January 2016 | Wolf at the Door of Pennsylvania’s Horseracing Industry
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Wolf at the Door of Pennsylvania’s Horseracing Industry

Suzanne Bush - January 2016

In October Governor Tom Wolf threatened to shut down the state’s horseracing industry, ostensibly because no deal had been reached that would shift the regulatory costs of horseracing from the state to the industry. Regulatory costs, especially drug testing and the costs of running the state’s testing laboratory, have been rising while revenues from pari-mutuel wagering have been declining. Wolf was adamant that the continued deficits caused by this imbalance needed to be corrected. A legislative solution is in the works, but the budget impasse has dominated the headlines. Behind the headlines, though, the story is complicated.

The State Racing Fund was established in 1981 to provide operating revenue for the two commissions that oversee the industry—one for Thoroughbred racing, the other for Harness racing. It receives revenue from several sources, among them wagering taxes, license fees, admission taxes, etc. The Race Horse Development Fund was created in 2004 to help revitalize the industry with incentives for breeders and larger purses to attract high caliber horses to the state’s racetracks. Twelve per cent of casinos’ gross terminal revenue from slot machines provides the pool of money for this Fund.

In his 2012/2013 budget plan, then-Governor Tom Corbett—maintaining his pledge to not raise taxes—tried to balance that budget with more than $70 million which he planned to take from the Race Horse Development Fund. Other legislators proposed using that Fund to provide additional support for Pennsylvania’s schools.

In 2014 Auditor General Eugene DePasquale revealed that the Department of Agriculture had over-billed the State Racing Fund for at least three years, and had billed the fund for personnel expenses that were not properly documented. The Fund was nearly bankrupt.

In lean times for Pennsylvania, the Race Horse Development Fund is an attractive revenue source legislators are eager to tap in lieu of raising taxes to fund government. And persistent under-funding of the State Racing Fund is partly a function of the fact that it is operating on a 35 year-old platform. While it has remained untouched, Pennsylvania’s horseracing industry has changed dramatically.

New Rules Are in the Pipeline
The legislature approved Act 30 of 2014, which transferred $4.2 million from the Race Horse Development Fund to the State Racing Fund, rescuing it from imminent bankruptcy. It was a band aid, but did not address systemic problems in the way the state regulates racing.  Senator Elder Vogel (R, Beaver, Butler and Lawrence Counties) proposed legislation intended to “bring the regulations regarding the horseracing industry into the 21st Century.” His bill would combine the two racing commissions into one, shift the cost of drug testing from the state to the industry, require testing for all horses entered in races whether they reside at the track or elsewhere, and regulate promotion and marketing of horseracing in the state.

Vogel’s reforms have been approved by the Senate and by the House Subcommittee on Agriculture and Rural Affairs. In mid-December Brandi Hunter-Davenport, the press secretary for the Department of Agriculture, said the bill had been approved by the House and was moving to the Senate for concurrence. The Governor has deferred suspension of live racing at the state’s six race tracks as a result of the positive momentum for these reforms in both houses of the legislature.

He is likely to sign the legislation as soon as it reaches his desk, thus setting up 2016 as the year that Pennsylvania’s horseracing industry will operate under its first reforms in 35 years.