Report 2016-106 All Recommendation Responses

Report 2016-106: Los Angeles County: Weak Oversight of Its Lease With the Los Angeles County Fair Association Has Likely Cost Millions of Dollars in Revenue (Release Date: November 2016)

Recommendation #1 To: Los Angeles County

By April 2017, the county should reach agreement with the association on the date by which the association must pay the county for the rent in arrears related to the hotel.

Annual Follow-Up Agency Response From November 2021

County and Fair Association have executed Amendment No. 6 to the Lease that addresses this issue. Will send a copy of the amendment to the e-mail address set forth below.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The Amendment includes provisions for the association to pay $6.5 million in past due rent owed under the Lease for revenue generated at the hotel and conference center on the property combined.

Annual Follow-Up Agency Response From January 2020

County's proposal regarding a revised rent structure is being evaluated by the Los Angeles County Fair Association (Association). Amendment should be completed by the end of calendar year 2020.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2018

County has been and is continuing to negotiate with the Los Angeles County Fair Association (LACFA) regarding the date when past rent must be paid.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The County continues to have dialogue with the Los

Angeles County Fair Association (LACFA) regarding the rent due to the County from the hotel.

ANTICIPATED COMPLETION DATE: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The County of Los Angeles (County) has begun dialogue with the new leadership at the Los Angeles County Fair Association (LACFA) in an effort to reach agreement on the rent due to the County related to the hotel.

Anticipated Completion Date: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

On November 30, 2016, the Los Angeles County Fair Association (LACFA) announced they hired a new CEO/President. The new CEO/President will begin employment with LACFA on January 17, 2017. The County looks forward to initiating dialogue with LACFA to address the State's recommendation.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #2 To: Los Angeles County

By April 2017, the county should reach agreement with the association on how much rent the association owes the county from the hotel's operations since 1992.

Annual Follow-Up Agency Response From November 2021

County and Fair Association have executed Amendment No. 6 to the Lease that addresses this issue. Will send a copy of the amendment to the e-mail address set forth below.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The Amendment includes provisions for the Fair Association to pay $6.5 million in past due rent owed under the Lease for revenue generated at the hotel and conference center on the property combined.

Annual Follow-Up Agency Response From January 2020

County's proposal regarding a revised rent structure is being evaluated by the Association. Amendment should be completed by the end of calendar year 2020.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2018

County has been and is actively negotiating with LACFA regarding the amount of rent due from the hotel and other operations.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The County continues to have dialogue with LACFA regarding the rent due to the County from the hotel operations since 1992.

ANTICIPATED COMPLETION DATE: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The County has begun a dialogue with the new leadership at the LACFA in an effort to reach agreement on the rent due to the County related to the hotel's operations since 1992.

Anticipated Completion Date: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

As indicated in our response to Recommendation #1, the County looks forward to initiating dialogue with LACFA and its newly appointed CEO/President to address the State's recommendation.

Internally, the County will determine amounts due to the County, based on the information obtained in the review of LACFA (audit), as well as use the federal forms 990 to see reported revenues.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #3 To: Los Angeles County

As soon as possible, the county should collect from the association all amounts presently owed under the lease as a result of the revenue generated by the conference center.

Annual Follow-Up Agency Response From November 2021

County and Fair Association have executed Amendment No. 6 to the Lease that addresses this issue. Will send a copy of the amendment to the e-mail address set forth below.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The Amendment includes provisions for the Fair Association to pay $6.5 million in past due rent owed under the Lease (partly in cash and partly as a credit) for revenue generated at the hotel and conference center on the property combined.

Annual Follow-Up Agency Response From January 2020

County has been and is actively negotiating with the Association regarding the amount of rent due from the hotel and other operations. Amendment should be completed by the end of calendar year 2020.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2018

County has been and is actively negotiating with LACFA regarding the amount of rent due from the hotel and other operations.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The County continues to have dialogue with LACFA regarding the revenue generated by the conference center. The County's objective is to protect its interests and maximize its future revenue.

ANTICIPATED COMPLETION DATE: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The County will request access to LACFA's records to determine revenue owed to the County on the Trade and Conference Center. Without access to LACFA's records, County is unable to accurately determine the amounts owed to County.

Anticipated Completion Date: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

As indicated in our response to Recommendation #1, the County looks forward to initiating dialogue with LACFA and its newly appointed CEO/President to address the State's recommendation.

Anticipated completion date for determining amounts we believe are due to the County: March 30, 2017; Completion date for reaching agreement with the Fair Association remains TBD.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #4 To: Los Angeles County

To ensure that it recognizes and addresses in a timely manner areas of potential concern related to the association's rent, the county should create and adhere to a policy of reviewing the association's rent calculations at least every three years.

Annual Follow-Up Agency Response From November 2021

County and Fair Association have executed Amendment No. 6 to the Lease that addresses this issue. Will send a copy of the amendment to the e-mail address set forth below.

California State Auditor's Assessment of Annual Follow-Up Status: Resolved

The amendment includes updated requirements for the Fair Association to provide Los Angeles County with audited financial statements which shall specify, among other items, all gross revenue and expenses. To the extent that Los Angeles County regularly reviews this information and the association's rent calculations, it would have resolved our concerns.

Annual Follow-Up Agency Response From January 2020

Scope of Work for audit of Association every three years is currently being drafted and will be submitted to County Auditor-Controller for implementation.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2018

County is taking steps to implement auditing the Fairplex lease and other revenue generating leases every three years.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The County continues to work on a draft policy that will require County to review rent calculations on County-approved ground leases no less frequently than every three years.

ANTICIPATED COMPLETION DATE: December 31, 2017.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The County continues to work on a draft policy that will require County to review rent calculations on County-approved ground leases no less frequently than every three years.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The County is in the process of formalizing its policy that will require all ground leases to be reviewed at least once every three years. It is expected that this will result in the County correcting any discrepancies in rent calculation in a timely manner.

Anticipated Completion Date: March 30, 2017

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #5 To: Los Angeles County

To protect its interests and maximize its future revenue, the county should strongly consider ensuring that any potential amendment to the lease includes a revised rent calculation formula that factors in revenue from all of the association's activities, including its hotel and conference center, as well as revenue from its subsidiaries' activities at the Fairplex. This revised rent calculation formula should require the association either to pay the county an agreed-upon fixed amount, adjusted periodically for inflation, or to pay the county both a fixed amount every year and a percentage of the total gross revenue that the association earns at the Fairplex.

Annual Follow-Up Agency Response From November 2021

County and Fair Association have executed Amendment No. 6 to the Lease that addresses this issue. Will send a copy of the amendment to the e-mail address set forth below.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Los Angeles County has provided the amendment to the contract with the Fair Association, which includes an updated rent calculation and an updated definition of gross revenues that include hotel room revenues and resort fees.

Annual Follow-Up Agency Response From January 2020

County's proposal regarding a revised rent structure is being evaluated by the Association. Amendment should be completed by the end of calendar year 2020.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2018

County has retained an economic consulting company which is advising the County on the appropriate rent calculation formula to use for a proposed amendment. County is evaluating different revenue models.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The County has begun negotiations with LACFA on a lease amendment that will include a revised rent calculation formula. The County is seeking a consultant to advise on the appropriate calculations.

ANTICIPATED COMPLETION DATE: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The County has begun dialogue with the new leadership at the LACFA in an effort to commence negotiations for a possible lease amendment that would include a revised rent calculation formula.

Anticipated Completion Date: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The County acknowledges and agrees with this recommendation and will consider it when preparing to negotiate a potential amendment to the current ground lease and operating agreement. The County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #6 To: Los Angeles County

To protect its interests and maximize its future revenue, the county should strongly consider ensuring that any potential amendment to the lease includes terms that define the circumstances or dates that require a renegotiation of the lease and the rent calculation formula.

Annual Follow-Up Agency Response From November 2021

County and Fair Association have executed Amendment No. 6 to the Lease that addresses this issue. Will send a copy of the amendment to the e-mail address set forth below.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The amendment includes circumstances that require renegotiation of the Lease and the rent calculation formula.

Annual Follow-Up Agency Response From January 2020

County's proposal regarding a revised rent structure is being evaluated by Association. Amendment should be completed by the end of calendar year 2020.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2018

County has retained an economic consulting company which is advising the County on the appropriate mechanism for requiring renegotiation of the rent calculation formula.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The County continues to have dialogue with LACFA on the lease amendment. The County's objective is to protect its interests and maximize its future revenue. Accordingly, County will include in its negotiations a proposal to include events and/or dates that will trigger changes to the lease and/or the rent calculation formula.

ANTICIPATED COMPLETION DATE: TBD- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The County has begun dialogue with the new leadership at the LACFA in an effort to reach agreement on the direction that this potential amendment will take. The County's objective is to protect its interests and maximize its future revenue. Accordingly, during negotiations for a lease amendment County will seek more clarity on what events and/or dates will trigger changes to the lease and/or the rent calculation formula.

Anticipated Completion Date: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The County acknowledges and agrees with this recommendation and will consider it when preparing language to use to negotiate a potential amendment to the current ground lease and operating agreement. The County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

Anticipated Completion Date for new draft language: March 30, 2017; Completion date for reaching agreement with the Fair Association remains TBD.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #7 To: Los Angeles County

To protect its interests and maximize its future revenue, the county should strongly consider ensuring that any potential amendment to the lease includes an agreement on the types of entities whose gross revenues the association must include in rent calculations. This agreement should cover any new businesses the association creates that operate at the Fairplex.

Annual Follow-Up Agency Response From November 2021

County and Fair Association have executed Amendment No. 6 to the Lease that addresses this issue. Will send a copy of the amendment to the e-mail address set forth below.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Los Angeles County's amendment to the Lease includes an updated definition of gross revenues, which generally incorporates new businesses or affiliates of the association that operates at the Fairplex into the rent calculations.

Annual Follow-Up Agency Response From January 2020

County's proposal regarding a revised rent structure is being evaluated by the Association. Amendment should be completed by the end of calendar year 2020.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2018

County has retained an economic consulting company which is advising the County on the type of categories upon which a percentage of gross receipts will be collected as rent.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The County continues to have dialogue with LACFA in an effort to reach agreement on the direction that this potential amendment will take. The County's objective is to protect its interests and maximize its future revenue. Accordingly, the consultant will advise on an appropriate rent structure for the current and future types of business that operate at the Fairplex and the County will propose incorporating the new rent structure as part of the proposed lease amendment.

ANTICIPATED COMPLETION DATE: TBD- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The County has begun dialogue with the new leadership at the LACFA in an effort to reach agreement on the direction that this potential amendment will take. The County's objective is to protect its interests and maximize its future revenue. Accordingly, during negotiations for a lease amendment, County will seek more clarity on the types of entities whose gross revenues must become part of the rent calculations.

Anticipated Completion Date: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The County acknowledges and agrees with this recommendation and will consider it when preparing to negotiate a potential amendment to the current ground lease and operating agreement. The County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

Anticipated Completion Date for new draft language: March 30, 2017; Completion date for reaching agreement with the Fair Association remains TBD.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #8 To: Los Angeles County

To protect its interests and maximize its future revenue, the county should strongly consider ensuring that any potential amendment to the lease includes terms that require the association to provide the county with any subleases it wishes to enter, even those subleases that do not exceed 10 years. The terms should also require the association to provide the county with approval over other agreements that could affect the rent calculation, including the association's hotel management agreement and its amendments.

Annual Follow-Up Agency Response From November 2021

County and Fair Association have executed Amendment No. 6 to the Lease that addresses this issue. Will send a copy of the amendment to the e-mail address set forth below.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The Amendment to the Lease requires the Fair Association to submit to the Los Angeles County all subleases (and all assignments, amendments and/or other modifications) that the Fair Association enters into no later than 30 days prior to the effective date. It also requires that Los Angeles County review and approve any Hotel Operating Agreements.

Annual Follow-Up Agency Response From January 2020

County's proposal regarding a revised rent structure and revised subleasing requirements is being evaluated by the Association. Amendment should be completed by the end of calendar year 2020.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2018

County has been and continues to actively negotiate with LACFCA on the proposed amendment. The County intends to revisit LACFA's subleasing requirements as part of the amendment negotiations.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The County continues to have dialogue with LACFA on the proposed amendment. The County intends to revisit the Fairplex's subleasing obligations as part of the amendment negotiations.

ANTICIPATED COMPLETION DATE: TBD- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The County has begun dialogue with the new leadership at the LACFA in an effort to reach agreement on the direction that this potential amendment will take. The County's objective is to protect its interests and maximize its future revenue while ensuring that all terms and conditions of a proposed agreement are transparent.

Anticipated Completion Date: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The County acknowledges and agrees with this recommendation and will consider it when preparing to negotiate a potential amendment to the current ground lease and operating agreement. The County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

Anticipated Completion Date to draft proposed agreements: March 30, 2017; Completion date for reaching agreement with the Fair Association remains TBD.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #9 To: Los Angeles County

To protect its interests and maximize its future revenue, the county should strongly consider ensuring that any potential amendment to the lease includes terms that require the association to provide the county with advance notice of any refinancing of the association's debt and what impact, if any, such transactions would have on the amount or timing of rent payments to the county.

Annual Follow-Up Agency Response From November 2021

County and Fair Association have executed Amendment No. 6 to the Lease that addresses this issue. Will send a copy of the amendment to the e-mail address set forth below.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The amendment includes provisions for notifying the county of any refinancing of the Fair Association's debt and the impact such transactions would have on the amount or timing of rent payments to the county, if any.

Annual Follow-Up Agency Response From January 2020

County's proposal regarding a revised rent structure and regarding revised encumbrance terms is being evaluated by the Association. Amendment should be completed by the end of calendar year 2020.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2018

County has been and continues to negotiate with LACFA on the proposed amendment. The County intends to revisit the debt encumbrance provision as part of the amendment negotiations.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The County continues to have dialogue with LACFA on the proposed amendment. The County's objective is to protect its interests and maximize its future revenue. The County will include in its negotiations language addressing the LACFA's debt.

ANTICIPATED COMPLETION DATE: TBD- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The County has begun dialogue with the new leadership at the LACFA in an effort to reach agreement on the direction that this potential amendment will take. The County's objective is to protect its interests and maximize its future revenue. Accordingly, The County will ensure that all terms of a potential lease amendment adhere to current market value and ensure the County remains whole at all times.

Anticipated Completion Date: TDB- the County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The County acknowledges and agrees with this recommendation and will consider it when preparing to negotiate a potential amendment to the current ground lease and operating agreement. The County's ability to successfully implement this recommendation is dependent on LACFA cooperation.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2016-106

Agency responses received are posted verbatim.