State Fair Park, the 190-acre fairgrounds located in West Allis and
Milwaukee, has been home to the Wisconsin State Fair since 1892. That
annual event remains its primary source of funding, but its financial
condition is also affected by:
racing activities at the Milwaukee Mile racetrack and grandstand,
which were managed by a private promoter until May 2003 and by
State Fair Park from that date through December 2005;
the Pettit National Ice Center, a United States Olympic training
facility that is owned by State Fair Park but operated by a private notfor-
profit corporation; and
the Wisconsin Exposition Center, which is owned by a not-for-profit
organization, used exclusively for the Wisconsin State Fair each
August, and available for other events throughout the year.
The State Fair Park Board, which is attached to the Department of
Tourism for administrative purposes, is responsible for State Fair Park’s
management. We are required by statutes to perform an annual financial
audit of State Fair Park.
We have issued an unqualified audit opinion on State Fair Park’s fiscal
year (FY) 2004-05 financial statements, which are included in our report.
We also followed up on concerns raised in previous audit reports
regarding State Fair Park’s financial condition.
Fiscal Decline
Since FY 1999-2000, State Fair Park’s
annual expenditures, including
operating, capital, and debt service
costs, have exceeded total revenues.
The $3.6 million loss reported in
FY 2004-05 was the largest in recent
years.
Final financial data are not yet
available for FY 2005-06, but State
Fair Park officials project a loss of
$2.0 million. State Fair Park’s
program revenue appropriation
accumulated a cash deficit of
$9.7 million as of June 30, 2005.
State Fair Park is projected to save
$493,000 in FY 2005-06 because of
cost-saving measures that include
eliminating some staff positions
and consulting contracts. Furthermore,
agency officials have made a
priority of changing State Fair Park’s
relationships with the Milwaukee
Mile and the Pettit Center, which in
recent years have placed significant
demands on State Fair Park’s financial
resources.
The Milwaukee Mile
Under State Fair Park’s management,
Milwaukee Mile losses totaled nearly
$7.3 million over a three-year period.
State Fair Park staff attribute these
losses to increases in debt service
costs and a limited fan base for
some races. Debt service payments
related to construction of the grandstand
and other projects increased
from nearly $706,900 in 2003 to more
than $1.9 million in 2005. One major
racing event draws near sell-out
crowds, but others do not generate
the same fan support.
We also found examples of poor
business planning. For example,
the State Fair Park Board did not
adopt a 2005 draft plan prepared
by the Milwaukee Mile’s general
manager because it contained overly
optimistic financial projections.
The plan projected a 40.7 percent
increase in revenues from admissions,
concessions and parking, and
sponsorships and naming rights,
from $6.7 million in the 2004 racing
season to nearly $9.5 million in 2005.
Actual 2005 racing revenues totaled
$7.1 million. Milwaukee Mile staff
were not directed to develop revised
projections or to identify new operational
or management strategies to
achieve those projections.
In December 2005, State Fair Park
entered into a license agreement
with a private promoter, Milwaukee
Mile Holdings, LLC, to manage the
fairgrounds’ racing activities. The
agreement:
guarantees that State Fair Park
will be able to use the Milwaukee
Mile premises for the Wisconsin
State Fair;
requires Milwaukee Mile Holdings
to assume responsibility
for all future capital improvements
and maintenance to the
premises;
provides for a land exchange
involving State Fair Park
property and other property
that is surrounded by the
fairgrounds and currently
owned by a third party; and
requires the promoter to
provide annual license fees to
State Fair Park and to guarantee
their payment through a letter
of credit.
State Fair Park’s debt service costs
for past Milwaukee Mile capital
improvements were the starting
point for negotiating the license fee
amounts. In consideration of losses
expected to be incurred by Milwaukee
Mile Holdings during the first
year, State Fair Park will provide a
one-time license fee reduction of
$1.5 million in 2006.
We estimate that State Fair Park will
also incur almost $300,000 in other
costs related to the Milwaukee Mile.
The Pettit Center
The Pettit Center’s expenses have
exceeded revenues in each of the
past five years. By June 30, 2006, the
Pettit Center is also expected to owe
State Fair Park $1.3 million in pastdue
rent, which was intended to
cover debt service costs that State
Fair Park pays on the Pettit Center’s
behalf.
To limit future demands the Pettit
Center may place on the fairgrounds’
financial resources, the State Fair
Park Board resolved in June 2005 to
sell the facility to its managing notfor-
profit corporation. Legislation to
authorize that sale for not less than
$5.0 million was introduced but
not enacted during the most recent
legislative session.
Under the proposed legislation,
State Fair Park would have received
all past-due rent. The remaining
proceeds from the sale would have
been used to fund future debt
service payments related to the
Pettit Center. State Fair Park staff
estimated that with interest
earnings, that amount would
increase to $3.9 million.
However, future debt service costs
are expected to be nearly $6.5 million.
Under the proposed legislation,
$2.6 million in general purpose
revenue (GPR) would have funded
those remaining debt service costs.
State Fair Park officials intend to
continue their efforts to sell the
Pettit Center. Doing so would
eliminate debt service, municipal
service, and other costs that State
Fair Park incurs on its behalf, as
well as future liability for major
capital improvements to a facility
that is now 14 years old.
Pettit Center officials believe that
owning the facility will improve
their fund-raising abilities and
reduce expenses. However, we
believe future sales proposals
should consider the amount of
public support that may be needed,
the State’s ability to repurchase the
Pettit Center if it is unable to remain
financially viable without State Fair
Park support, and the price at which
the facility could be reacquired.
Proposed Future Changes
As options are explored to improve
State Fair Park’s financial condition,
we believe careful consideration
will also need to be given to State
Fair Park’s cash deficit, the future
financial viability of the Wisconsin
Exposition Center, and any future
construction projects that are
proposed for the fairgrounds.
State Fair Park currently projects a
profit of $537,000 in FY 2006-07.
This projection assumes that all
Pettit Center rent will be received,
which may be difficult to achieve.
However, even if this profit level is
achieved and maintained, it will take
State Fair Park more than 20 years to
eliminate its cash deficit, which is
projected to be $11.7 million as of
June 30, 2006.
In addition, the Exposition Center—
which was funded with $44.9 million
in industrial revenue bonds issued
by the City of West Allis—has
experienced net losses in each year
of its operation and has paid some
expenses with reserves set aside
from the original bond proceeds.
Exposition Center officials are
working with a commercial lender
to refinance the industrial revenue
bonds. While this may alleviate cash
flow concerns in the short term,
exposition centers generally require
financial support from state or local
governments. Decisions regarding
the need to provide some level of
state or local support may be needed
in the long term.
Finally, with significant capital projects
in recent years that have not met
initial financial projections, State Fair
Park’s annual debt service payments
have contributed to its annual losses.
Debt service payments funded with
program revenues have increased
60.0 percent from FY 2000-01, to
$3.2 million in FY 2004-05. Future
projects to further increase program
revenue–funded debt service costs
will need to be closely scrutinized.
Recommendations
We include a recommendation for State Fair Park to:
report to the Joint Legislative Audit Committee by January 1, 2007, on its short- and long-term plans for stabilizing its financial condition
(p. 34).