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F I S C A L I M P A C T R E P O R T

SPONSOR Stewart

ORIGINAL DATE

LAST UPDATED

1/16/08

1/16/08 HB 6

SHORT TITLE State Fair Commission Appropriation Act

SB

ANALYST Leger

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

$14,971.8

Recurring

Other State Funds

$348.0

Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to Appropriation in the General Appropriation Act

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

$14,276.8

Recurring State Fair Fund

$695.0

Recurring Internal

Services

$348.0

Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico State Fair Commission (Expo New Mexico)

SUMMARY

Synopsis of Bill

House Bill 6 appropriates $14,971.8 in other state funds and $348.0 in general fund to the New

Mexico State Fair Commission. HB 6 reflects the Legislative Finance Committee (LFC)

recommendation for the agency as well as performance measures and targets.

House Bill 6 – Page 2

FISCAL IMPLICATIONS

The appropriation of

$14,971.8

contained in this bill is a recurring expense to other state funds

and $348.0 is a recurring expense to the general fund. Any unexpended or unencumbered

balance remaining at the end of FY09 shall revert to the state fair fund.

SIGNIFICANT ISSUES

The state fair is an enterprise agency that uses revenues derived from admission, concession,

building rental, and other services to cover fair operations. The 2007 New Mexico State Fair

saw a decrease of 3 percent in attendance but a 28 percent increase in admission revenue, and an

11 percent increase in parking revenue. Revenue from art sales and Tingley Coliseum

concession and ticket sales decreased. Tingley Coliseum, the only major entertainment venue in

the metro area from 1938 to 1996, has seen increasing competition and now must vie for

attendance with more than nine other major venues.

Over the past three fiscal years, enterprise revenues have increased on average 5 percent, with

expenses increasing an average of 1 percent. In 2004, the agency closed the fiscal year with a

$971 thousand deficit. Surplus revenues in 2005 and 2006 were not enough to eliminate the

deficit. However, reserve levels grew from FY06 to FY07 from a negative $260 thousand to a

positive reserve level of $272 thousand.

According to the agency the aging buildings and infrastructure have a tremendous effect on the

operation of Expo New Mexico as an entertainment venue. Currently the enterprise revenue

generated is not sufficient to support the on-going maintenance, renovations and improvements

needed to bring the aging buildings and infrastructure to a level that can meet the needs of the

fair. The New Mexico State Fair is almost 70 years old. Most of the buildings and facilities are

over 20 years old, and the flagship Tingley Coliseum is 50 years old. For years, the state fair

deferred maintenance and upgrades to facilities and infrastructure due to a lack of capital. With

the dedication of a fraction of the tax on pari-mutuel betting in 2003, the state fair has been able

to fund some critical capital projects, especially related to life-safety and accessibility concerns.

However, this revenue stream is not adequate to address the longer-range needs of Expo New

Mexico. Though the state fair is an enterprise agency and fully funds its operations from internal

revenues, they depend on capital appropriations from the State for its facilities and infrastructure.

The local and regional markets for entertainment, exposition and equestrian facilities are

becoming more competitive. The fair also needs to update and expand its venues and services to

fulfill its historic mission to educate the citizens of New Mexico about advancing science and

technology, and better align the programs of the fair with the economic development initiatives

of the State. In an attempt to increase enterprise revenue, the main source of agency funding, the

Commission has also submitted a 5-year Capital request of $58.7 million to continue on-going

renovations to the facility and infrastructure improvements. This in turn will cut labor costs,

allow for increased efficiency and generate increased revenue through facility rentals. Since

2005, the agency has received annual parimutuel tax revenues in the amount of $1.2 million;

$965 thousand of the tax revenue pays debt service on a $5.5 million negotiable bond issued by

New Mexico Finance Authority. Funds derived from the bond are used for capital and

infrastructure improvements on the fairgrounds. During FY07, more than $8.6 million was spent

on capital projects. Infrastructure projects were lighting, drainage, paving, a telephone system, a

water plan, and sidewalk improvements. Other capital improvements were arena improvements

and fire sprinkler system upgrades, kitchen exhaust hood fire suppression systems, evaporative

cooler replacements, Indian village renovation, and new roofs for various buildings.

House Bill 6 – Page 3

PERFORMANCE IMPLICATIONS

Expo New Mexico has had to compete with other venues for entertainment during the September

state fair and year-round. The agency is now competing with casinos throughout the state that are

booking quality artists and with the addition of new facilities including the Sandia Resort &

Casino, the Santa Ana Star Arena and the Journal Pavilion in addition to the new $60 million

equestrian facility in Tulsa, Oklahoma. The agency will have to differentiate themselves from the

competition and only way to do this is to be promoted as a place for inexpensive family

entertainment with more than you can do in one day at the fair and continue to remain

competitive for year-round events. With increasing competition the potential loss of revenue

continues to be a concern requiring new and innovative marketing strategies.

The operation of the Expo New Mexico 236-acre grounds requires a significant labor force from

executives, professionals, skilled trades to grounds labor year-round with personnel levels

increasing 400% during the “annual state fair". Many factors contribute to the increase in

personnel services and benefits. In September 2006, the agency increased the hourly rate by

$0.50 for all temporary/seasonal workers to better compete with the local private sector service-

industry. A permanently assigned New Mexico Department of Labor workforce specialist

advised the agency in past July that the ready labor pool was down by over 50% from past years

and the agency was looking at a severe shortage of workers for the fair in September. One of the

largest contributing factors to the labor pool shortage was the persistently low unemployment

rate in this area leading to an increase in the average hourly rates in the local services industry.

The city of Albuquerque will have a new minimum hourly wage of $6.75 effective in January

2007. Though legally the fair is not compelled to pay this wage, economically they must and

this means another across-the-board increase for temporary/seasonal workers. A review of our

organizational structure surfaced many misclassifications that lead management to do a much-

needed reorganization of this agency’s permanent staff. This includes properly classifying

positions so that their incumbents can be properly compensated for the work that they do. The

agency has analyzed the costs associated with the reorganization and they had a significant

impact on the FY2008 budget. Potential FY2009 cost of living salary increases will also have a

significant impact on the FY2009 budget.

Through current revenue generating means, FY08 revenue was projected to increase

approximately $2 million from rate increases in flea market rental, parking, and annual event

admissions. However, with lower attendance at the annual event, increase in flea market

competition, and inclement weather the FY2008 increase revenue is down 50% from anticipated.

ADMINISTRATIVE IMPLICATIONS

The “state fair" annual event generates 53% of the annual revenue as well as 53% of the

expenses. Expo New Mexico staff has worked diligently to increase the year-round operating

profit margin to

29% by lowering expenses and continuing to operate more efficiently. The

above percentage reflects operating at the most efficient level possible.

To hold a successful event, an additional 800 seasonal employees are hired at a cost of

approximately $1,000,000. These positions are not budgeted; therefore operating costs must be

curtailed to have sufficient budget and cash for these essential personnel.

Along with the seasonal “fair" personnel; an additional 120 temporary employees are hired for

year round events. Budget for these personnel must also be absorbed from the operating budget.

House Bill 6 – Page 4

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The state fair will not be authorized to utilize generated revenues for operations and will not be

able to meet its statutory obligations.

POSSIBLE QUESTIONS

1.

What steps is the fair taking to ensure its continued success.

2.

How will the fair diversify its self in the entertainment field.

3.

How will the fair ensure it remains competitive.

JL/bb