Auditor General: Money for Regulation of Pennsylvania Racing Funneled Elsewhere

by | 06.18.2014 | 11:50am
Penn National

Auditor General Eugene DePasquale said today the future of Pennsylvania's billion dollar horse racing industry is in trouble and risks a catastrophic shutdown if measures are not taken to increase revenue and stop a diversion of racing funds to plug holes in the state's budget.

In a report released today on the State Racing Fund, the auditor general outlined how the Department of Agriculture overbilled the fund by $873,206 for three years to cover budget shortfalls and directly billed another $5.2 million over four years for personnel costs it could not appropriately document.

The effect of increasing expenses and declining revenue would have bankrupted the State Racing Fund this spring if the state legislature had not passed Act 30 of 2014, transferring $4.2 million from the slots-funded Race Horse Development Fund to the State Racing Fund.

“The horse racing industry is one of Pennsylvania's largest agricultural industries, but it is in trouble because funds intended to provide necessary oversight and revitalize the industry are being diverted to plug budget holes,” DePasquale said.

“If the State Racing Fund goes bankrupt, the racing industry would shut down,” he said, noting that the fund pays for regulatory and oversight activities that include, safety measures to protect jockeys and staffing the equine laboratories that conduct drug testing to protect horses and ensure the integrity of the races.

“To protect the jobs and reap economic benefits from the industry, we need to ensure the state and the Department of Agriculture are appropriately administering the funds,” DePasquale said. “The horse racing industry — like every industry — needs certainty and stability in regulation and oversight from the state.”

According to industry reports, there are nearly 550 horse breeders in Pennsylvania at horse farms across the state. The state's race horse industry generates $1.6 billion in annual economic activity and supports 23,000 jobs in Pennsylvania. More than three million people attend race track events, wagering more than $1 billion each year.

The audit found the Department of Agriculture overbilled the State Racing Fund $716,535 between 2011-12 and 2012-13 for formula-based administrative shared services such as legal, human resources and communications. The department indicated it expects to exceed the shared services formula calculation by $156,671 in the current fiscal year.

“Balancing the Department of Agriculture's overall budget with State Racing Fund monies is not an allowable use of the fund and represents an abuse of Agriculture's authority,” DePasquale said.

In addition, Agriculture directly billed the State Racing Fund nearly $5.2 million over four years for additional personnel costs that it could not document were directly related to services provided to the two racing commissions. Agriculture officials say they use both formula-based funding for shared services and direct billing of staff time to charge the State Racing Fund for personnel expenses.

Auditors found that the Department of Agriculture is overcharging personnel costs to the State Racing Fund without being able to document the direct billing charges.

“Without the proper documentation, we have no assurances that the amount charged to the State Racing Fund is accurate or appropriate. That is unacceptable and must change,” DePasquale said.

For example, the Department of Agriculture charged more than $177,000 to the State Racing Fund for a “Special Agriculture Advisor to the Governor,” including a full year's salary of $101,264 in 2012-13.

Agriculture officials contend the cost was justified because the advisor devoted all his time to the Horse and Harness Racing Commissions. However, auditors discovered the advisor worked on special projects unrelated to horse racing that were assigned by the governor and the Secretary of Agriculture. He also served as ambassador for the governor on issues facing rural communities and the agriculture community.

Agriculture officials later conceded the advisor did not work exclusively for the racing commissions.

“I am concerned when we receive conflicting explanations,” DePasquale said. “It erodes public confidence and the credibility of public officials. Taxpayers deserve straight answers from the start.”

In addition to problems with the State Racing Fund, auditors found that the future of Pennsylvania's horse racing industry could be jeopardized because money in the Race Horse Development Fund, created in 2004 to help revitalize the industry, is being diverted to fund other state budget expenses.

Since 2010, more than $212 million was diverted from the Race Horse Development Fund, including more than $185 million to the state's general fund budget, $5 million to the Farm Products Show Fund and $17.7 million to agriculture programs.

As money was redirected in the past four years, revenue continued to decline due to increased competition from casino gaming. Wagering tax revenue declined 24 percent over the four-year audit period while slot machine revenue — which fuels the Race Horse Development Fund — fell from $273 million in 2012 to $254 million in 2013.

Recommendations:

The audit recommends several changes to ensure the viability of the horse racing industry, including:

  • updating occupational licensing fees and other fees that were implemented in 1981. For example, the licensing fees, which are renewed every three years, are capped at $100,
  • adding additional funding options developed by the Department of Agriculture and the racing commissions, and
  • prohibiting the Department of Agriculture from using the State Racing Fund to make up for budget reductions or charging the fund for personnel expenses for time spent on work not directly related to the horse racing industry.

“The race horse industry is important to our economy and we must ensure that it remains viable and prosperous,” DePasquale said.

EDITOR'S NOTE: The State Racing Fund was created in 1981 and collects revenue from six revenue sources: wagering taxes, uncashed tickets, license fees, breakage, admission taxes and miscellaneous revenue. The State Racing Fund is used to pay for the personnel and operating costs of the Horse and Harness Racing Commissions, Equine Laboratories, the PA Fair and for some personnel and operating costs of the Department of Revenue for collecting the racing taxes.

The Race Horse Development Fund was created in 2004 to stimulate the viability and quality of racing in Pennsylvania by providing money for track purses, health and pension benefits for horsemen and breeder's awards — incentives to breed race horses in Pennsylvania. Licensed gaming facilities pay 12 percent of their gross terminal slot machine revenue into this fund.

See a full version of DePasquale's report here.

  • slewcat

    So is that why my ADW stopped taking PA resident wagering. First it is the 10% surcharge, now this. Sorry PA. horsemen, we are deep in debt as a State. Have called and wrote my Reps, pull the plug on the great revenue to Horsemen.. You killed the golden Goose…looking at you Penn National. Tax the Marcellus Shale and reduce the amount to Horsemen.

    • Old Timer

      Horsemen killed the golden goose???

      No the damned politicians are by not creating the consistency for the everyone, not just in PA but across the country, needing to invest and at a high level. When every-time we turn around there’s a new threat that the fund is going to be raided, us breeders and horsemen go “Well lets not send the 4 mares this year, just maybe one of them and not the best because we can’t take a chance that in 3 years the money will be gone!”

      That’s the fault of politicians not horsemen!

      • slewcat

        I am sorry to pointing out the Horsemen, it is the industry at large.. Can one state he was wrong on the net?. I have seen owners care about their one horse stable horse{back before the PA casino’s.} as the wealthy from Unionville Pa.
        However I have seen the backside of once called Philly Park/Penn, not good.

  • Rick Abbott

    A huge thank you to the Auditor General. Those close to the Racing Commission have been saying for years that the Department of Agriculture has been stealing from the Racing Fund to balance it’s budget. During that time, the Enforcement Division has been decimated and two new racetracks have been opened. It’s about time.

  • deadmoney

    And now the tea bag politicians’ economics are exposed. The tea baggers preach lies and voters don’t have a clue. The tea baggers play the shell game shell game until the inevitable jig goes up.

    • Richard C

      The Math Is Easy…….Smaller Government = Diverting Funds = Nobody Knows Where The Cash Goes / Repeat until the mission is accomplished.

  • Bryan Langlois (ShelterDoc)

    So long as the money is sitting there and politicians continue to drool over it…they will find a way to keep diverting it. Its much easier for them to do that than really make tough choices about the budget. They don’t have the foresight to look how this will be affecting things 3 or 4 years down the line…because…well…they need to look good for the voters….and cover their own greedy trail of miss-apropriation of things. Why focus on things like their own records when they can easily deflect the issue to the horrible sin that is horse racing.

  • Andy

    Let’s face it,the racing got the expanded gambling and now that all is in place racing is no longer needed.That was Fast Eddies plan all along.RIP PA.racing.

  • Richard C

    It is a sickening political reminder how “free” money gets funneled to the incompetent…..and pennies end up in the coffers it was pointed for — the entire time.

  • FIVE2_THREE

    You all are so negative about your own American racing that it makes me sick. this is no mystery. drive around any city in America and you will see infrastructure being neglected. fire houses shut down and even police departments shut down. the money is there for PA racing but it has been diverted to fix problems that are the results of an America economy that has been bankrupt for the better part of 12 years.the very fact that you all cheer for the decline of your racing just underlines the American attitude and how most are willing to cut off their nose to spite their face.

  • Mark McDermott

    It’s about time the PA AG Department has finally been exposed for its cavalier financial practices. For years breeders and horsemen asked for financial accountability only to be stonewalled. In the long run, it looks as though government checks and balances work per design. I only hope it’s not too late.

    Vote the bums out!

  • In Tears

    Typical Pa intellict. The state has been crooked since the old coal mining days since the 1912
    and beyond with the old coal barons, Pinkertons and unions. Money, money anyway they could get their hands on it, distruction of anything in greeds path means nothing to these people. Read the history. It involves, Ohio, West Virginia and NY

  • FourCats

    ““Without the proper documentation, we have no assurances that the amount charged to the State Racing Fund is accurate or appropriate. That is unacceptable and must change,” DePasquale said.”

    Even if it changes, that is not sufficient. It sounds like fraud which should result in criminal prosecution and prison sentences to those responsible.

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