Privatizing State Fairs Could Save Michigan Nearly $60 Million

Michigan State Fair Manager John Hertel recently told a state Senate subcommittee that in 2003 the fair rang up a deficit he estimates at anywhere from $850,000 to $950,000. (see article at www.mlive.com/news/statewide/index.ssf?/base/news-3/1065566407217390.xml).

While Hertel blamed the poor performance on bad luck — the fair began on the day of the Great Power Outage of 2003, Aug. 15, and drew 70,000 fewer people than anticipated — in most years since 1970, the Fair has been an almost unremitting drain on state coffers.

In fact, from 1970 to 1995 alone the state fair in Detroit lost an annual average of $2 million. Covering these losses has required supplemental appropriations from state government — not a good thing with a state budget of as much as $700 million looming for 2004.

To its credit, the state fair has been doing better in the last few years. In fact, last year the state fair managed to eke out a $28,000 profit. But in addition to paying off its annual revenue losses, Michigan’s State Fairs also require capital improvements — new buildings, for instance — which are not part of the fair’s official state appropriation. This means that in order to make our state fairs profitable in future years, they must make far more money than they do now.

This makes it a good time to consider a step that seems drastic at first glance, but which, upon examination, makes a lot of sense: Lansing should sell the state land on which the two fairs — one in Detroit, the other in Escanaba in the Upper Peninsula — operate, and give private entrepreneurs the chance to either run their own state fairs privately, or use the land for some other purpose.

One reason the state fair has improved its bottom line in recent years is then-Gov. Engler’s 1993 appointment of Hertel, who previously was Macomb County Commissioner. His mandate was to improve the event and keep it self-sustaining. The situation forced Hertel to innovate, which led him to privatize maintenance, a move that saved the fair $500,000 annually and improved the appearance of the grounds.

Hertel took an even more dramatic step. In April 2000 the state approved a management deal with southeast Michigan developer Joseph Nederlander that would reshape the state fair with $200 million in new investments. According to reports in Crain’s Detroit Business, the state and Nederlander envisioned $80 million in fairground redevelopment and an additional $120 million in related investments that would bring "new housing, theaters, hotels, restaurants, and stores" to property adjacent to the fair.

The lease agreement fell apart and the state is back to managing the fair. But the Michigan Department of Agriculture (MDA) has not given up on the idea of a public-private partnership and is currently examining other possible lease relationships with private developers.

Even if the state were to remove itself from fair involvement, it would hardly result in a dearth of fair fun. Seven Michigan counties and another 80 communities and associations run their own fairs, too. Indeed, Ottawa County alone has three different community fairs.

In addition, Barry County’s Bill Ackerman has run a private, for-profit fair for 24 years. The "Prairieville Old Fashioned Farm Days Show Grounds" plays host to nearly every imaginable fair event every August. Animals are on display for show and racing; there are craft shows, dancing, live country music, and a "National Truck Pull" competition. It even hosts a cow-chip golf-ball driving contest. Private fairs outside Michigan draw large crowds, too. Ackerman’s private fair is held on 140 acres of land he owns. His fair is so popular it often fills the 3,000-space camping area set aside for overnight guests.

Clearly, fairs need not remain a province of government for people to enjoy this tradition. Why not sell the state fair in Detroit to the highest bidder? It is impossible to tell precisely what the state fair property would sell for without actually offering it for sale, but we can form a general idea of possible sales prices by examining data from purchase offers made on properties adjacent to the fairgrounds.

The state’s 2000 investment deal could have netted $10.5 million for the sale of 36 adjacent acres. The fairgrounds are 5.5 times larger. Is the potential for a $57 million payday worth exploring a sale of the fair land and its buildings?

Michigan also could sell its Upper Peninsula State Fair in Escanaba. This fair was created by the Legislature in 1927 and its 2002-2003 appropriation is $1,214,400. This figure does not reflect the likely supplemental appropriation the U.P. fair will need to stay afloat. In fiscal 2002, the U.P. State Fair required a General Fund/General Purpose subsidy of $177,900.

Although the sale of the U.P. fairgrounds would generate far less revenue than the fair in Detroit, its sale still would generate a sum worth considering. According to Kevin Dubord, assistant assessor for the city of Escanaba, land just across the street from the fair sold two years ago to Gordon Foods for $2,000 per lineal foot of street frontage. The U.P. fair has 1,300 lineal feet along the same road. At $2,000 per lineal foot the U.P. fair land might fetch $2,600,000.

When a reporter asked Gov. Jennifer Granholm if she favored the sale and privatization of Michigan’s State Fairs, she replied like a state governor facing a $1.8 billion budget deficit. "Everything is on the table," she said. To help close the deficit, the governor and Legislature should look more closely at fairs, to decide whether they truly are a legitimate function of government.

Michael LaFaive is director of fiscal policy for the Mackinac Center for Public Policy and senior managing editor of Michigan Privatization Report.