Comptroller: Inspector General Needed to Monitor NYRA

New York state comptroller Alan Hevesi, who believes the New York Racing Association is unwilling to reform operations, has called for the creation of an independent inspector general to monitor NYRA.

In releasing a stinging audit of NYRA's finances Sept. 17, Hevesi said the state must find ways to ensure that video lottery terminals are installed at Aqueduct, whether or not NYRA survives as the state's premier racing entity. State government, facing another year of huge budget deficits, needs the money, he said.

"NYRA needs dramatic reforms," Hevesi said. "It is a critical industry for the people of this state. It can't be run by folks who don't believe in appropriate management and are blasé about inappropriate and even criminal activity in their midst."

NYRA chairman Barry Schwartz couldn't be immediately reached for comment.

The state's top fiscal monitor also accused NYRA of possible federal income tax evasion, illegal budget practices, and running up expenses on entertainment and perks at a time when it is undercutting how much money it sends the state in annual franchise fees to run Aqueduct, Belmont Park, and Saratoga.

Hevesi called NYRA "out of control without appropriate oversight." His audit, details of which leaked out in August, found NYRA "shortchanged" the state by underpaying its legally required franchise fees by as much as $15.3 million in 2000 and 2001. Hevesi said he turned over to the Internal Revenue Service evidence NYRA hasn't paid interest on its debt since 1993 but has deducted interest payments on its federal income tax forms since then.

The comptroller called for immediate oversight action aimed at improving NYRA's finances. "The racing industry is too important, and the problems at NYRA are too serious not to take action now," he said.

The inspector general would be selected by Hevesi and have broad oversight abilities at NYRA. He called on NYRA, which would fund the inspector general, to voluntary accept his proposal, and if not, the state legislature should impose it. The individual would come from a private-sector law firm composed of lawyers with prosecutorial backgrounds.

Hevesi called the inspector general plan "a last shot" for NYRA to "clean up its act." He did not call for an immediate end to NYRA's franchise, which expires at the end of 2007, but said wrongdoing uncovered by an inspector general could lead to that. The inspector general would conduct ongoing "report cards" on NYRA that would be turned over to all branches of state government.

Hevesi also is calling for broader powers for the New York State Racing and Wagering Board, the regulatory body of racing. He said the state should create another agency to focus on other gambling enterprises in the state so the racing board can concentrate its efforts solely on racing. The board also has oversight of Indian casinos, bingo parlors, and other betting enterprises.

The racing agency, Hevesi said, has been lax in its oversight of NYRA. He said the board "has the power, has the authority, but it has not done the job." He called it "an agency that has teeth, but refuses to bite."

"We've been conducting our review of NYRA operations for some time, and we'll certainly take a look at the details of the comptroller report and review his recommendations," racing board spokeswoman Stacy Clifford said after Hevesi released his report.

Allies of the racing board said it was the board that uncovered many of the NYRA abuses, which were then turned over to the state officials for other probes. "No chairman of the New York racing board has been harder on NYRA than Mike Hoblock has been," said Bennett Liebman, a former racing board member who now runs a program at Albany Law School.

Hevesi said NYRA, under the heat of investigations, recently hired a former New York City police commissioner, Howard Safir, to examine its operations. But Hevesi said the contract was awarded without state racing board approval and was done without a competitive bidding process.

Hevesi called for the his office, the legislature, and attorney general to have a role in choosing members of the racing board, members of which are appointed by the governor. The three-member panel has had a vacancy since 2001.

Hevesi said the VLT plan at Aqueduct should not be stopped by NYRA's ongoing problems. MGM Mirage, NYRA's financial partner in the project, has backed off amid concerns NYRA is facing a possible federal indictment.

"That revenue is critically important to the people of this state," said Hevesi, who called on the Gov. George Pataki and the legislature to find ways to keep the project going no matter what happens to NYRA.

The long-awaited Hevesi audit is the latest in a growing number of scathing reports on NYRA's operations. Its most serious may be yet to come: The U.S. Attorney's office in Brooklyn is still considering whether to indict NYRA for any role it may have had in abuses by tellers and others in NYRA's mutuels department.

Hevesi also lashed out at a lucrative pension awarded to former NYRA chairman Kenneth Noe. He said he revised his earlier opinion that the pension package was illegal. But, Hevesi said, it is "still inappropriate." He said millions of dollars were spent on travel, entertainment, and other perks, and that auditors uncovered nearly $250,000 in uncashed checks dating back to 1997.

The comptroller questioned how NYRA could see its revenue go up 18% from 1997 through 2001, and its handle go from $2.8 billion to $3.5 billion, yet declare losses every year. "This we find quite remarkable on a management level," Hevesi said. Moreover, he said, NYRA owes the state Thoroughbred Racing Capital Investment Fund $9 million, and should provide another $2 million for purses and stakes.

Hevesi accused NYRA of not following the law in its budgeting process. He said state comptrollers have done 11 audits in the past decade, and made more than 50 specific recommendations for how NYRA should change its financial operations. "Most were ignored," he said.

Hevesi said NYRA's response to its troubles is to view them "as public relations problems, not management problems." He said NYRA has stalled in making reforms in the hope the problems blow over.

"They are not serious about it," he said. "This is a poorly run operation. As a result of mismanagement, bad things have happened."