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Advocates still working to divert horse-racing subsidy to education

The money comes from taxes on slot-machine revenue.

This article was originally published in The Notebook. In August 2020, The Notebook became Chalkbeat Philadelphia.

With race tracks across Pennsylvania opening up, fans of horse-racing can once again make their wagers.

But no one’s showering larger amounts of money on horse-racing than the state government, which has subsidized the industry with an average of $240 million every year since 2004. The money comes from a tax on slot-machine revenue. Pennsylvania has allocated more than $3 billion to horse racing, which makes the Race Horse Development Fund the largest economic incentive program financed by the state government.

Advocates want that money to be spent on education instead, but they face an uphill political battle.

“The goal is to redirect the slots tax money to invest in education rather than paying the bills of the horse-race industry,” said Sharon Ward, senior fellow at Ed Voters Pennsylvania and the author of a May 2020 report on the fund and its impact.

The advocates sought to make this change in an interim budget that Gov. Wolf signed May 29. That budget funds education for a full year at current levels and the rest of the state budget for five months. The General Assembly will have to come back in November to finalize funding for the rest of the fiscal year, which ends in June 2021.

Ward and other education advocates are now focusing their efforts on November.

“The system is … rife with conflicts of interest and self-dealing,” Ward’s report says. “The industry regulatory body, the State Racing Commission, is effectively controlled by the horsemen — the very beneficiaries of millions of state dollars in subsidies. The breeding funds operate with little public oversight and very little accountability to taxpayers.”

The report also notes that interest in horse racing is waning. The percentage of state residents wagering on Pennsylvania races fell from 21% in 2006 to 8% in 2018. Even so, the government revenue subsidizes nearly every part of the industry, from the purses awarded to winning horses, to bonuses for breeders, to promotional costs.

According to the report, Pennsylvania’s breeding and stakes program — worth $30.5 million — went to only 614 people last year, roughly the average size of one of Pennsylvania’s 1,676 elementary schools. The fund also spends about $14,500 on each race horse in the state, which is nearly twice what the state spends per pupil in the Philadelphia School District, nearly three times what it spends on each of its students at public colleges in the Pennsylvania State System of Higher Education (PASSHE), and nearly four times what it spends per student at state-related colleges like the University of Pittsburgh and Temple. If the Race Horse Development Fund were to be reinvested in public education, it would increase the Philadelphia School District’s $3 billion budget by about 8%.

Gov. Wolf did propose reinvesting the fund in education, but at the college level. In his February budget address, he proposed diverting $204 million of what would normally be set aside for the Race Horse Development Fund to create the Nelly Bly scholarship fund, which would financially assist low- and middle-income students who attend one of the 14 PASSHE universities, such as Bloomsburg, Clarion, Cheyney and Edinboro. Wolf estimated that the fund could help up to 25,000 students pay their tuition and fees every year.

But the proposal was met with stern opposition from Republicans in the legislature and representatives from the horse-racing industry.

“That has an impact on jobs and those communities where horse breeding is a vibrant business,” said Senate Majority Leader Jake Corman, R-Centre County, at the time. “We need to vet these proposals and see the total impact of them and make decisions.”

“Yes, college tuition is spiraling out of control and college debt is a major concern,” said Pete Peterson, the executive director of the Pennsylvania Equine Coalition. “But you don’t fix one debt problem by creating another debt problem and putting 20,000 people out of work and bankrupting businesses and farms.”

According to Ward’s report, the horse-racing industry employs about 9,000 people, 1,700 of whom work full time. By comparison, Pennsylvania public schools employ more than 120,000 teachers.

The report also contains a list of economic multipliers for other industries, showing how much the economy would grow if the racehorse fund were invested elsewhere. Gambling industries, such as horse racing, produce an economic multiplier of 1.87, meaning one dollar invested would grow to $1.87; infrastructure and education produce multipliers of more than two.

Wolf’s scholarship fund proposal has failed so far this year. But Ward and the rest of Ed Voters PA plan to start challenging the fund in earnest when fall rolls around. Sen. Corman’s spokesperson, Jennifer Kocher, said that in five months, legislators will have a better picture of the state’s financial outlook and the fund would need to be fully vetted by that time.

“We need to give Pennsylvania youth the opportunity to have a career, to buy a home, and to have a family,” Ward said. “That is the future.”