The 2017 Gubernatorial Budget and the Future of the New York Racing Association

By Bennett Liebman
Government Lawyer in Residence
Government Law Center, Albany Law School

1. Introduction[1]

It has been four and a half years since the New York Racing Association (NYRA), which runs the three principal thoroughbred racetracks in New York State (Aqueduct, Belmont and Saratoga), effectively became a state agency (with 12 of its 17 members appointed by state officers) known as the New York racing association reorganization board (Reorganization Board).[2] As initially enacted, the Reorganization Board was scheduled to go out of existence after three years in the fall of 2015.[3] Budget legislation passed in 2015 increased the life of the Reorganization Board for another year,[4] and subsequent legislation passed in 2016 continued the Reorganization Board for another year.

In 2016, a variety of proposals were made which would have eliminated the Reorganization Board and re-established NYRA as a private body.[5] The Reorganization Board itself offered a general plan for private control.[6] Governor Andrew Cuomo offered a program bill which would have terminated the Reorganization Board,[7] and the Legislature passed a bill providing for a privatized NYRA.[8] In the absence of a consensus on what to do about the Reorganization Board and faced with the prospect that the Governor might veto the privatization legislation, the Legislature quickly reversed itself on the issue and passed a bill proposed by the Governor extending the life of the Reorganization Board for another year.[9] The initial legislative bill ending the Reorganization Board has been pocket vetoed by the Governor.[10]

2. The Governor’s 2017 Budget Proposal on NYRA

Governor Cuomo in his January 2017 budget proposed legislation that would end the Reorganization Board and return NYRA to its former private not-for-profit status.[11] The legislation terminating the Reorganization Board would take effect on April 1, 2017. Unlike the Governor’s 2016 program bill, the 2017 budget legislation was specifically endorsed by the management of NYRA,[12] and the prospect for the passage of some form of NYRA privatization legislation has to be considered very high.

The 2017 budget legislation is basically a variation of the Governor’s 2016 program bill[13] with a certain number of added breaks and protections granted to NYRA.

Among the proposals continued from the program bill, the budget legislation would create a 15-member board. Of the 15 members, eight of the members would be appointed by the current executive committee of the Reorganization Board. One would be the CEO of NYRA. Six would be selected by the Governor. Legislative leaders would pick one member each of the six gubernatorial leaders, leaving the Governor with four appointees. The six publically appointed members would all need to be New York State residents.

The Governor would select the initial chairman of the NYRA Board who would serve for a three-year term.[14] Subsequent chairmen would be appointed by the NYRA Board.

Initial NYRA Board members would have staggered terms. Subsequent NYRA Board members would serve full three-year terms. No board member could serve more than the lesser of three terms, or nine years.

The New York horsemen and the New York breeders would not appoint a voting member to the NYRA Board. Instead, each group would appoint one ex officio non-voting member to the NYRA Board. This is the same situation that exists under current law, where the horsemen and breeders are relegated to ex officio status.[15]

The Franchise Oversight Board[16] can require NYRA to hire an independent financial advisor, a corporate restructuring professional, and submit a corrective action plan (subject to the Franchise Oversight Board’s approval) when NYRA’s financial position has deviated materially from its financial plan.

Added to the program bill of 2016 were two proposals requested by NYRA. NYRA is given authorization at Belmont Park[17] to run races after sunset.[18] These races must end before 11:00 PM, and the times of the races have to be coordinated with Yonkers Racetrack.

NYRA is also given authorization, subject to approval by the horsemen and the breeders, to reduce its winter racing schedule. NYRA currently is compelled to run 95 days at Aqueduct between December and April.[19] Under this bill, NYRA, if it were to receive permission from the horsemen and breeders, could reduce the racing dates as it sees fit.

NYRA also obtained some benefits from certain removals from the 2015 program bill. NYRA will no longer be subject to the Freedom of Information Law and the Open Meetings Law. There will be no cap on revenues from VLTs to NYRA. There is no requirement that NYRA must spend $16 million per year on capital expenditures at Saratoga. Only one gubernatorial appointee is required on any NYRA committee established pursuant to statute.[20]

Finally, the Franchise Oversight Board under the prior 2016 program bill had broad powers to recommend to the State budget director to end NYRA’s receipt of racing support payments from VLTs at Aqueduct. Under the budget bill, the termination of support payments can only occur after “two consecutive years of material losses due to circumstances within the control of the franchised corporation, as determined by the franchise oversight board.” The Franchise Oversight Board “may by majority vote request the director of the budget to impound and escrow racing supporting payments.”

3. Summary of Provisions Affecting the Governor’s Powers

As compared to the 2016 program bill, the Governor’s office largely retains all its prior appointment powers. The Governor gets to appoint four of the 15 members of the Board and its first chairman. Should the Governor so choose, through his appointments to the current Oversight Board, he could effectively stack the existing executive committee to de facto grant himself further NYRA Board appointments. The Governor’s powers over the NYRA Board appointments are diminished only slightly.

The Franchise Oversight Board also retains much of the powers it was to be granted under the 2016 program bill.

Where the Governor seems to have limited his power vis-à-vis the 2016 program bill is in placing fewer limits on the racing support payments provided to NYRA from VLTs. The 2016 program bill limited NYRA’s VLT revenues to a maximum of $46 million. In the 2016-2017 State fiscal year, NYRA would have received $59 million in VLT revenues.[21] Yet the 2016 budget legislation effectively put a floor on VLT payment to NYRA at $54.96 million.[22] Since that same legislation diverted certain Aqueduct VLT revenues to support Nassau County Regional OTB, it appears that the maximum that NYRA will receive in future VLT payment will be the $54.96 million number. The State has, effectively, already placed limits on NYRA’s potential VLT revenue stream.

The Governor also removed the requirement contained in the 2016 program bill that NYRA remain subject to the Open Meetings Law and the Freedom of Information Law. Yet, this is not a limitation on the Governor’s power but is simply ending a requirement that has been placed on NYRA. In terms of the Governor’s powers regarding NYRA, the 2017 budget bill is only slightly more restrictive than the 2016 program bill.

4. The Effect on NYRA

This is a bill that NYRA’s current management under CEO Chris Kay could only have prayed for. This is Chris Kay 2.0. The CEO is made a member of the Board. The current Reorganization Board—which has basically given NYRA management a blank slate—largely picks its successor, which effectively means that the compliant Reorganization Board gets to remain as a private not-for-profit board. While there are term limits on board members, they largely will not kick in until the mid-2020s. The horsemen and breeders do not have formal representation on the board, which is similarly in accord with NYRA’s initial recommendation on privatization. The status quo will prevail.

Not only will the status quo prevail but NYRA will get broader authority. The sunshine laws will no longer apply to NYRA, lessening some public scrutiny of the Kay regime.

NYRA gets to have night racing at Belmont Park, which races in May through July and September through October. While the costs of lighting the facility and the parking lots are high, this would potentially make it easier for NYRA to host the Breeders’ Cup. While regular night racing has hardly been a success in the United States, it may also be that NYRA management envisions night racing as a gateway to establishing a broader evening entertainment experience at Belmont. Chris Kay is a former Universal Studios executive, and NYRA may envision something akin to a Universal City Walk at Belmont Park.

An end or a limitation to winter racing may similarly save NYRA considerable revenue.  Maintaining winter racing at Aqueduct has always been a priority of the breeders and the horsemen. Accordingly, it will be interesting to see if and how NYRA tries to use its influence and power to persuade horsemen to limit winter racing. Will NYRA go easier on pushing for anti-Lasix regulations?[23] Will NYRA try to use its power over stall space allocations to deal with recalcitrant horsemen? Will it provide added revenue or other perks to horsemen and breeders as a way to coax these groups into supporting a limitation on winter racing?

5. Who Loses Under this Bill?

The short answer is the horsemen and the breeders lose. Under the Legislature’s 2016 vetoed bill, they became voting members on the NYRA Board. Under the 2017 budget bill, they have again been relegated to ex officio status. Similarly, added pressure will be placed on these groups to accede to limitations on winter racing.

The New York OTBs are probably losers here as well. Less NYRA racing in the winter is simply bad for OTB handle. Also, if NYRA moves much of its Belmont racing to the evening, the OTB’s lose a daytime product. Since betting at the OTB’s has become largely a daytime experience, nighttime Belmont racing will unlikely be beneficial to the OTBs.

Also, if NYRA does implement Belmont evening racing, those tracks that race at night might be adversely affected. This would include the upstate harness tracks who would be running at the same time as Belmont, such as Saratoga Harness, Vernon Downs, Tioga Downs, Batavia Downs and Buffalo Raceway. Also likely to be affected are those out-of-state tracks that run in the evening such as the Meadowlands in New Jersey and Penn National in Pennsylvania. These tracks would suffer from added competition against their simulcasting signals.

There may be potential complaints from Nassau County communities around Belmont Park, such as Elmont and Floral Park, which have traditionally voiced opposition to NYRA evening activities at Belmont. Given the influence that Republicans in Nassau County have in the State Senate, this opposition may cause problems for NYRA in achieving these goals.

Finally, if you believe that the current regime at NYRA is good for thoroughbred racing, then this legislation will clearly be perceived as beneficial. NYRA management will largely be unchanged. If, however, you regard the NYRA regime as a self-perpetrating group largely oblivious to the needs of racing and racing fans, be prepared for eight more years of the same.

6. Issues in the Budget Bill Draft

Reconverting NYRA back to a private organization does bring with it a string of issues. If the point of having a new privatized NYRA was to allow for long-term planning, why is there no long-term planning committee? What happens to the availability of records that were created when NYRA was a public body? What happens to the availability of the records of the pre-2012 NYRA which were arguably available during the time that NYRA was a public agency? What happens to the existing NYRA website showing the content of prior Board meetings and the materials used to discuss these meetings? What happens to the ability of the State Comptroller to audit NYRA?[24] Finally, what happens to the internal ethics provision that the Reorganization Board put into place in 2012 and 2013—no fund raisers on NYRA property, no campaign contributions from NYRA officers, and no campaign contributions from NYRA itself or a NYRA created PAC? What happens to these actions of the Reorganization Board?

Finally, there are somewhat confusing issues as to when a new NYRA board would actually come into existence and replace the Reorganization Board. The effective date clause in the bill states that the new board provisions “shall take effect upon the appointment of a majority of board members.” Yet the executive committee of the Reorganization Board “shall continue to exist until such time as the appointments required hereunder are made.” On top of that, the members appointed by the executive committee cannot vote until they have a racetrack management license. So who would be in charge at a time when a majority of new members has been named, but an insufficient number of them has licenses? Who runs NYRA under this possibility?

Perhaps all these questions will be answered when the State’s 2017 budget is passed.

 

[1]  This essay uses materials previously used in earlier essays on this overall topic which include “The Future of the New York Racing Association Reorganization Board,” https://saratogainstitute.wordpress.com/2016/03/30/the-future-of-the-new-york-racing-association-reorganization-board/, “The Future of the New York Racing Association Reorganization Board: Take 2,” https://saratogainstitute.wordpress.com/2016/05/04/the-future-of-the-new-york-racing-association-reorganization-board-take-2/, “New York State and the New York Racing Association: Can’t Anyone Privatize These Racetracks?,”  https://saratogainstitute.wordpress.com/2016/06/08/new-york-state-and-the-new-york-racing-association-cant-anyone-privatize-these-racetracks/ and “NYRA Enters the World of Chelm,” https://saratogainstitute.wordpress.com/2016/08/01/nyra-enters-the-world-of-chelm/.

[2] L. 2012, Ch. 457.

[3] Id. at § 4.

[4]  L. 2015, Ch. 59, pt. PP, § 1.

[5] See generally “NYRA Enters the World of Chelm” supra at note 1.

[6] The video presentation of the Reorganization Board’s plan recommended at its April 12, 2016, meeting can be viewed at https://www.nyra.com/belmont/video—april-12-2016-board-meeting/.

[7]  Governor’s Program Bill #24, (2016); https://www.governor.ny.gov/sites/governor.ny.gov/files/atoms/files/GPB24_NYRAREORGANIZATION_BILL.pdf.

[8] Assembly Bill No. 10429, same as Senate Bill No. 7918 (2016).

[9] L. 2016, Ch. 73, pt. C, §1.

[10] The legislative proposal, A. 10429, was submitted to the Governor’s Office on December 22, 2016, and was not acted on by the Governor. Since the legislative session had ended by the time that action was due on the bill, without gubernatorial approval, the legislation was de facto vetoed under Article 4, §7 of the State Constitution. See also Yancey Roy, “Key Senator: Cuomo Proposal Allows Gov Control of NYRA,” Newsday, January 19, 2017.

[11] FY 2018 New York State Executive Budget Revenue Article VII Legislation, Part NN. The part is entitled “Re-privatize the New York Racing Association,” https://www.budget.ny.gov/pubs/executive/eBudget1718/fy18artVIIbills/REVENUEArticleVII.pdf, Assembly Bill No. 3009, same as Senate Bill No. 2009.

[12] Tom Precious, “Cuomo Proposes Returning NYRA to Private Control,” BloodHorse, January 18, 2017, http://www.bloodhorse.com/horse-racing/articles/219148/cuomo-proposes-returning-nyra-to-private-control.

[13] See note 7 supra.

[14] The power of the Governor to select the first chairman of the privatized NYRA was similarly in the 2016 plan suggested by the Reorganization Board. See note 6 supra.

[15] Racing, Pari-Mutuel Wagering and Breeding Law, §207.1.b.

[16] The Franchise Oversight Board is a five-member public agency designed to represent the State in its real estate dealings with NYRA and to enforce and monitor the State’s agreements with NYRA. See Racing, Pari-Mutuel Wagering and Breeding Law, §212. The Franchise Oversight Board is largely a continuation of the former non-profit racing association board that was established to monitor NYRA in 2005. See L. 2005, Ch. 354.

[17] Belmont Park in recent years has raced in May, June, the first half of July, September and October.

[18] Currently, NYRA cannot race after sunset. See Racing, Pari-Mutuel Wagering and Breeding Law, §203.

[19] Racing, Pari-Mutuel Wagering and Breeding Law, §238.1.(d).

[20] Under the 2016 program bill, three publically appointed members, including at least two appointed by the Governor, had to be on each statutory committee.

[21] See New York State, Gaming Commission, Video Gaming Report http://nylottery.ny.gov/wps/portal/Home/Lottery/Home/Video+Gaming/VIDEO+GAMING+REPORTS.

[22] L. 2016, Ch. 60, Part SS. See Tax Law, §1617-a.

[23] The leadership of the New York horsemen has been vocally opposed to ending the race-day use of the drug Lasix, which is used overwhelming in North American racing to limit bleeding in race horses.

[24] While §209 of the Racing Pari-Mutuel Wagering and Breeding Law authorizes the State Comptroller to audit NYRA, the Comptroller’s authority to audit non-governmental entities has been limited by the State Court of Appeals. See generally Matter of New York Charter Schools Assn., Inc.  v. DiNapoli, 13 N.Y.2d 120 (2009). If NYRA is a private organization, NYRA may well challenge the audit authority of the Comptroller.

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