Raiding Racing
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RAIDING RACING
“Every Pennsylvanian who owns a horse will feel it”
May 2012 - Stephanie Shertzer Lawson

Horsemen were in Harrisburg to make their point – funding for racing can’t be pulled without dire consequences to the state’s horse industry.

Act 71, the Pennsylvania Race Horse Development and Gaming Act, passed in 2004, was intended to enhance live racing and breeding programs in Pennsylvania.  More lucrative breeding programs and purses created an attractive environment for raising and racing horses.  While purses fell 45 percent nationally, Pennsylvania’s increased 65 percent.

Act 71 made Pennsylvania the place to be.  And as horses flowed into the Commonwealth, the money did too.

Farms like Northview Stallion Station, Ghost Ridge, Fashion Farm, Penn Ridge, and Dana Point Farm moved to Pennsylvania or expanded, spending $22 million in construction dollars.  Farms are now home to $40 million in new bloodstock. The state now stands three of the country’s top stallions.  The median price of Pennsylvania-bred thoroughbred weanlings has doubled.  Yearling medians are up 88 percent. In 2009, over $37 million in breeding incentive funds was distributed, compared to $14 million in 2001. 

Between 2001 and 2009, the number of foals bred in Pennsylvania increased 11 percent, while nationally the number dropped 11 percent.

Northview’s new farm in southern Lancaster County alone spends $600,000 in supplies, $250,000 in maintenance, and half a million dollars in payroll each year.

Act 71’s economic effects went far beyond the thoroughbred and Standardbred racing industries.  According to the Pennsylvania Gaming Control Board, the number of non-racing equine industry jobs increased in Pennsylvania from 13,870 in 2001 to 41,100 in 2008.  The value of the non-racing equine industry increased from $780 million in 2001 to $3 billion in 2008.

Northview’s director of bloodstock services, Carl McEntee, a Brit who arrived in Pennsylvania via Kentucky after Act 71 passed, said, “If the Corbett budget passes we will have to downsize, which will include laying off a third of our employees.  Clients are already having doubts about breeding in Pennsylvania.”

What one administration creates, can another take away?

A Different Planet
2004 was the year of Smarty Jones’ wins in the Kentucky Derby and Preakness. Ed Rendell, a fan of racing, was governor.  Gaming was a new source of funding to increase state revenue while lowering school taxes and supporting the horse industry.  Times were good and getting better, and the Tea Party was something that had happened in Boston in 1773.

2012 is like a whole different planet.  The Great Recession is now the accepted name for the housing market crash that tanked the economy and cost millions of Americans their jobs, homes, and security.

Governor Corbett, a conservative Republican, is of the ‘no new taxes’ ilk.  The administration projects an arguable $500 million revenue shortfall, and slots money that was promised to racing, tobacco money that was promised to farmland preservation, realty taxes promised to conservation and recreation – all are ripe for diversion. On top of the $49 million already planned for diversion from racing to the general fund, which funds core government services such as education, the proposed budget redirects an additional $72 million promised to racing to other uses.

Corbett’s Secretary of Agriculture, George Greig, has piled on as well.  According to a Pennsylvania Equine Coalition press release dated March 5, Greig “made a number of inaccurate claims about the Race Horse Development Fund that demonstrated an alarming lack of understanding of the program. Greig incorrectly stated that the funds being transferred from the Race Horse Development Fund to other programs are ‘just surplus funds that are in an account’ and that the program was ‘generating an excess of funding’ that ‘exceeded the realm of what they thought it was going to produce.’ In an interview with Denny Logan of WNNK-FM in Harrisburg, Governor Corbett made similar claims, saying there would be an ‘abundant’ amount of money left over for purses, prompting the radio host to tell him that was a ‘mischaracterization of reality.’”

“Either Secretary Greig and Governor Corbett are being disingenuous with Pennsylvanians or they truly do not understand how the Race Horse Development Fund or the horse racing and breeding industries in the state operate,” said Salvatore DeBunda, President of the Pennsylvania Thoroughbred Horsemen’s Association. “Estimates prepared at the time of the passage of Act 71 in 2004 projected weekly receipts to the fund of between $4.4 million at the low point and $6.2 million at the peak. We are currently at about $4.5 million per week over the course of the past nine weeks. This is in no way, shape or form a surplus or excess funding and is actually in the very low range of projections.”

The Coalition also asserted that the move is a major reversal from candidate Corbett’s pledge to support the legislative goals of Act 71 and to “work closely with the racing industry organizations to promote commonwealth racing as an integral part of Pennsylvania agriculture, tourism and cultural heritage.”

PA Horse Conference
So, on March 14, the racing industry assembled the Pennsylvania Horse Conference, which included presentations on equine healthcare, unwanted horses, and marketing in addition to addressing the current legislative challenges.  Horsemen made the rounds of legislators in the morning, and the lightly attended conference was broadcast on PCN, presumably with the hope of reaching more of the legislative body.  (PCN, the Pennsylvania Cable Network, is a local public affairs network that televises state legislative proceedings, committee hearings, press conferences and other public forums.)

Mike Jester, owner of Penn Ridge Farms, reported that the legislators he visited had listened.  “We told them about the economic impact and the many jobs created.  There was misinformation given to the governor and budget director that horse racing had unused funds sitting around. What happens is money (to pay purses) accumulates from slots when there is no live racing.”

Pennsylvania Equine Coalition spokesperson Pete Peterson elaborated after the conference.  “Parx, for instance, builds up money in August because their graded stakes take place in the fall. They need to build up the account in order to pay the purses.  Other tracks build up their accounts for the 100 days they are racing.  There’s this belief that tracks are sitting on all this money.  It all goes back to purses, it’s dedicated, it’s not a surplus,” he said.

Another misconception, Peterson said, is that the purses go to the owners and therefore, often out of state. “They see that the purse goes to the owner, not understanding that the money is used to pay jockeys, trainers, blacksmiths, vets, and all the costs of raising and training the horse.  They think the owners are making lots of money but that’s not necessarily true. 

“Owners, trainers and breeders can move horses, but the people who are truly affected if they leave the state are Pennsylvanians. For instance, 90 percent of pensions and health benefits went to Pennsylvania residents.

“Legislators are worried that the money is leaving the state.  But, for instance, George Strawbridge has a mailing address in Maryland, but his farms are in Pennsylvania. What matters is where the horse is located.”

Legislators Speak
House Majority Leader Stan Saylor and Senator John Rafferty were invited to close out the Pennsylvania Horse Conference.  Joining them was an interloper – Representative John Maher, Chairman of the House Agriculture Committee.

Saylor spoke positively about Act 71.  “We made a commitment to your industry.  Act 71 has provided job growth.  Farmers are getting a good price for their hay and straw.  People have borrowed to expand their operations.  Most of the General Assembly wasn’t there when Act 71 passed, so they are probably unfamiliar with the purpose and the good it’s done.”

Maher, on the other hand, gave the industry a spanking.

“Funding for the equine industry has gone from zero dollars to $70 million to $150 million to, in 2011, a quarter billion dollars.  There’s been a two-thirds increase in two years while the state is facing a $10 billion deficit. 

“Meanwhile there’s been little asked of the horsemen in return.  There’s been pushback from the organizations over the years regarding audits,” Maher, a certified public accountant, said.  “How is this money serving the greater good?  Whose insurance and pensions is it funding?  Auditing requirements change, and the horsemen’s groups have resisted allowing the auditors in the door.

“You need to share the information,” he said, pointing out that none of the three legislators on the dais had voted for Act 71.

“We are confused by that,” Peterson told Pennsylvania Equestrian.  “We had a request in the beginning of January from an auditing firm that was supposed to have completed the audit by the end of last year.  We wrapped up was to be a 60 day process in just 30 days.  I don’t understand that comment.  They were asking for health care information and matching it to social security numbers.  We wanted to make sure we weren’t violating HIPPA laws about releasing health care information but otherwise we were completely cooperative.  The state has always conducted annual audits.”

Calls to Rep. Maher for clarification were not returned by deadline.

Budget Shortfall Trimmed
According to the Pennsylvania Budget and Policy Center, “General Fund collections in March totaled $4.06 billion, which was $95 million, or 2.4 percent, higher than Corbett administration targets for the month. The strong showing reduces Pennsylvania’s revenue shortfall for the fiscal year to $387 million, or 1.9 percent, of total estimated revenue.  In February, Corbett administration officials predicted a year-end revenue shortfall of $719 million and built their 2012-13 spending plan around it. Healthy collections in March likely mean that the year-end shortfall will not be as severe. This could help reduce some of the painful cuts proposed for 2012-13.”

The state’s fiscal year begins July 1.

“Everyone will feel it”
What does Pennsylvania stand to lose?  Horses are very mobile.  A mare that was to be bred or a horse scheduled to race in Pennsylvania is just a trailer ride away from, for instance, New York, where racing is being revitalized this year through casino gaming.  Belmont’s stake races will offer over $9 million and Saratoga’s stakes will total $13.35 million.  Meanwhile, purses in Maryland are expected to rise 10 percent.

“Traditional agriculture, such as hay and grain farms, will be impacted,” said Karyn Malinowski, Director of Rutgers’ Equine Science Center.  “Every Pennsylvanian who owns a horse will feel it in the potential loss of top shelf services.  1.3 million acres of farmland will be vulnerable to development.

“Racing is the economic driver of the entire horse industry.”

Peterson won’t predict a winner in this fight “It’s an ongoing effort.  We are encouraging our members to reach out to their legislators, to educate them that it goes beyond owners,” he said.  “Members have reached out to Rep. Maher with varying degrees of success.  But we have the support of a number of key legislators.”