Del Mar council finds flaws in fairgrounds impact study

A recently released study that shows the Del Mar Fairgrounds greatly benefits Del Mar was deemed flawed by the City Council at the June 20 meeting.

Conducted by consulting firm Economic & Planning Systems, the collaborative study was commissioned by Del Mar, neighboring Solana Beach and the 22nd District Agricultural Association, the agency that runs the state-owned fairgrounds.

According to the study, the cities receive a combined net benefit of about $1.2 million annually in revenues from the fairgrounds, after factoring in certain revenues and expenses. Del Mar nets a little more than $1 million annually, with most of the revenues coming from sales and transient occupancy taxes, while Solana Beach receives a net fiscal gain of $209,400.

An estimated 2.8 million people visit the fairgrounds every year to attend more than 350 events, including the annual San Diego County Fair and the horse races held each summer and fall.

To determine the costs and revenues associated with the fairgrounds, the consultants collected data from both cities on sales and transient occupancy taxes. The report also included parimutuel revenue from satellite wagering, as well as possessory interest tax, which only Del Mar receives.

The consultants also conducted in-person intercept surveys during five fairgrounds events: the Good Guys Car Show, Del Mar National Horse Show, San Diego County Fair, summer thoroughbred races and the KAABOO music festival.

Economic impacts not included in the study included direct employment and direct spending that is not taxable.

Additionally, three types of costs incurred by the cities that could not be quantified were also not included in the report. These include costs incurred when law enforcement officers or firefighters respond to incidents involving fairgrounds visitors but not taking place at the venue. Quality-of-life costs such as the impacts of crowds, noise and traffic, as well as sheriff and fire personnel support costs incurred by the cities were also not included in the final fiscal analysis.

According to the report, Del Mar receives a total of $1.375 million in revenues, including $681,300 in sales tax, $561,600 in transient occupancy tax, $115,669 in track betting proceeds, and $17,000 in possessory interest tax. The report also estimates that the city spends a total of $340,400 related to fairgrounds events, including $235,000 for fire and medical services, $50,100 for sheriff services, $44,400 for public works, and $10,900 for other general government expenses.

After reviewing a draft of the report, the city’s Finance Committee in May passed a resolution declaring that the study does not meet the terms of the settlement agreement and that the council should not accept it.

Although committee member Will Holliday said he appreciates the challenges presented by the cross-agency collaborative study and agreed it included important data, he and other committee members found “imperfections” in the report.

“We believe those imperfections to be quite material and warrant that the study’s conclusions should be rejected,” he said. “To just take this report as it is, I think, would be a mistake.”

Another member of the committee, Barry Entous, shared his concerns and also asked the council to reject the report.

“It’s made of assumptions that are unacceptable, as far as I’m concerned,” he said. “They did a lot of work, but the conclusions are not accurate. … I believe this is a very flawed study.”

The city’s fiscal benefit is not $1,035,200, according to the committee’s analysis. Instead, the committee estimates that Del Mar nets about $50,000, while the net fiscal cost to the city could be as high as $1.153 million.

Although council members said they appreciated the work conducted by the consultants, they shared the committee’s concerns and agreed with its conclusions.

“You looked at a narrow slice of the bigger picture,” Councilman Dwight Worden said to the consultants.

“I think it’s a challenging task to work for three different hats,” Councilman Al Corti said. “I think to a certain extent, when you do, you’re going to come up with something that’s a little gray or some compromise. To that extent, I think that the report, from our perspective, is flawed.”

Councilman Don Mosier said that various assumptions in the report — like low-paid fairgrounds vendors would stay at the pricey L’Auberge Del Mar — fail a “common-sense test.”

“I think we should just move on,” Councilman Don Mosier said. “The fairgrounds is going to love it. They’ve already publicized this report. I think the best thing for us is to say we dissent from the major conclusions.”

“We’ve got, I think, much more information than we’ve ever had related to the revenue and expense side, so I think this is a study that’s advanced our understanding of the situation,” Deputy Mayor Terry Sinnott said. “But based on the Finance Committee’s review and our own review, it needs to be further improved to be a workable document.”

The joint study stems from a 2013 settlement agreement from a lawsuit filed by Del Mar, Solana Beach and the San Dieguito River Park Joint Powers Authority over proposed expansion plans at the fairgrounds. As part of the settlement, the parties agreed to conduct the study to evaluate the costs to each of the cities for providing services related to the presence of the fairgrounds, as well as the estimated revenues from people visiting the venue.

Both the cities and the 22nd DAA Board developed the criteria for the study and selected the consultant. Each of the three entities paid $30,000 to hire EPS to conduct the $90,000 study.

EPS gave a preliminary presentation to the Community Relations Committee — which includes two representatives from each City Council and the 22nd DAA Board — in March. The report was presented to the Solana Beach City Council in May, where several council members also questioned the numbers. The 22nd DAA Board is expected to hear the report in September.