State Fair Park, the 190-acre fairgrounds located in West Allis and
Milwaukee, is home to:
the Wisconsin State Fair, an annual event held at the fairgrounds each August;
the 56-acre Milwaukee Mile, which consists of the oldest operating
major automobile speedway in the United States and a new grandstand
that was completed in May 2003;
the new $37.8 million Wisconsin Exposition Center, which is used
exclusively for the State Fair in August and rented for non-fair
events during the rest of the year; and
the Pettit National Ice Center, a United States Olympic training
facility that is owned by State Fair Park but operated by a private
not-for-profit corporation.
Under s. 13.94(1)(dm), Wis. Stats., we are required to perform an annual
financial audit of State Fair Park. To date, State Fair Park has been
unable to provide fiscal year (FY) 2001-02 financial statements that are
materially correct and accurately reflect that year’s financial activity. We
have not, therefore, completed our financial audit for FY 2001-02. We
have, however, continued to monitor concerns about State Fair Park’s
financial condition and debt associated with its building program.
As part of our continuing efforts to monitor these concerns, we have
reviewed State Fair Park’s current financial position, its agreements
with various entities that own or manage fairgrounds facilities, and
debt service costs related to new construction.
Revenues and Expenses
State Fair Park’s total expenses
have exceeded revenues in four of
the past five years. In FY 2002-03,
expenses exceeded revenues by
$4.5 million.
In FY 2002-03, State Fair Park was
required to lapse $2.4 million in
program revenue to the State’s
General Fund, and the Pettit
Center did not make $371,600 in
rent payments. However, even if
State Fair Park had not been
required to lapse program revenue
funds and the Pettit Center had
made its FY 2002-03 rent payments,
expenses would have
exceeded revenues by nearly
$1.8 million.
State Fair Park funds its capital
expenses, such as routine building
repair and renovation expenses,
through a statutorily required
capital reserve fund. Its non-capital
expenses, including operating and
debt service costs, are funded by
program revenue appropriations.
In FY 2002-03, State Fair Park was
unable to fund all non-capital
expenses with program revenues
and reported a cash deficit of
$4.4 million as of June 30, 2003.
Funds from other appropriations
within the State’s General Fund
were used to pay these expenses,
but as a result the General Fund
will lose an opportunity to invest
and earn interest on those funds
in the future.
Reasons for Fiscal Decline
The 11-day Wisconsin State Fair
accounts for the largest portion of
State Fair Park’s revenues, and fair
attendance has fluctuated in the
past ten years. In August 2003, fair
attendance was 809,484, which is
9.5 percent below 2002 levels.
State Fair Park recognizes the risk
associated with its heavy reliance
on fair revenue and has attempted
to make the fairgrounds a yearround
entertainment attraction.
An aggressive $160.0 million building
program to revitalize the
fairgrounds was inititated in
August 2000. It included:
a new grandstand and expanded
bleacher seating for the
Milwaukee Mile racetrack,
completed in time for the 2003
racing season at a cost of
$19.1 million;
the Wisconsin Exposition
Center, which replaced several
existing exhibit buildings and
was completed in time for the
2002 State Fair;
an agriculture village that
includes a new barn and
several remodeled facilities; and
new entrance gates, fencing,
and a recreational vehicle park.
However, new and renovated
facilities that were intended to be
self-supporting have not met the
overly optimistic revenue projections
that were used to support
their construction. Instead, they
have contributed to State Fair
Park’s declining financial condition.
For example, State Fair Park incurred
a net loss of more than
$341,700 in the 2002 racing season.
Although a renegotiated agreement
with a private racing promoter
was intended to increase
revenues from the Milwaukee Mile,
the 2002 agreement:
included profit-sharing provisions
that had limited value
given that the racing promoter
consistently reported net losses;
did not require the promoter to
significantly increase the number
of future racing events;
eliminated a minimum annual
rent payment of $300,000; and
did not require the promoter
to reimburse State Fair Park
for its debt service costs if the
promoter did not realize a
profit.
In May 2003, just two days before
the start of the racing season,
State Fair Park spent an additional
$250,000 to terminate this contract
and began managing the
Milwaukee Mile internally. Under
the termination agreement, State
Fair Park assumed liability for
$3.2 million in debt incurred by
the promoter in exchange for
approximately $1.6 million in
net assets.
State Fair Park also funds $67,000
in monthly salary and fringe benefits
costs for eight Milwaukee Mile
employees hired by the Exposition
Center. This unusual payment
process, which bypassed mechanisms
for legislative and executive
control, provided two employees
with incentive pay totaling $27,900.
Under other agreements it negotiated
with the not-for-profit Wisconsin
Exposition Center, we
estimate that State Fair Park:
incurs annual costs of at least
$39,100 on behalf of the Exposition
Center, including parking
lot maintenance and sewer costs;
paid the Exposition Center
$73,540 more than its net
parking revenue from non-fair
events over an eight-month
period; and
lost 104 days’ revenue from
events that left the fairgrounds
when the Exposition Center
was built and several other
buildings were demolished.
Poor Business Planning
Although a private financial
consultant hired by State Fair Park
projected that a new Milwaukee
Mile grandstand could support a
significant amount of debt and
report a net profit in the second
year of operation, several incorrect
assumptions were included in that
projection.
For example, the projection assumed
State Fair Park would
receive $10.0 million in naming
rights for the grandstand and
would attract six major events
each year and collect concession
revenue averaging $25 per person
at each event. However, naming
rights have not yet been sold, and
State Fair Park acknowledges that
six events may be difficult to
achieve and that the industry
average for concession revenue is
only $6 to $13 per person.
Projections for the Exposition
Center were also overly optimistic.
The Exposition Center was projected
to attract 68 events each
year, but it has scheduled only
34 events in 2003 and currently
has 25 events scheduled for 2004,
including the Wisconsin State Fair.
Finally, it is critical that State
Fair Park improve its financial
management in general, and its
financial reporting system in
particular.
Because State Fair Park officials
have not yet provided FY 2001-02
financial statements that are
materially correct and accurately
reflect that year’s financial activities,
we have not been able to
complete a statutorily required
audit in a timely manner and
make our opinion available to the
Legislature and the Governor as
they considered the State’s 2003-05
biennial budget.
Increased Debt Service Costs
To fund the costs of recent improvements
to the fairgrounds, State Fair
Park has relied on funding from
program revenue–supported
bonds, GPR-supported bonds, and
$2.0 million from the Stewardship
Program. However, its ability to
meet debt service obligations will
be limited, at least in the short run,
if program revenues from the
Wisconsin State Fair and other
sources do not increase, or if
operating expenses do not decline.
State Fair Park’s annual program
revenue–supported debt service
payments will be more than
$3.3 million through FY 2012-13. If
program revenues are insufficient
to cover these debt service costs,
the State could ultimately be called
on to fund them, as well as at least
$2.0 million in annual debt service
costs from GPR-supported bonds.
Recommendations
We include recommendations for
State Fair Park to:
develop a detailed, comprehensive
business plan for its racing
activities
(p. 27);
immediately renegotiate its
ground lease agreement with
the Wisconsin Exposition
Center and seek reimbursement
of the costs it incurs for
Exposition Center operations
(p. 32);
immediately renegotiate its
licensing agreement with the
Wisconsin Exposition Center to
more reasonably account for
parking revenues and expenses
related to Exposition Center
events
(p. 33); and
in conjunction with the Wisconsin
Exposition Center Board and
the Pettit National Ice Center,
Inc., develop detailed, comprehensive
plans to increase
revenues, define operating and
management relationships, and
establish contingency plans if
revenue targets are not met
(p. 37 and
p. 41);
Matters for Legislative Consideration
As the State Fair Park Board, the
Legislature, and the Governor
consider the future of State Fair
Park, a number of other areas will
need to be addressed, including
State Fair Park’s management
structure, the level of additional
financial support the State may be
requested to provide in the future,
and the level of oversight it wishes
to retain at the fairgrounds.