PA lawmakers question gutting of Race Horse Development Trust Fund

Posted: March 2, 2020

Committee hearings in the Pennsylvania General Assembly regarding the fiscal 2021 Department of Agriculture budget indicated strong concern over a proposal by Gov. Tom Wolf to take $204 million a year from the Race Horse Development Trust Fund to pay for a college scholarship program.

The RHDTF, which is supported by a 10% cut of revenue from slot machines at racetrack casinos and non-track casinos, totals about $240 million a year for Thoroughbred and Standardbred purses, breeding and horsemen’s pension programs. The Pennsylvania legislature over the years has shifted money to other programs, but in a 2017 Horse Racing Reform bill signed by Wolf, the fund was converted to a trust to protect it from being raided.

As part of the Horse Racing Reform legislation, horsemen and breeders agreed to take 1% of slots revenue for purses to create a statewide racing marketing program administered by the Pennsylvania Horse Racing Commission. It amounts to roughly $2 million a year.

Wolf’s budget document estimates the RHDTF to total $238.4 million in fiscal 2020-21. Based on fiscal 2019-20 figures, $162 million for purses, $32.5 million for Thoroughbred and Standardbred breeding programs and $10 million for the equine drug-testing program would shift to the Nellie Bly Tuition Program. Only $8.5 million in horsemen’s health and pension benefits, $2.3 million for promotion of the horse and breeding industry and $5 million for a farm show fund would remain, according to the budget document.

“There’s no easy way to get around the 800-pound gorilla in the room,” Sen. Elder Vogel Jr., who chairs the Senate Agriculture and Rural Affairs Committee, said March 2 during a Senate Appropriations Committee hearing. “It has caused consternation around the state.”

Agriculture Secretary Russell Redding, who also chairs the PHRC, said the Wolf administration is supportive of the horseracing industry, and he noted that since the first racetrack casinos began operating in the mid-2000s, the RHDTF has collected about $3 billion. He said the administration believes the industry should be self-sustaining and the money shifted to other programs.

“It’s important to note this does not end racing (in the state),” Redding said. “About $60 million will still be available (to cover PHRC operations, horsemen’s pensions, the marketing fund and ‘restricted receipts’ for other agriculture programs). There is still some money there for racing—some money—about $20 million a year (for purses and breeding programs).”

The department has not explained how the industry would handle a $160 million drop in purses and more than $30 million in breed development funding.

Sen. Joe Pittman said the racing and breeding industry “has benefited our commonwealth in a significant way” over the years.

“We’re talking about taking $204 million from a business model that has been successful,” Pittman told Redding. “You’re not thoroughly reviewing the impacts this could have downstream economically. We should be having a conversation before we pull $204 million in revenue out of a business model.”

Sen. Patrick Browne, who chairs the Senate Appropriations Committee, said the committee would “have a lot of follow-up to do” with the Department of Agriculture regarding its budget proposal. The department, after the Wolf proposal was announced in early February, offered no study of the ramifications of gutting the RHDTF.

“I think fear is sometimes increased when an initiative is put forward with no sense of how the alternative will be accomplished,” Browne said. “The numbers, where we sit here, this is a one-year cliff—it’s sink or swim. I don’t believe an industry could sustain that revenue loss in one year. It’s imperative we collectively work on financial models that are sustainable.”

Browne also asked Redding why the budget proposal included a line item for the equine drug-testing and research program but no amount. A 2016 provision that allowed funding for the program to come from the RHDTF will sunset in June 30, and legislation has been introduced to shift the costs back to the State Racing Fund, which gets money from pari-mutuel handle and license fees.

“If you’re supporting legislative action (to fund the equine testing laboratory), why is there zero in the budget for it?” Browne said. “There is no revenue proposal in the budget proposal. That’s not consistent with what budget proposals are. Regardless of current law, it’s a proposal for additional money. We need to be clear on where we are going.”

The Pennsylvania Equine Coalition, which represents horsemen’s groups and breeders’ organizations in the state, issued statistics that show racing and breeding support 16,000-23,000 direct and indirect jobs, $1.6 billion a year in economic impact throughout the state and account for more than 105,000 acres of open space.

PEC officials have said that before the RHDTF was converted to a trust, “the repeated threat of fund diversions during the annual budget process caused businesses and investors to question the long-term viability of the state’s breeding and racing industries, and it had a chilling effect, as businesses and investors that conducted a cost-benefit analysis of the long-term health of the industry were unwilling to relocate to Pennsylvania or invest in Pennsylvania-bred horses because of the perceived instability of purses and breeder’s incentives.”

Sen. Thomas Killion, who was a newcomer to the General Assembly when Pennsylvania approved casino gambling in 2004, said he believes the RHDTF has been a success and that he doesn’t understand how the industry could survive a $200 million-a-year hit. He also said the fact the revenue was placed in a trust—with financial “penalties” for taking the money—will result in lawsuits.

“We all know it’s going to be litigated,” Killion said. “(Using the $200 million from RHDTF for scholarships “is not going to happen. This could be tied up in the courts, and meanwhile we have an industry scrambling and worrying about its future.”

Redding suggested the racing and breeding industry’s business model would have to be adjusted, and he asked lawmakers if the state needs 1,000 racing days and six racetracks. Pittman asked him if Wolf and the Department of Agriculture have studied the “domino effect” the gutting of RHDTF could have, and Redding said officials “have not looked at it.”

Some lawmakers who attended the Feb. 26 House Appropriations Committee hearing on the agriculture budget also expressed concern over Wolf’s plan.

Rep. John Lawrence said “the governor’s position seems to have taken a 180-degree turn” since 2016, when he said the cessation of payments to breeders because of a legislative issue could be devastating. Rep. Greg Rothman said the Department of Agriculture several years ago claimed a $27 million transfer from the RHDTF would cause chaos, but now it supports redirection of more than $200 million a year.

“This is already affecting the industry,” Rothman told Redding. “I implore you to go to the governor and say this is a mistake. How do we replace that (funding)? There has to be something in that word ‘trust.’ ”

(Parx photo by Tom LaMarra)