Nov 21, 2017 16 min read

Every time Pennsylvania gamblers drop a quarter into a slot machine or slap a Benjamin on the blackjack table they’re unknowingly fattening the purse at racetracks across the state and covering health insurance for race track workers – hundreds of millions of dollars that otherwise could go toward other state expenses, including reducing property taxes.

Since 2010, more than $1.8 billion that could have been applied to public schools or easing pressure on taxpayers instead has propped up the still-struggling horse racing industry to the tune of roughly $250 million per year.

The money goes into the Race Horse Development Fund, which was created in 2004 and lingers thanks to powerful interests who use campaign contributions and lobbying to shore up legislators’ support of the horse racing industry.

Critics contend the tax on the gross terminal revenue at casinos should not support private industry, and should instead be diverted toward causes such as education funding or reducing property taxes.

But proponents of horse racing assert the taxes collected on casinos and passed through to the race horse industry are not taxpayer dollars, but rather an “assessment.”

The assessment, horse-racing advocates say, was agreed to by casino operators in 2004 and is needed to ensure the survival of a niche area of Pennsylvania’s agricultural industry.

Horsepower

Not everyone in power agrees.

Sen. Majority Leader Jake Corman, speaking at the Pennsylvania Manufacturers Association in July, called the Race Horse Development Fund “the biggest, largest fund that we have that could be redirected.”

But Corman said there aren’t enough votes in the House or Senate to make that change.

The Race Horse Development Fund was created in 2004 as part of a deal to bring casinos to Pennsylvania. The fund was designed to stimulate Pennsylvania’s horse-racing industry by providing money for prizes as well as health and pension benefits for horsemen, according to a 2014 report by the Auditor General’s office.

Distributions from the fund are given to horsemen’s organizations that represent workers at the state’s licensed tracks: Pennsylvania Harness Horseman’s Association (Mohegan Sun at Pocono Downs and Harrah’s Philadelphia); the Meadows Standardbred Owners Association; the Pennsylvania Thoroughbred Horsemen’s Association (Parx racetrack); and the Pennsylvania Horsemen’s Benevolent Protective Association (Penn National and Presque Isle).

Many believe the racing industry usually is in the fast track at the Capitol.

“It’s amazing to me the political power that they wield in the capital,” Corman told the audience in July. “Any time you bring it up it gets shot down in about half a second.”

Stephen Miskin, the House Republican spokesman, agreed with Corman’s assessment of the clout of the horseracing industry, but said he wasn’t sure why.

“The reason? I don’t know. Trickle-down economics? Everything they do involves a lot of money – the vets, the feed, the workers, and on and on.”

Miskin said the horse-racing industry employs about 23,000 people, including those working in affiliated jobs. He said employees of the industry are spread out in multiple legislative districts and would have business backers throughout the state.

Mark Stier, director of the Pennsylvania Budget and Policy Center, said he doesn’t know how the race horse industry has carved out such a protected niche.

“I’m not exactly sure of the politics of it,” Stier said. “I don’t where the political support comes from.”

G. Terry Madonna, a political science professor, pollster and longtime observer of Pennsylvania politics, said supporters of the fund can’t hold much clout if lawmakers were able to raid the horse racing fund over the years.

“If they were that powerful, then why were they (legislators) getting the money” for state budgets? he asked.

The practice has since been stopped, apparently, by legislation approved last month. Lawmakers have renamed the fund the “Pennsylvania Race Horse Development Trust Fund.”

Still, $1.8 billion was directed to the fund from 2010 through 2016, according to a February Joint State Government Commission report. The amount was determined by a formula established in 2004 that is based on the 55-percent tax on the gross terminal revenue from slot machine gaming in the state.

Of that revenue, 34 percent goes to property-tax relief, 4 percent goes to local governments, 5 percent is allocated to an economic development fund and 11 to 12 percent flows into the Race Horse Development Fund.

“We often think of people with power and influence being out front, talking about how powerful they are,” Madonna said. “These people are invisible.”

But people who remain behind the scenes can still wield as much or more power as those who flaunt it.

“People with influence have two things,” Madonna said. “They are well connected and contribute to candidates.”

Lobbyists and PACs

Lobbyists, associations and political-action committees support the horseracing industry. Through direct contacts with legislators, and backed up by campaign contributions, public relations firms and grassroots efforts, an industry with a relatively small footprint has been able to ensure ongoing statutory protections for horse racing.

The Pennsylvania Thoroughbred Horsemen’s Association, the organization representing Parx horsemen, employs lobbying firm S.R. Wojdak & Associates. Federal tax filings for 2014 and 2015 show the association paid the lobbying firm $129,600 each year for its work. Pennsylvania Department of State records show the association reported more than $270,000 in lobbying expenses in 2016 and the first three quarters of 2017.

The Pennsylvania Division Horsemen’s Benevolent and Protective Association Inc., the association representing horsemen at Presque Isle Downs and Hollywood Casino Penn National Race Course, uses two lobbying firms: Buchanan Ingersoll & Rooney and La Torre Communications, according to the state lobbying database. The Benevolent and Protective Association reported more than $285,000 in lobbying expenses in 2016 and through the first three quarters of 2017.

The Standardbred Breeders Association of Pennsylvania uses Wanner Associates Inc. for lobbying. Among the organization’s stated initiatives is “lobbying for the recognition of the interests of Pennsylvania Standardbred breeders.”

Harrisburg-based lobbying firm Capital Associates Inc. represents both the Pennsylvania Harness Horsemen’s Association and the Meadows Standardbred Owners Association, according to state lobbying records. The Harness Horsemen’s Association reported more than $344,000 in lobbying expenses in 2016 and the first three quarters of 2017. The Meadows Standardbred Owners Association reported more than $212,000 in lobbying expenses last year through the first three quarters of 2017.

Kim Hankins, the executive director of the Meadows Standardbred Owners Association, said lobbyists are paid with association money. The money does not come from the Race Horse Development Fund, he said.

Pete Peterson, of the Philadelphia public relations firm Bellevue Communications, speaking on behalf of the Pennsylvania Equine Coalition, said funds from the Race Horse Development Trust Fund cannot be used for lobbying or legal fees. As of last year, however, 1 percent of the Race Horse Development Trust Fund can be used to pay for marketing of the industry.

“This was important because track operators have largely focused their marketing efforts on their casinos, not the racetrack,” Peterson said in an email.

The Harness Horsemen’s political-action committee, PHHA PAC, gave Scott Wagner for Senate $5,000 in November 2016. PHHA PAC gave Friends of Tom Corbett $2,500 in June 2014.

The Thoroughbred Horsemen’s political action committee, PATHA PAC, contributed $10,000 to Tom Wolf for Governor and $5,000 to the Committee to Elect Mike Stack in October 2014.

The Standardbred Breeders Association uses a political action committee, as does the Benevolent and Protective Association.

‘Trust’ fund

Last month Gov. Tom Wolf signed into law legislation that is designed to significantly expand gambling opportunities in the state. The newly signed law also inserted the word “trust” into the fund’s name.

The move followed a June 2014 special performance audit by Auditor General Eugene DePasquale on Pennsylvania’s horse racing funds. He found that, since 2010, more than $212 million had been diverted from the fund for other uses.

“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 in a news release at the time.

Peterson, the Pennsylvania Equine Coalition spokesman, said the horse-racing industry was pleased with the addition of the word “trust” to the title in light of state lawmakers’ practice of taking money out of it for use in the general fund instead.

Now, Peterson said, horse-racing advocates are able to “go out and market the industry.”

He said the word “trust” demonstrates a guarantee that the race-horse development fund money will be available for use.

“It really enabled us to go out and allay those fears,” he said.

Hankins, of the Meadows Standardbred Owners Association, said he wasn’t sure about the exact wording of the new law, but added the change was necessary to stabilize the industry, which he said contributes to agribusiness in the state.

Jim Mulvihill, a spokesman for the National Thoroughbred Racing Association, said most states with legalized horse racing have revenue from other forms of gaming supplement purse money.

James “J.J.” Crupi owns a horse training center in Fellowship, Florida. In a phone interview, Crupi, 77, said he’s been in the horse business since he was a “little kid.” Crupi said he breaks horses for trainers throughout the United States. While he said he views New York as the best state for horse racing, “Pennsylvania has very good purses.”

Another out-of-state trainer and owner, Anthony Margotta, Jr. of Monmouth Park, NJ, agreed that Pennsylvania has favorable purses. Margotta also complimented Pennsylvania born-horses, which he said he buys and races in Pennsylvania, including at Penn National. Pennsylvania’s financial support helps to bring in out-of-state trainers and owners, he said.

But in New Jersey, Margotta said there is no financial support of the industry, and it shows.

“Do a comparison,” he said. “Look what happened in New Jersey to the horsemen and farms.” Farms have been sold off and fewer foals born, he said, because the gambling industry cannibalized income to the racetracks. State subsidization is important, he said, because of “trickle-down effect.” Racing employs blacksmiths, grooms, feedmen and more.

“It is a wonderful and wholesome industry with hardworking people,” he said. “It goes so deep and touches so many people.”

‘Significant deficiencies’

A Caucus review of audits conducted by the Office of Budget into the horsemen’s associations found numerous instances of what is called “material weaknesses” and “significant deficiencies.”

For example, the independent audits and federal tax filings show that from 2012 to 2015 the Thoroughbred Horsemen’s Association paid a Philadelphia law firm more than $780,000 in legal fees. Salvatore DeBunda, a partner at the law firm, is also the president of the nonprofit association.

Gov. Tom Wolf named DeBunda to the state Horse Racing Commission last year.

In December 2013, auditors said payments totaling $234,182 to DeBunda’s law firm that year were a “significant deficiency in compliance.”

They pointed to a section of the state’s fiscal code that states “funds allocated to horsemen’s organizations for benevolent programs must be kept separate and apart … and may not be used for the personal benefit of any representative or fiduciary of a horsemen’s organization.”

The auditors wrote that payment to a law firm that employs a board member of the association “presents the appearance of personal benefit received from this relationship” and recommended “DeBunda no longer acting as a representative/fiduciary of the association and/or establishing stronger internal controls over the procurement of its legal representation.”

In the association’s response to the auditor’s findings and suggestions, management said “there is no basis for the express accusation in this Finding that this constitutes some legal or ethical violation.” The association asked that the finding be “completely removed from the report,” arguing it was inflammatory and prejudicial.

In 2012, auditors noted the law firm payments as a significant deficiency in compliance.

“The president of the Association is a partner in the law firm representing PTHA to which fees were paid. Total fees paid to this firm were $355,715 in 2012,” the auditors wrote. Auditors in 2015 also commented on the law firm payments.

The executive director of the Thoroughbred’s Association was not available to comment on the association’s use of the law firm; a staffer said he was out of the office for the entire week.

A spokesman for DeBunda’s law firm, Archer & Greiner, said the firm had no comment.

State Rep. John Taylor, R-Philadelphia, is “of counsel” at the Archer & Greiner law firm. Reached by phone at his Philadelphia legislative office, Taylor said he didn’t know anything about the independent audits criticizing the flow of money to Archer & Greiner.

“Sal has represented them for a long time,” he said, referring to the Thoroughbred Horseman’s Association. “I wasn’t aware of independent audits.”

The state has no statutory authority to enforce the audit findings, a situation that Office of Budget staff have raised with the General Assembly, a spokesperson said.

Stumbling out of the gate

In January 2014, Rep. Todd Stephens, R-Montgomery, circulated a co-sponsorship memo proposing the transfer of $250 million from the race horse fund to assist school districts receiving less than 35 percent of their total funding from the state.

The bill was referred to Appropriations Committee, where it died.

“Someone said, ‘You might end up with a horse head in your bed,'” Stephens told The Philadelphia Inquirer in January 2014. “But we have a constitutional obligation to fund our schools, not to provide an economic incentive for one segment of one industry. Rather than funding the pastime of the world’s wealthy and elite, I believe these funds should be used to fulfill our moral and constitutional obligations to our children and help reduce the burden of local property taxpayers in 211 school districts.”

The Commonwealth Foundation, a right-leaning think tank, has for years criticized the state’s provision of funds to the horse-racing industry.

“Government should not offer special protections to the horse racing industry, or really any industry,” said Bob Dick, a senior policy analyst with the organization. “We’re talking about a law that sets aside money for this one industry.”

The horse racing industry “should stand on its own merits,” Dick said. “It should not be the responsibility of the government.”

Stier, of the left-leaning Pennsylvania Budget and Policy Center, said his organization has opposed money being distributed to the Race Horse Development Fund.

“We think this is a bad use of the state’s resources,” he said. “It’s a handout to an industry that employs relatively few Pennsylvanians. Many of the jobs it produces are low-income jobs. We don’t see any reason to subsidize this industry.”

But Peterson, the Equine Coalition spokesman, rejected the idea that the state was subsidizing the industry. Casinos agreed to an assessment, Peterson said.

“So it was never about taxpayer money,” he said.

In a strongly worded letter circulated to Legislators in July, the Equine Coalition pushed back on what it described as the Commonwealth Foundation’s “ongoing attacks on Pennsylvania’s agricultural industry.”

The Equine Coalition letter pointed out that casino operators agreed to an assessment on their slot machine revenues.

“It was part of a commitment they made to gain support for Act 71” – the legislation that legalized slot machines – “from the horse racing and breeding industry, as well as legislators representing agricultural districts. That assessment ensures that rural counties with horse breeders, stables, and farmers who supply the industry also see some benefit from slot machine legalization in the form of revenue for the agricultural industry and protection of open space,” the letter said.

Thomas J. Shaheen, vice president for policy at the Pennsylvania Family Institute, said his organization has opposed gambling expansions since the idea began more than a decade ago. He said he understands those in the horse industry who “saw it as a savior at that time.”

The use of a faltering horse racing industry in 2004 was a political excuse forwarded by those who just wanted to expand gambling, Shaheen said. Gambling proponents in 2004, he said, were very well financed and they are even more so today.

Gambling is not harmless entertainment, Shaheen said. “It’s not good for families. It’s not good public policy,” he said.

Former Rep. Gordon Denlinger, R-Lancaster, opposed gambling legislation in 2004. “My opposition was firm and it remains firm, more for the societal impacts,” Denlinger said. “I did think there was an argument for the horse industry and arguably that did work to a degree. We have an alive and functioning horse racing industry.”

While the industry may be alive, how well it’s functioning is a matter of debate. Only two of the six racetracks show a year-over-year live daily attendance increase. They are Penn National Race Course and Harrah’s Philadelphia Casino.

Despite the injection of more than $1 billion, racetracks continue to struggle, as noted in February’s Joint State Government Commission report. “[H]orse racing as a sport has reached a nadir,” the report said. “In general, 2010 was the pinnacle of wagering on horse races since the addition of gaming Pennsylvania’s racetracks.” The report noted several issues related to the viability of horse racing, including the possibility of alternative gaming platforms, a measure now approved in law.

At post-time on a rainy November Tuesday at Parx Racetrack, the benches outside remained largely empty. Only a few spectators cheered as horses charged across the finish line.

Last week, at Penn National Race Course in Grantville, Greta Stager, along with her husband and two young children, sat outside at a picnic table to watch the horse races. She said she had been going to horse races for about 20 years and considered it cheap and fun entertainment.

When asked about the Race Horse Development Fund money being used for other purposes such as education, Stager, of Lebanon County, said she wasn’t sold.

“Education is a black hole,” she said.

Money from casinos going back to horse racing helps the industry, Stager said.

“It should be full circle. You know what this goes to.”

Harness

The Meadows opened in 1963 and is operated by the Washington Trotting Association.

Pocono Downs, now Mohegan Sun Pocono, opened in 1965.

Harrah’s Philadelphia opened in 2006 as Harrah’s Chester.

Thoroughbred

Penn National Race Course opened in 1972.

Keystone Race Track opened in 1974 and was subsequently renamed Philadelphia Park and is now called PARX.

Presque Isle Downs and Casino in Erie opened in 2007.

SOURCE: “Horse Racing in Pennsylvania: A staff study,” Joint State Government Commission, February 2017