PA Audit: Ag Department Misused Racing Funds

Fund that pays for regulation, drug testing almost bankrupt, state official says.

The Pennsylvania racing fund, which pays for regulation of horse racing in the state, has been misused by the state Department of Agriculture and is close to bankruptcy, according to a state audit released June 18.

Auditor General Eugene DePasquale, who released the report, said, "The future of Pennsylvania's billion-dollar horse racing and breeding 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." His report also noted how revenue taken from the Pennsylvania Race Horse Development fund to pay for state budget shortfalls is damaging the industry.

The audit found the Department of Agriculture, under which the Thoroughbred and Standardbred racing commissions fall, overbilled the racing 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.

DePasquale said the effect of increasing expenses and declining revenue would have bankrupted the state racing fund earlier this year if the state legislature had not passed a law that transferred $4.2 million from the PRHDF, which is supported by slot machine revenue, to the 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."

The racing fund pays for regulation, equine drug testing, and other related programs.

"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."

The audit states that taxes from pari-mutuel wagering, the primary revenue source for the racing fund, fell from $14.7 million to $11.1 from 2009-13. It also states the Race Horse Industry Reform Act, which governs the state racing fund, hasn't been updated in more than three decades.

The audit notes the state General Assembly has shifted $212 million from the PRHDF to plug holes in the state budget. DePasquale strongly spoke out against the practice.

"The General Assembly must decide if stimulating the viability and quality of horse racing in Pennsylvania should still be the primary use of the PRHDF," he said. "If the original intent of the PRHDF remains the same, the General Assembly should stop transferring monies away from the horse racing industry and find another means to address the state's budgetary gaps."

The audit recommends the following changes: updating occupational licensing fees and other fees that were implemented in 1981; 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 Pennsylvania Equine Coalition, which represents owners, breeders, and trainers in the state, issued a statement following release of the audit.

"This report confirms what the Pennsylvania racing industry has been saying for a number of years: that money intended for the operation of the state's racing commissions and for breeders' incentives was improperly diverted for other purposes," coalition spokesman Pete Peterson said. "We greatly appreciate the efforts of Auditor General DePasquale in taking a closer look at this issue. These diversions resulted in less money being available for oversight of the industry and shortfalls in the operating budget of the commissions."

Peterson said horsemen and breeders last year urged the legislature to transfer funds intended for purses and breeders' awards to the state racing fund. He also noted the importance of the statutory PRHDF.

"Economic data from the Pennsylvania Department of Agriculture, released in 2010, shows that the live racing industry generates $1.6 billion in annual economic activity and supports 23,028 jobs in Pennsylvania," Peterson said. "Every time that money intended for the industry is diverted, it creates uncertainty within the industry."