NYRA Criticized Over Loan
Updated: Friday, August 15, 2003 2:51 PM
By Associated Press
Posted: Friday, August 15, 2003 2:51 PM
An internal audit of a little known state fund found the New York Legislature has given the embattled New York Racing Association loose reins over $60 million it owes the state.
The 2002 private audit at the request of the state Thoroughbred Racing Capital Investment Fund found NYRA paid nothing for five years on a $60 million debt to the state and is currently paying less than is needed to repay the public debt. Further, the audit questions whether NYRA has enough collateral to cover the borrowing.
A spokesman for the fund that allows NYRA to borrow for capital improvements, said NYRA is simply adhering to several recent fiscal breaks approved by the Legislature, including suspending loan payments if the association doesn't report a profit.
Critics say NYRA no longer can enjoy that latitude.
"There is a two-decade history of NYRA's being dealt with very gently by the Legislature and I think it is time to either ensure that the governance changes that are needed are put in place and the fiscal return to the state is guaranteed or to look at very different structures," said state Attorney General Eliot Spitzer, who issued an investigative report of NYRA in June.
"I would hate to see the taxpayers not have these funds repaid," Spitzer said, "and I'm worried that the incentive structure that has been presented to NYRA over the years may not encourage them to act in a way to get these funds repaid."
A NYRA spokesman declined comment.
NYRA trustees have made more than $1.3 million in political contributions to politicians since 1999, with most going to Gov. George Pataki and the majority-party legislative leaders who control NYRA's franchise to operate the Belmont, Aqueduct and Saratoga thoroughbred race tracks.
Pataki and lawmakers have also held major political fund-raisers at NYRA's Saratoga track and other sites, even as NYRA is investigated by state and federal agencies over accusations of mismanagement and money laundering and tax fraud that threatens NYRA's state franchise.
The internal audit states that NYRA made no payments on the fund's notes from 1993-97.
"Since 1997, following an amendment to New York state law, NYRA has made payments at a rate based on its income, but significantly less than the rate required to repay the notes," the audit states.
NYRA paid a low of $603,000 in 1983, when the debt began, and a high of $4.1 million 2001.
The auditors said fund officials were unable to show how they would collect on the notes and had no appraisal of the collateral _ Aqueduct race track _ that is supposed to secure the debt if NYRA defaults. The concern was underscored by NYRA's sale of 34 acres at the Queens racetrack in 1992 and 1993, the audit stated.
That sale of mostly open land brought more than $50 million and left 169 acres at Aqueduct.
The fund's spokesman, Thomas McDermott, confirmed the suspended loan payments by NYRA, but said that and other findings are the result of legislative action designed to prop up NYRA during difficult fiscal times.
Last year the Legislature agreed to make the fund debt "subordinate" to as much as $100 million NYRA plans to borrow to pay for construction of video lottery facility at Aqueduct. Repaying that debt would get priority over the $60 million owed the state but McDermott said it won't threaten recovery of the fund debt.
McDermott said NYRA would be faced with a "balloon payment" when its franchise is scheduled to end in 2007 for any remaining principle and interest. If NYRA is unable to pay, the governor and Legislature could try to negotiate with the subsequent franchise holder to take on the debt, he said.
A source familiar with the financial arrangement who spoke on the condition of anonymity said that puts state taxpayers on the hook for NYRA's spending if the franchise is lost. NYRA already owes $14.7 million to state and industry funds, according to a draft audit from the state Comptroller's Office.
"We believe those funds would not be jeopardized," said John McArdle, spokesman for state Senate Majority Leader Joseph Bruno, a supporter of NYRA whose district includes Saratoga Race Course.
"We want to encourage thoroughbred racing to thrive here in this state and that's why we're investing and continue to support ways to keep the industry healthy and vibrant," McArdle said. "The (Assembly) speaker and the Assembly and the executive have been supportive and we all recognize the value of this industry to the state."
State law would give Aqueduct to the state at the end of a franchise.
McDermott said the track is worth far more than the debt according to a city tax department review accepted by the fund's board, but not by its private sector auditors.
"The repayment is contingent upon making a profit," McDermott said. "If they do not make a profit, then, as the statute requires, (the fund) must accept that fact."
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