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Slots Legislation Could Add $200 Million Annually to State Racing Economy

by Stephanie Lawson

Legislation to enable gaming at state racetracks and in the process enrich the state's horse racing economy by hundreds of millions of dollars annually appeared likely to pass as Pennsylvania Equestrian went to press.

As the days wound down to the end of the budget year, Pennsylvania lawmakers said they had struck a deal on legislation to legalize slot machines at racetracks and other venues.

At deadline, no final legislation had been presented to lawmakers.  "(Legislators) don't want anyone to see the legislation because they don't want to hear from anyone complaining about it," Linda Rhinehart, Vice President of Government Relations for Hershey Philbin Associates, which represents the Standardbred Breeders Association of Pennsylvania, said.

However, a copy of the most current draft of the portions which would affect horsemen, obtained by Pennsylvania Equestrian, included substantial funding for purses, breeding incentive programs and horsemen.  

Development Fund

Though changes were expected as this issue went to press, the legislation establishes the Pennsylvania Race Horse Development Fund within the state Treasury.  Racetracks with casino licenses would forward 18 percent of revenue to the fund.  Of that revenue, eighty percent would fund purses for live racing, 16 percent would go to breeding incentive funds, and four percent would fund health and pension benefits for members of horsemen's organizations. 

While too many questions remain to put a precise number on the amount of money that might flow into the state's horse racing economy if the bills pass, the number is certainly in the hundreds of millions of dollars.  Pennsylvanians currently gamble $3 billion annually outside state borders, Democratic lawmakers say.  If half of that remains in-state the total benefit to the horse industry could exceed $200 million per year.

Upper Echelons

 "Given Pennsylvania's size, urban areas and the number of cities, this legislation could vault the state into the upper echelons of racing in the US," said Richard Wilcke, a member of the faculty of the Department of Equine Business at the University of Louisville, KY.  "Pennsylvania hasn't been a powerful state in racing, maybe in the top dozen.  Philadelphia Park races a lot of days but has never been an elite track.  Penn National is a mediocre, second tier track.  Harness racing actually has a stronger history but still Pennsylvania is not a premier state.

"Money drives the boat.  If purses get high enough, horses will flock there and breeding will follow.  You've had breeding incentive programs for a number of years, but those are mainly a benefit to people who are already breeding there.  It takes a phenomenal amount of money to make people move.

"But when money like this is available, it changes.  People who have never been to New Mexico are now sending mares to foal there (because gaming has enriched breeding incentive funds).  People who have no interest in Louisiana are sending stallions to stud there, because the money is there.  People respond to incentives if they are high enough."

The money will effect the entire Pennsylvania horse industry, Wilcke said.  "When racing is strong, it tends to have a positive effect on the rest of the business.  A prosperous racing industry and breeding industry is good for every part of the business.

Recession Proof

"People put a lot of money into racing because they know that as long as there are racetracks, there will be a demand for two-year-olds, regardless of the economy.  Racing doesn't fall down when the economy goes bad.  It's driven by bettors.  The rest of the horse economy is driven by exhibitors and participants.  If there is a deep recession or depression the bottom will fall out of that part of the industry, but not racing.  Racing actually did well during the Great Depression.

"Ocala (FL) was built on thoroughbreds but now it's a mecca for all kinds of horses.  Racing attracts vets, the support industry, the stallions.  It acts as a magnet and creates a critical mass."

Sources said they expected bills to be introduced or amended by June 29, with a vote coming June 30, the last day of the fiscal year.  Other Harrisburg insiders expected the session to be extended through the end of the week.  A two-month summer break is scheduled to begin July 1.

Tax Relief

The controversial legislation gained ground as legislators prepared to return to their districts for the two-month recess.  The entire House and half the Senate is up for reelection this fall, and a one billion dollar property tax relief measure—the largest ever--would offset the billion dollar tax increase passed at the beginning of the year.   

Mark McDermott, executive director of the Pennsylvania Horse Breeders Association, has been involved with the legislation from the beginning stages.  He appeared uncertain that passage was as sure as the media was reporting.  "I haven't seen the final legislation.  No one has," he said.  "There are bits and pieces being circulated without any certainty that's the final form.  When they get into sensitive negotiations, they don't want to do it in the public eye. I'm trying to find out the same things you're trying to find out.

"The whole thing could blow up.  It's the typical last minute flurry, and it's real easy for them to just walk away if things get bogged down.  I am cautiously optimistic (the legislation will pass) but realistic – we've been here before.  I've learned to just sit back and let it happen because there comes a point when outside influence doesn't help."

Working Together

The legislation's primary champion, Sen. Tommy Tomlinson (R-Bucks County) said House and Senate leaders and Governor Rendell have "pretty much an agreement in principle" on legislation to legalize slots.  Tomlinson and Senator Vincent Fumo (D-Philadelphia) are now working together to resolve the differences which essentially killed bills passed by both houses last year.

According to news reports, the legislation would allow up to 3,000 slot machines at twelve full-license venues and 500 machines at two resort venues.  The state's six existing racetracks and two racetracks yet to be built would receive full licenses, at a cost of $50 million each.  One license for either a parlor or racetrack would be assigned to Pittsburgh, while two standalone venues would be licensed in Philadelphia.

In addition to the 18 percent of revenues from track locations directed to horsemen, media reports said nine percent of revenue from non-racing locations would be used to increase purses and support the horseracing industry.  Casino owners would retain 48 percent and the state would use 34 percent to reduce property taxes. (In Philadelphia, the revenue would reduce the city wage tax and expand the convention center.)  Four percent would be issued to local and county governments where casinos are located, and five percent would go to a new economic development and tourism fund.

While the legislation was expected to pass the House easily, the Senate is a battleground.  Three lawmakers who voted against the Senate legislation last year agreed to change their vote in exchange for funding for projects in their districts.

As a vote loomed, anti-gambling forces gathered in Harrisburg to protest that lawmakers did not have sufficient time to study the bills.  The leader of the House anti-gambling faction, Rep. Paul Clymer, (R-Bucks) all but conceded defeat.  "I'm sure they have (the votes)," he told the Allentown Morning Call June 25.  "We have not raised the white flag.  No matter what the odds are, we're going to fight it down to the wire."

               

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