Mar, tell me more about that $120 million price tag. Not only do some people think that's really sort of on the very very low end of what this property is worth, but they wonder how the city of Del Mar is gonna come up with that much money.

RICHARD ERNEST: You can look -- this piece of property is very special and very complex, what I mean by that, one could put a variety of values on it based on how it's zoned. Now, it is zoned now for fair and racing and agricultural use uses. I suppose that if you wanted to rezone it, and if it were permitted, which it would never be, you could probably come up with a higher number. But as it is, we responded to the governor when they did their own audit, or their own appraisal, they did not share that appraisal with us. However, when they suggested the helped and $20 million number, we decided that we could make that happen. So what we've done is based on historical financial from the 22nd agricultural district, we looked at those numbers, did a discounted cash fro around that over a long period of time and discovered that based on the revenues and some very conservative assumptions about where racing might be going in Southern California, where our economy is going, that we could indeed afford it.

MAUREEN CAVANAUGH: You could indeed afford it. How actually are you going to pay for it though? Do you have a three pronged plan, I think?

RICHARD ERNEST: Well, there are three basic pieces to it. One is we will be using a bond -- our own triple A bond rating to fund some bonds for it, there is -- there is a horse group, a thoroughbred horse group who wants to come in on a prepaid lease on the race track itself, using current management of that being the thoroughbred club. And a third piece would be the state allowing us to pay the rest of it over a period of time.

MAUREEN CAVANAUGH: Now, I want to get Barry Nussbaum into the conversation, but mayor Ernest, I want to ask you one more question before I do. Why does the city want to own the fair grounds, the race track?

RICHARD ERNEST: Well, I think senator Kehoe addressed a lot of that. Number one, we believe that -- and many, many constituents within the regional believe that this should be in regional control, not state control. I think if we are taken out from underneath the financial problems that the state has in being able to do what needs to be done at the fair grounds in terms of infrastructure and improvements, it's already a world class facility, we'd like to see it be even better of that's one of the reasons issue the other reason is, we frankly would like to keep the river valley and people who have input into that river valley involved. That's why as a governing body, we would be including all of those who are dramatically affected by what goes on at the fair grouped, that being Solana beach, the city of San Diego, the county of San Diego, and the river valley JPA, including of course our city.

MAUREEN CAVANAUGH: Now, Barry Nussbaum as Perez did he want of the Del Mar Fair Grounds board of directors, you're on record here as having a real problem with the idea of the fair grounds being sold to the city of Del Mar. Tell us some of your objections to that.

BARRY NUSSBAUM: I don't want to take the rest of our show, so I'll try and make it -- I'll encapsulate the best I can. I mentioned at the board meeting when Richard came and spoke before the fair board yesterday, the old addage, if it ain't broke don't fix it. The fair grounds right now is managed by a board of nine people from around San Diego County that has already established and maintaining regional control of this facility. To transfer it to the smallest city in the county to the exclusion of the other three million residents of San Diego County would disenfranchise the input that those people have. I can't even imagine what problem that solves and the exacerbation of people not being involved in the management of the fair grounds would be monumental. Number two, are the financial plan as was presented by the mayor yesterday was characterized, I think by Adam Day, our vice president as voodoo economics. Let me explain. There's a 120 million dollar price tag that was arrived at in private, no public hearings no, public input, no public discussion, no sitting down with our financial people, our staff, as best as I can tell. The meetings were held completely in private and out of the public view with no ability to have any input, and that includes our fair grounds staff. I met with all of them after our meeting, they knew nothing about it until after the bill was announced to come up with a hundred and 20 million dollars, partially is coming from some horse people who are gonna prepay the lease on the race track. Let me explain how that will cause the complete collapse of this facility. At present, 100 percent of the net rev view from the operation of horse racing here at Del Mar, which is run by probably the best people in the world, the Del Mar thoroughbred clubs, go to the district. And the district uses all of that money here for infrastructure development and maintenance. None of it leaves except for the taxes that go to the state. If that lease is prepaid, what you're doing is bringing at the present time, the future income that would be received from the operation of the race track. In other words, it's no new money, it's just borrowing from the future, and bringing it now, that money would go to Sacramento and the lease payments for the future would be diminished by the amount that was broad forward.

MAUREEN CAVANAUGH: Right.

BARRY NUSSBAUM: So every single year, the budget of the race grounds would go negative, and cumulative from what the mayor discussed yesterday, at least $55 million negative. Now what you should know, and the city of Del Mar hasn't even come to see our books is right now the fair grounds basically breaks even. If $55 million disappeared, there would be a $55 million cash flow operational deficit that could not be covered from any other source, because in terms of efficiencies and management, I can tell you having been here for 12 years, the fair staff is the best staff in the nation. The racing staff is the best staff in the nation, these are the professionals that are the best at what they do, and have been recruited from all over the country to run this facility.

MAUREEN CAVANAUGH: Barry, I hate to interrupt you, but I want to give mayor Ernest and senator Kehoe to respond about the secrecy, but I also want to ask you straight out, what is your major concern? Is it that you feel that if it's taken on by the city of Del Mar and this new governing board, that they're gonna run it into the ground.

BARRY NUSSBAUM: Well, run it into the ground, I could only make that opinion if someone came out with a comment, which, by the way, there was one in the morning paper, a member of the Del Mar city finance committee was quoted, "when the city buys the fair grounds his preference is that the fair is closed, the race track is closed, and the property is redeveloped into low density residential housing." He says that would improve the quality of life for Del Mar residents, whether he speaks for the city government or just speaks for himself, I can't tell you. And I don't know the man. But I can tell you that that would be inevitable, if you pull money out of this finance that presently exists here, the financial structure at the fair grounds, the fair grounds will collapse.

MAUREEN CAVANAUGH: Let me give mayor Ernest a chance to respond. Is that the plan to have commercial development where the race track and the fair grounds is?

RICHARD ERNEST: No, I think I know who Mr. Nussbaum is talking about. It's a private citizen, everybody in this country has a right to their own opinion. Not only about what the property is worth, I suppose, but about what might be done with it. No, and in fact a commitment has been made to the governor that three things would happen. One is that as a result of our issuing able to acquire the property, one is that it would remain in the public domain. Two, we would continue to have horse racing there, and move that along as best we can, and continue to have a fair. So those three corner stones will remain in place. So there's virtually no chance that whatever was said this morning in the paper by this individual would happen.

BARRY NUSSBAUM: The fellow that said it, Richard, is I'm gonna say his name probably wrong, is Preston Forlasec.

RICHARD ERNEST: Yeah.

BARRY NUSSBAUM: He sits on your city finance committee.

RICHARD ERNEST: Yes, I know he does.

MAUREEN CAVANAUGH: Let me ask you, mayor Ernest, about the charges of secrecy, without the proper input of the people who know how to run the fair, starting with you, mayor Ernest.

RICHARD ERNEST: First of all, I know Barry talked about the quality of the people who run the race track and run the fair grounds and I will not quarrel with that. I agree with him. I think they are really a first class group, and we fully intend to retain those people to continue to do the quality work that they do. On the other hand, we want to make sure that this is done on a very regional basis. To answer the question about quote unquote secrecy or privacy or whatever you want to call it. Over a year ago, we made it very public that the governor had expressed an interest in selling and we were interested if getting involved because we believed it should be in local control, ask since most of it is in the city of Del Mar anyway that we would like to have a seat at that table. So that was public a long time ago. We have had six counsel meetings, public counsel meetings, where this topic was discussed. Not only that, in in July of this year, we had a formal public agenda item to retain bond counsel to happen figure out how to pay for it. So it certainly hasn't been done in secret, now, were discussions and negotiations done in private? Of course they were. That's how negotiations were. You don't negotiate in public.

MAUREEN CAVANAUGH: And senator Kehoe, what about the secrecy charges?

CHRISTINE KEHOE: Well, I think Richard explained it very well. The governor's office required the negotiation be carried on confidentially, what is typical of personnel and real estate matters in state and local government. The Del Mar City Council was noticing the fact that they were discussing portions of this deal, that they hired bond counsel, they even wrote an editorial and opinion piece that was published in the union tribune. So there is nothing secret about this. The negotiations were confidential, but the steps that were taken to arrive at the sale price and their dealings with the governor's office were completely on the up and up. And remember, each one of the favor board members is appointed by governor Schwarzenegger. They serve at his will. And I would think if the governor's office had wanted to inform the fair board members their old appointees about the negotiations they would have gone ahead and done that. They did not want to, and I don't know their reasons for that.

BARRY NUSSBAUM: The part I take exception with about this process and I've made it very public, that's correct. We're all appointed by the governor. Some of us have been here for a number of terms and been appointed by the previous democratic and the current Republican administration are trustees of this property for the benefit of the three million citizens of San Diego to conduct a sale and negotiate in private without the public input is what I have a problem with. There are so many disenfranchised citizens of this county that are so up in arms about this. This is not a regional asset that should be controlled by the smallest population within the three million people that live in the county. We already have regional control. We already have an incredible amount of input coming in on a daily basis from every member of the county from the border to Oceanside, from Alpine to Del Mar. To take that away and put it in the hands of a newly appointed, self administered city of Del Mar that financially has trouble meeting its budget every month, compared to what we have as a budget, which is many, many times what they have now, built on a financial plan that really is smoke and mirrors will cause the collapse of the fair grounds facility. That's what I'm so worried about.

MAUREEN CAVANAUGH: Paul is calling us from Oceanside.

NEW SPEAKER: I think that Mr. Nussbaum, like everybody else on that board, were political contributors, friends to the governor's administration at the time when they got appointed and the reason they weren't in the loop when all this was going down is because they're nothing but political appointees and I think this is a great idea what Ms. Kehoe has put forth, and what the city of Del Mar is doing. And the point is that these people are political hacks who were acting like they were elected or that they somehow matter in the big scheme of things. All they are are political appointees, that's all -- that's the beginning and end of it. And they don't represent anybody.

MAUREEN CAVANAUGH: Paul thank you for the comment, I'll give you a chance to respond, Barry.

BARRY NUSSBAUM: It's difficult to respond to what borders on slander. I can tell you, I've been on a number of boards over the last 25 years. I've never seen private citizens give more of their time and care more for no pay than the people that serve on this fair ground. I can tell you personally that I probably put in 20 hours a week, volunteer week after week after week, volunteering my time to make sure that this property is well maintained for this generation and generations to come. Yes, we were appointed by a governor, not because we gave a lot of money, if you pull the public records you'll see that I was appointed by a democratic governor twice, and then a Republican governor who I had never met.

MAUREEN CAVANAUGH: We only have time for two more questions, and I want to ask mayor Ernest, what about what Barry said, the city of Del Mar not even looking at the fair grounds books yet? Don't you think that that would be a wise thing to do to make sure that you're going to be able to maintain the running of the fair grounds and the race track? When do you plan to do that?

RICHARD ERNEST: Well, of course it would be wise, Maureen. And we will do that. We have already looked at what is in the public domain and there is -- every year they have to submit to the SCC their financials and we've looked at those. However, there are many, many more cases of doing due diligence that need to be done. You don't do all that before you have a tentative agreement. You do it afterwards, because it's expensive and it takes a lot of time. But there are current tracks to read, this are employee agreements to look at. There's a lot of information that will have to be looked at in due diligence, as we go forward.

MAUREEN CAVANAUGH: And going forward, that I'm afraid has to be by final question, senator Kehoe, how do we go forward from here? What has to be accomplished before this deal becomes final.

CHRISTINE KEHOE: Well, the city of Del Mar will -- and the state will complete its due diligence. And I think that will shed a lot of light on these complicated financial scenarios that Barry was talking about. It is in the end a simple deal with Del Mar will buy the property, assume its debt, and have a financial plan to pay that off over time like they do with all their other bonds. The bill is still alive, in the unlikely instance that we have a special session between now and December 1st, the bill is still eligible to be brought up. After December 1st, a new two-year session of the legislature begins following the November elections, and then I will have to introduce a new bill and deal with a new governor's administration. So if the deal isn't consummated in the next month or by the first of December, then that's what my intention is at the instructions of the city of Del Mar. Because they are as I said, in my senate district.

MAUREEN CAVANAUGH: Right.

CHRISTINE KEHOE: So we think this is a tremendous opportunity for the region. I just strongly believe that San Diegans have the best interests of the fair grounds at heart, and we'd like to see the fair grounds in local hands. I think it's a terrific idea.

MAUREEN CAVANAUGH: You know, we're out of time, and I'm so sorry. We have so much more we could talk about. But I want to thank my guest, state senator Christine Kehoe, thank you.

CHRISTINE KEHOE: Thank you so much Maureen.

MAUREEN CAVANAUGH: Mayor of Del Mar, Richard Ernest thanks for coming in.

RICHARD ERNEST: You're very welcome. Thanks Maureen.

MAUREEN CAVANAUGH: Barry Nussbaum, thank you so much. President of the Del Mar Fairgrounds board director.

BARRY NUSSBAUM: Happy to be with you any time, Maureen.

MAUREEN CAVANAUGH: Coming up, election coverage continues on KPBS, we focus on San Diego's congressional races. That's as These Days continues on KPBS.

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