COMMONWEALTH OF HOUSE OF REPRESENTATIVES HOUSE APPROPRIATIONS COMMITTEE

THE MAIN CAPITOL ROOM 140 HARRISBURG, PENNSYLVANIA

WEDNESDAY, MARCH 7, 2 012 5:10 P.M.

PUBLIC HEARING HORSEMEN'S ORGANIZATIONS AND BREEDERS

BEFORE:

HONORABLE WILLIAM F. ADOLPH, JR., CHAIRMAN HONORABLE JOSEPH F. MARKOSEK HONORABLE JOHN BEAR HONORABLE MARTIN T. CAUSER HONORABLE JIM CHRISTIANA HONORABLE HONORABLE GORDON DENLINGER HONORABLE BRIAN L. ELLIS HONORABLE MAUREE GINGRICH HONORABLE GLEN R. GRELL HONORABLE TOM KILLION HONORABLE DAVID R. MILLARD HONORABLE T. MARK MUSTIO HONORABLE BERNIE O'NEILL HONORABLE MIKE PEIFER HONORABLE SCOTT PERRY CONTINUED: HONORABLE SCOTT A. PETRI HONORABLE HONORABLE JEFFREY P. PYLE HONORABLE MARIO M. SCAVELLO HONORABLE CURTIS G. SONNEY HONORABLE MATTHEW D. BRADFORD HONORABLE MICHELLE F.BROWNLEE HONORABLE H. SCOTT CONKLIN HONORABLE HONORABLE DEBERAH KULA HONORABLE TIM MAHONEY HONORABLE MICHAEL H. O'BRIEN HONORABLE CHERELLE L. PARKER HONORABLE JOHN P. SABATINA, JR. HONORABLE HONORABLE MATTHEW SMITH HONORABLE HONORABLE RONALD G. WATERS

ALSO PRESENT: HONORABLE RICK SACCONE HONORABLE JULIE HARHART HONORABLE DARYL D. METCALFE HONORABLE THOMAS P. MURT HONORABLE ROBERT GODSHALL HONORABLE KATE HARPER HONORABLE HONORABLE JOSEPH T. HACKETT HONORABLE MARK M. GILLEN HONORABLE HONORABLE HONORABLE RICHARD STEVENSON HONORABLE GENE DiGIROLAMO HONORABLE HONORABLE WILLIAM C. KORTZ, II HONORABLE VANESSA LOWERY HONORABLE PAMELA A. DeLISSIO HONORABLE BABETTE JOSEPHS HONORABLE HONORABLE HONORABLE THOMAS R. CALTAGIRONE HONORABLE HONORABLE HONORABLE EDWARD NOLAN, MAJORITY EXECUTIVE DIRECTOR MIRIAM FOX, MINORITY EXECUTIVE DIRECTOR

BRENDA S. HAMILTON, RPR, NOTARY PUBLIC AND REPORTER INDEX

NAME PAGE

SAL DeBUNDA, CHAIRMAN 7 EQUINE COALITION AND PRESIDENT OF THE PA THOROUGHBRED HORSEMEN'S ASSOCIATION

TODD MOSTOLLER, EXECUTIVE DIRECTOR

PA HORSEMEN'S BENEVOLENT ASSOCIATION

CARL McENTREE, DIRECTOR BLOODSTOCK SERVICES NORTHVIEW STALLION STATION JIM SIMPSON, PRESIDENT AND CEO HANOVER SHOE FARMS AND TREASURER OF STANDARDBRED BREEDERS ASSOCIATION

MICHAEL BALLEZZI, EXECUTIVE DIRECTOR PARKS RACING, HORSEMEN'S ASSOCIATION

BRIAN SANFRATELLO, PRESIDENT THOROUGHBRED HORSE BREEDERS ASSOCIATION P R O C E E D I N G S

CHAIRMAN ADOLPH: I'd like to call to order the House Appropriations budget hearing. With us today is representatives from the Horsemen's

Organizations and Breeders.

Good evening, gentlemen.

MR. DeBUNDA: Good evening.

MR. SIMPSON: Good evening.

MR. MOSTOLLER: Good evening.

MR. BALLEZZI: Good evening.

CHAIRMAN ADOLPH: I first want to apologize to each and every one of you for the delay, but we had a very important hearing going on with the

Department of Public Welfare and we wanted to give those folks the opportunity to have answers -¬ answers and questions and so forth and so on just like you do.

I thought it was important to have this hearing with you. It wasn't originally scheduled, but many of the members of the General Assembly received an awful lot of letters from constituents on either side of this issue. So I wanted to allow you the opportunity to discuss the Governor's proposal.

With that I'd like to introduce the chairman of the Equine Coalition and president of

Pennsylvania Thoroughbred Horsemen's Association, Sal

DeBunda.

MR. DeBUNDA: Thank you very much.

Good good evening to everyone. My name is Sal

DeBunda. I'm an owner and breeder here in

Pennsylvania. As you Mr. Representative Adolph

said, I'm president of the Pennsylvania Thoroughbred

Horsemen's Association, and I'm also a member of the

Pennsylvania Equine Coalition which represents 10,000

breeders, owners, and trainers here in the

Commonwealth.

You've gotten I think in the package

is my remarks. Because of the hour and and to

move this along, I'm not going to read those into the

record. I would ask that they be put into the record

of the Committee if I can.

But I'd like to highlight some of the

quickly the points that we have, if I can.

The first one is the -- basically the

misconception that the funds that we're now getting

are really much more than we ever expected to get.

And as it says in my remarks when the projections

were done at the time that Act 71 was passed, they

thought they would be between 4.4 million a year a week versus 6.2 million. Right now we're sitting at

4.5 million, which is at the low end of what we were expecting.

Keep in mind that $50 million almost

$50 million is already being taken. So that that's one of the reasons it's lower. If it wasn't for that, the number would be slightly higher.

So this is not a windfall. It's not more than we expected.

If the proposal from the budgets would be put in there we would be $3.2 million a week, which is well below the lowest expectation that we had at the time the projections were done.

So I wanted to just point out that that comment is really not an accurate comment. Okay.

The second point I want to make to you is that they talk about the -- the size of the -- the fund. If you take the current 4.5 million average weekly, we would be 234 million. And this, I think, is a very important point.

We're a much bigger state than some of our competition in the world of horse racing,

Delaware and West Virginia. We have six race tracks here. They have two each. Okay. So if you take the two I'm going to round that off to 240. If you round that off to their six racetracks, we're basically contributing $40 million per race track.

I know that may sound like a lot of money, but we -- we run 200 days, for example, at

Parks, so that's really two — it's really $20,000 a day. And you run about nine to ten races. You're talking about $2,000 per race. It's not a tremendous amount of money.

But West Virginia and Delaware on average give about $50 million per each of their tracks right now. So we really are with this change, right now we're actually below that because of the money that's already being taken by the

Commonwealth.

This would put us in a much more disadvantaged situation. We would go from like seventh on the list to 17th on the list, and actually

Iowa and Oklahoma would have better purses than us.

Okay?

The second thing that I want to point out is that -- and as Todd will go into later -- when slot revenue goes up in the Commonwealth, it doesn't mean that the horsemen get more money.

We get our share based on the slots only at our home facility. So, for example, I'm from Parks racing. We get a percentage of the slots at our facility. So that for example, if Valley

Forge opens or another one in Philadelphia opens and that revenue goes up, the state will get more money.

The operators of that will get money. We will get no more money.

We don't get anything from the non-race track slot facilities. We actually could get less from that situation because there's internal competition from the table games and poker within our own facility, and we get nothing from table games and poker. So that, in effect if someone who used to play slots now plays table games, we don't get any money for that.

If another facility either in our state or outside opens up and draws customers from us for slots we don't get a piece of that either.

So you're at a situation where because all of the facilities are now at -- are mature in kind of operating, we're really tacked at where we're going to be and I don't see that going up.

So one of the things you'll see in the

Governor's proposal is that he expects revenues to go up. We think that that's unrealistic. We don't think that that really will work. Okay? The other thing is that this is public money. I just wanted to make a comment about that.

Back when Act 71 was done, it was really a compact made between all the different stakeholders, the

Governor's office, the the legislature, the the operators of the racetrack, the horsemen, the breeders, the jockeys. A compact was made, and it was a to promote racing in this industry, we're going to agree to these terms.

This was not -- this -- so the operators, in a sense, agreed that we would share in this. As part of the compact, the state was taking

34 percent, the welcoming municipalities were getting two percent, the -- the county was getting two percent, five percent was going for development within the Commonwealth, and the rest of the money was being basically shared between the operator and the horsemen to promote racing.

The operators had commitments. They had to do the back stretch improvements. They had to upstate upgrade upgrade. The facility that people lived in. They had to upgrade the race tracks.

All of that was a compact that was really reached, and basically what's happening now if this happens is that compact is being broken.

Okay? And in a sense the commitment that was made as part of that, and relied on by people that you'll hear about later, was actually broken.

And that is part of the problem here.

It's not just a matter of the dollars and whether we can survive for a year. It's the it's the message we're giving out to people who want to invest in the

Commonwealth to say, we're we we're we're a state where we break agreements and -- and things like that.

The other thing I just want to say, and one last thing and I'll I'll move along, is that every horse that races is boarded here, is really a job creator. They need all sorts of different things to be done to them, and I have -- part of that is actually a horse that I own in there there's a little form called For WhisperDowntheLane, which I bred to a Pennsylvanian stallion, Real Quiet. I won't go through it now.

But it shows you the kind of expenses that are incurred in -- in a horse that you have here. By that way, that horse won its first time out, which is a very nice result. I'm still $14,000 behind on the horse. Okay? So I'm it was nice to win, but I'm still behind on that horse. Because I got it it's been three years I had to take care of it.

But it's a horse it's a job creator.

But I'm like a factory that creates jobs. You can put this job creator on a van, and this afternoon it can be creating a job somewhere else.

And we need -- really need in my opinion to -- and this is the reason that Act 71 was passed to begin with -- we need to become a destination for job creators, not encouraging people to take their job creators and send them somewhere else.

And that's what we think is this was

this this budget was put out as a job creator.

I believe that this portion of the budget is not a job creator but will probably destroy about 12 to

15,000 jobs in the Commonwealth, if this occurs.

And with that I'll ask Todd Mostoller, the Executive Director of the Horsemen at Penn

National and Presque Isle to speak.

Thank you for your time. And I'll be glad to answer questions later.

MR. MOSTOLLER: As Sal indicated, my name is Todd Mostoller. I'm Executive Director of the Pennsylvania Horsemen's Benevolent Association. Act 71, the most important creation, was

the creation of a viable business model and that

business model resulted in millions being invested in

the equine infrastructure in Pennsylvania.

Farms were purchased. Stallions and

mares were purchased. Race horses were purchased.

Farmers changed crop production to support the

industry around the race tracks, and that was created

with the Pennsylvania Race Development Fund.

That's the disbursements that are made

under the slot legislation. The fund was created by

Act 71.

There are a number of budget

misconceptions in the executive budget for

2012/2013. Those misconceptions, additional casinos

will add to the Pennsylvania Race Horse Development

Fund and the growth of the fund.

The equine industry has grown from a $1.4

billion economic impact within the Commonwealth in

2001, which is three years prior to the passage, to

currently a $4 billion economic impact.

That has occurred over one of the greatest

recessions in our lifetimes or in the history of the

United States. 28,000 jobs were added after passage

of Act 71. As Sal indicated, the potential loss of jobs if 72 million were to be transferred, we believe to be about 15,000 jobs within the Commonwealth.

The economic impact is where the horse is located. These horses reside on the race tracks and on farms throughout the Commonwealth. The majority of that money stays within the Commonwealth.

I'll pass it on to Mr. Carl McEntree of

Northview Stallion Station.

MR. McENTREE: Good afternoon. Again, we've already established sorry. Again, we've already established my name is Carl McEntree. I'm the director of blood stock at Northview Stallion

Station. We are the leading thoroughbred farm in

Pennsylvania.

I'm here today representing the owner of the farm, Richard Golden. He already previously sent a letter to Governor Corbett, Senator Smucker, and

Representative Cutler on March 1st, and I'm here to essentially reiterate his comments and answer any questions about Northview's Pennsylvania operations.

Northview has been in the thoroughbred business since the late 1980's. The first Northview farm was established in Maryland, and the business expanded to Pennsylvania due to the passage of Act 71 with the purchase of 180-plus acres in Lancaster

County.

Northview's Pennsylvania operations opened

for business in 2009 just three years after slot

machines came to the state's thoroughbred and

standardbred race tracks. In a very short time

Northview has established itself as the leading

stallion farm in Pennsylvania and is also recognized

as one of the foremost breeding operations in the

Mid-Atlantic region.

Of note, Smarty Jones, Pennsylvania bred

winner of the 2004 Kentucky Derby and Preakness is

now based at our Northview Pennsylvania farm.

Northview came to Pennsylvania due to the

funding scenario from the racing fund and as -- and

with Act 71 as the state seemed committed to growing

the racing industry.

I'd like to share with you the investment

that we've made since moving to Pennsylvania. The

purchase of the farm and the building of the farm.

Obviously farm equipment was purchased. Currently we

employ 11 employees at a payroll of over half a

million dollars a year. The farm costs roughly

$250,000 a year to run. We spend between 6 and

$700,000 for hay, feed, and other supplies. And this is all bought from Pennsylvania suppliers.

All told, the investment since the passage of Act 71 is in excess of $15 million.

Due to the Governor's proposed transfer of

72 million out of the racing fund, on top of the $50 million that has already gone to the general fund transfer, we are deeply concerned that our business model is now in jeopardy and equally concerned that the state's turning its back on the racing industry and the commitment made under Act 71.

Again, if adopted, the Governor's budget will inhibit further investment by our farm and many other farms in the state.

The Governor's budget has already been has already shaken the confidence in the state's commitment to racing and the 30 percent drop in the racing fund will simply drive people to other states and erase the progress that has already been made due to the passage of Act 71.

All the employees at Northview, including myself -- I moved here to Pennsylvania because of Act

71 -- are looking to our legislature to protect the racing fund and honor the commitment made in Act 71.

And I understand with the budget, it all comes down to numbers. Yet the number one, a small number, is the most important for you guys to think about today.

One time is all it takes for an entire industry to lose its credibility. With the enactment of the proposed cut from the racing fund, growth has already been stifled. If it passes, it will destroy our reputation, not only the equine industry, but the reputation of our state is at stake.

We must send a message that Pennsylvania believes in industry and job creation. Pennsylvania cannot present the image of encouraging investment and then reneging on a commitment made. This commitment transcends the equine industry. It's a matter of state credibility.

Please protect the progress made since the passage of Act 71. Please send a signal to the

Horsemen in this state and to the Horsemen around this country that Pennsylvania is committed to racing.

We finally returned Smarty Jones to his birth place, and I think it's all about responsibility to keep him here. Thank you.

MR. SIMPSON: My name is Jim Simpson and I'm president and CEO of Hanover Shoe Farms. On behalf of our 90 employees, our 1,000 Pennsylvania-based horses, our 3,000 acres, I urge you to reconsider this cut to the Race Horse Development Fund.

If it occurs, we're not going anywhere.

We've been here 86 years. We will simply get smaller by a third or more, depending on how it affects the horsemen and the buyers of our yearlings, our only product.

We tend to overreact, good and bad, and I'm afraid our customers and our demand for your yearlings will drop in the 30 percent range and we'll simply have to get smaller.

I'll be glad to answer any questions. Thank you.

CHAIRMAN ADOLPH: Thank you, gentlemen.

We'll now proceed with the with the questions, and

I ask the members to -- if they want to direct their questions to a certain individual, just mention their

his name, please.

First question will be by Representative

David Millard.

REP. MILLARD: Thank you, Mr. Chairman.

Gentlemen, thank you for appearing before this committee. And it's going to be my goal to have us out of here by post time. So we'll work toward that end. Listen, I have a clarification to make to you. Todd, you mentioned about the fact that there are six that generate the funds that are in question here as far as transfer, and that comes from

Penn National, Parks, Presque Isle, Meadows,

Harrah's, and Mohegan. And I think I'm correct on that.

MR. MOSTOLLER: You are.

REP. MILLARD: Those funds are directed to the the back areas, the Horsemen's purses, the health benefits and -- and the list goes on as far as how they're broken down.

As we started this discussion, or as you started it today, you mentioned, Sal, and I'm using first names here if you don't mind.

MR. DeBUNDA: Not a problem.

REP. MILLARD: That this isn't taxpayers' money. That this is money that is as a result of an agreement. Act 71 was an agreement between the state and the racetrack operators and the

Horsemen.

And I just want to make a little clarification on that, and that is that it may not directly be taxpayer money, but it is legislatively directed funds, and they are generated here in Pennsylvania.

So although it's not taxpayers' money,

we won't get into the finites of the definition

there, but it it is an agreement. I agree with

you.

So I'm going to admit that I was wrong

when I said taxpayer dollars as well. But it is

legislatively directed funds.

So I think that I've cleared up both

things in previous questions with the Department of

Ag and we'll go from there.

MR. DeBUNDA: I just want to comment. I

appreciate that comment, and I just want to, I guess,

indicate one of the reasons that it was done -- this

agreement was done in the legislature is we weren't

sure how long all the people that were involved in

the discussion were going to be around and we thought

it was a lot better to have it in a piece of

legislation and hope that the operators, who might

change ownership or the Horsemen's leaders, that they

would remember this.

So one of the reasons for the

legislation was actually to put it into something

that was formal and that people could understand.

They could have just as well -- the money could have just as well gone to the operators, and they could have given the Horsemen the money. I mean it could have been done that way. But then you might be having the different -- you know, people forgetting as you went down the road.

And so that's one of the reasons it was done that way. And I appreciated the comment.

REP. MILLARD: And just for the record here, that out of the 34 percent, 12 percent is for the Race Horse Development Fund.

In this current fiscal year, 66 percent of that money goes for purses, 4 percent health insurance and pension, 7 percent to the PA Breeders

Fund, 3 percent to the PA Sire Stake Fund, 3 percent to the PA Standardbred Breeders Development Fund, and, of course, with the extraction of -- of money for the General Fund, that represents 17 percent of your 12 percent of the 34 percent.

MR. DeBUNDA I would agree with that with one exception, if I may. The 12 percent is not an automatic payment. That's a cap that is on the contribution by the operators to the fund. The fund is based on a percentage, 18 percent of the slots, net terminal revenue at each facility. The operators only have to pay up to 12. If you look at the Governor's own spreadsheet that he put out with this, it shows 11 percent being paid right now by the operators and, in fact, if you take -- if you lowered his assumptions, where he has growth, if you made it flat, that 11 would go down more like to ten percent.

So it's really not 12 percent. It's a cap on how much they would have to pay, but it's not the amount that they pay.

REP. MILLARD: Well, thank you for that clarification.

Now, Sal, I want to address your testimony, because I've read all of the submitted testimony that each of you have given to this committee.

And I'm looking at yours, a couple paragraphs here that I'll mention to you. You do some figures and you did mention it in your opening statements, that it was projected that the receipts would be between 4.4 million and 6.2 million and currently it's been averaging four-and-a-half million.

I have figures here from last week that showed 6 million pre-extraction of the funds for the

General Fund. MR. DeBUNDA: Uh-huh.

REP. MILLARD: AND I know that, having studied these figures for quite sometime, that the figures have gone up. There's been some bumps and some decreases but, you know, pretty average here. I think we could say 4.5 million a week is a is a basic average spread out over 52 weeks.

MR. DeBUNDA: It is the average over the last nine weeks that we took. That was the most current numbers that we have.

REP. MILLARD: Right. And I just want to ask this question of you.

Based on 4.5 million a week, are you telling us that, with your business model that you were expecting a high of 6.2, that you're behind? I looked at a lot of the papers that you submitted to us that were in the red.

And you mentioned, Carl, about your expenses -¬

MR. McENTREE: Yes.

REP. MILLARD: and, Jim, you mentioned some of your numbers as well.

So we're conducting a budget hearing here. We're looking at dollars for various programs. Yours happens to be the program before us at the present time.

My question to you is, are you going to tell this committee that you are behind in what your expectation is so that you need every single dime, every single dollar that comes into that fund, and then some?

MR. DeBUNDA: I would respond to that in two ways. I first want to address the 47 million, because the comment has been made, well, we took that and it didn't have any impact.

Again, that was only a four-year situation. We don't know what's going to happen past that.

When we initially were doing slots legislation here, it was our thought that -- you have to remember that Pennsylvania has the same soil and

as Kentucky does. So we could be another

Kentucky. Okay? And that was the feeling from both a breeding point of view and from a racing point of view.

We were not at that level. We were like in the second tier of kind of the racing, but our goal was to get there.

Projections were that we would be probably only behind Kentucky and New York and California once once the bill was we're not.

We're seventh. So we and part of that is because of the money that's been taken.

The problem now is we would become 17th on that list. And, again, as I pointed out to you,

Jim is not leaving. I'm not leaving. I live here.

But there are other people who ship in people, people who have made an investment here. They're going to be looking into this to say, where should I be going with my investment dollars?

As I said earlier, I think we do need the money because if this Commonwealth wants to, one, get the reputation for being a person who lives up to their contracts and I think that's very important for the long term. I know it's a short-term problem. Hopefully.

But I think if you wanted to look at that as the long term, you want to be seen that way.

I also believe that if we -- if we start to have that happen, we will lose all those job creators that we now have.

The growth we're one of the few states that has seen a growth in the number of foals being bred here and that's because Act 71 worked.

Other things that this legislature has done have not worked, by the way. You know, having

OTBs did not really increase the handle. I mean, a lot of other things that happened.

This one worked, and that's one of the reasons I think it's very important to keep it.

REP. MILLARD: Okay. Now, I know that the proposal is to extract money out for veterinary activities, agricultural, College Land Scrip Fund,

Center for Infectious Disease, payment to

Pennsylvania Fairs. We'll talk about that one in a moment.

But the veterinary activities, the amount of money that is projected to to be taken out of here, 26-and-a-half million, my only question to you I'm not going to get into the the merits of taking the money out quite yet, but I -- I will as we go on with this.

But do you benefit, does your organization benefit from the research that the

University of Pennsylvania -- with relationship to veterinary activities?

MR. DeBUNDA: Let me — I'll let Todd answer. I wanted to make two comments. When I send a horse there, they charge me. I don't get a free vet service. Okay? All right. So you should know if I have an injured horse and I that's a great institution. I have sent horses there. I have to not only do they charge me, I have to give them a credit card so they have the money up-front. So

REP. MILLARD: That's information I was looking for.

MR. DeBUNDA: Okay. So we do not get free service for our horses. Number two is they do perform a service in terms of the testing that is done .

REP. MILLARD: Uh-huh.

MR. DeBUNDA: But money there out of our handle, money is already taken out for that and that's paid for already by that fund. They take -- they take basically one percent out of the money that's that's the pari-mutuel throughout the

Commonwealth, and that goes to pay for that testing.

And with that, I'll let Todd add some more to that.

MR. MOSTOLLER: We don't look to discount the importance of New Bolton Center. That

-- that's not the intent.

But I can tell you that the horse population and the strength of the equine industry is a huge benefactor to New Bolton. And if those horses were to leave the Commonwealth, obviously that would have -- have an adverse impact on New Bolton Center.

So the -- the economic benefit works both ways.

REP. MILLARD: Okay. Now, the next item is you, Sal, you mentioned six facilities and you -¬ you broke it down for us. Roughly $40 million that goes to each facility. We've already gone through the distribution of how those funds are broken down.

But I'd like to just mention to you something. I think, you know, where I'm going and have visited with your group in the past.

This current budget with all of these extractions from your line item, we'll call it, comes out to a 25 percent cut for your industry. I'd like to mention to you that overall the Department of Ag programs, adding them altogether the past couple of years, have been cut 34 percent plus.

The fairs, of which I think are germane to your industry, have a direct correlation to your industry, have been cut 75 percent plus. Some years it's been eliminated, and we've had to work as a legislature, as we are now with you, discussing the budget, to do some restoration of those funds. And I did some addition here. Out of the 114 fairs, 15, of which have harness racing, 67

4-H and FFA programs in Pennsylvania, 19 agricultural organizations, and two other entities, based on numbers that I've had for sometime -- I might be off a number or two here -- spread across Pennsylvania that we receive funding out of the fair fund line item.

So the fair fund line item isn't just for Pennsylvania fairs. As you can see from what

I've told you, that it -- it's-- it's a wide spectrum all across the Commonwealth, 200 plus entities, that if they were funded at $5 million, that it would equate to less than $25,000 per entity. And we know that that's not even distribution to each of those entities.

But those fairs, those 4-H, those FFA groups, they directly have involvement with the equine industry. They may not be standardbred or thoroughbred or any of the other breds. However, they have a direct correlation. I think that's part of your future for your organization with promoting it.

If we do the math on it, it comes out to one penny on the dollar that would be asked of your organization based on these numbers of income to support the number one industry in Pennsylvania, that helps you, ag tourism.

So that's my -- my concern, my request to you, and I'm -- I'm going to ask for your comment on it.

But I want to, with the Chairman's permission, make one more comment here before I ask you for yours.

CHAIRMAN ADOLPH: Okay. If we can make it -- make it brief.

REP. MILLARD: I will do that.

CHAIRMAN ADOLPH: Thank you.

REP. MILLARD: I think that the -- the concern here, gentlemen, was the -- the audit of your organizations. Last year in these hearings and prior to that, I requested information as to where these dollars go.

Todd, you mentioned very well that a lot of the money stays here as well as did Sal. Jim gave us examples. Carl.

I think the red flag was given, gentlemen, when we didn't get that information, and that's why we're here today.

I don't have a problem with the money that you're getting for your purposes. I think it's very good. I'm on board with you.

But I want to know that those dollars are benefiting Pennsylvanians, and we want the assurance that those dollars are here in this

Commonwealth. I know we can't built a fence. I know that. But we want to know those dollars are here.

Thank you.

CHAIRMAN ADOLPH: Sal, would you like to

MR. DeBUNDA: Yeah. I'd like to comment on both things. First of all, I don't disagree with you that the fairs are an important part of this

Commonwealth.

I didn't know that until today, but I understand from Ron Battoni from the Pocono that the harness organization, the MSOA and the Pocono, have already given $1.6 million voluntarily to the fairs.

This is not required under the Act, and

I can let him elaborate if you need that. But I understand he does that.

But I think if that's what -- part of what we have to do there -- I can't speak for all the organizations, but I think it's something we could work on with you. But I think already voluntarily 1.6 million is being given to -- to fairs already -¬ already in the Commonwealth.

As far as the audits are concerned, I can speak again for my organization. I do not understand what you mean by the fact we were unresponsive, because I think when we were asked we sent documents. There's now been a statutory audit that's done.

We had some questions about confidentiality and about the scope of that. For -¬ just -- just to give an illustration, we at Parks, besides having the Race Horse Development Fund, we have a separate horse purchasing association which gets no funding at all from the -- from the slots, which we run to keep prices down for our -- our -¬ our trainers and-- and owners. We have a -- we have separate funds, Turning For Home Program, which is a horse rescue fund. We save -- we've probably saved

700 horses in the last three years.

Those -- so we weren't sure whether the audit included those or not. We had questions. We met with the Department of Agriculture. We were concerned about confidentiality, about people's -¬ the names and things like that, things you have under ERISA.

We met those. We supplied all that. So

I understand. I hear your comment, but I'm not really sure how you came to that conclusion.

Todd, you want to? Todd?

REP. MILLARD: Todd.

CHAIRMAN ADOLPH: And then we'll move on to the next question -- member.

MR. MOSTOLLER: If I may comment from a audit standpoint, since the passage of Act 71, each one of our organizations has been required -- it's actually written into Act 71 -- that we must submit an audit to the Pennsylvania Gaming Control Board, as well as the State Horse Racing Commission, no later than 30 days after the end of our fiscal year.

So we have all been audited on an annual basis since the passage of the Act. That was required by the Act.

REP. MILLARD: I'm just looking for the performance portion to verify the verification that it's in Pennsylvania. That's all.

CHAIRMAN ADOLPH: Thank you, representative. And if you have further questions, we'll get to the second round.

Representative Mike O'Brien of Philadelphia.

REP. O'BRIEN: Thank you, Mr. Chairman.

And good evening, gentlemen. In your testimony, it was referred to as public dollars.

Flesh that out for me a little bit. Do you consider that to be tax dollars?

MR. DeBUNDA: No, I think that — I think that the Commonwealth has already taken 34 percent as a -- a share of that compact. Two percent is going to the local municipality, and two percent is going to the county in which the facility is located.

The rest of that -- the rest -- for example, in New Jersey, the tax on slots is nine percent. Okay? So -- and you've heard that argument before where they talked about table games.

I don't believe that the rest of that -¬ the rest of that is public funds. I believe that's funds that were agreed to be shared by the operator and the breeders and the Horsemen in order to promote horse racing. This was called the Race Horse

Development Pact and it was part of what was done to

-- to promote that in the Commonwealth.

REP. O'BRIEN: Let's move -- let's move on to the audit for a moment. It's speculated that the audit will show a lot of money going out of state, to out-of-state owners, to out-of-state recipients of health and pension. I want you to comment on that.

MR. MOSTOLLER: Yes. We have at the request of the Department of Ag submitted our list for the health and pension.

And I can tell you that from a standpoint of individuals who participate in those that were eligible, I have 109 members that were eligible for the health insurance, and of those 19 had out-of-state residences.

That said, those individuals live in -¬ most of them live in the states close to us, either in Maryland or Ohio, and they conduct their business in the Commonwealth of Pennsylvania.

We also have individuals -- I had one individual that had a Hallandale, Florida residence.

He has multiple residences. Unfortunately that's the address where he has his information sent to, but I see him every day on the back side of the racetrack at Penn National Race Course.

So I would estimate that at least that number is 83 percent in our pension and I know the other one -- in speaking to the other associations, 83/17 seems to be a very real number as far as percentage to Pennsylvanians versus those with out-of-state residence.

REP. O'BRIEN: Flesh that out for me a little bit.

MR. DeBUNDA: If I -- if I may say, we did the same thing at Parks and I was shocked, because we're actually on the border of New Jersey.

That we're in about the 83 percent also that -- of our trainers are -- are in -- are in Pennsylvania.

And we did an analysis and over 90 percent of our money goes to Pennsylvania owners.

Now, there's two other comments I want to make. There are different facilities around the state. The -- the legislation permitted certain entities to open up without a back stretch. Harrah's has no back stretch. You have to ship in there. And it's -- they don't have a restriction on who can ship in.

You're going to have a different result than you would at Harrah's, than you have at Parks.

Both Parks and Penn National are open 12 months a year. We don't have a site -- a circuit where we move around. The people who are there live there, live in communities, you know, go to the schools there. They spend money there. They're living

there. A small -- some of them happen to live across

the river.

And the second comment I would make to

you is -- respectfully is that if Chrysler said they

wanted to open up a new auto plant here that was

going to create 25,000 jobs, would you care that

their headquarters was in Detroit if they were

creating 25,000 jobs in the Commonwealth?

As I said, the horse is what generates

the jobs. The horse is what generates the revenue.

And the horses are here. A hundred percent of the

horses are here. And that's what I think is the

important thing to look at.

MR. BALLEZZI: Yeah. If I may amplify

it.

CHAIRMAN ADOLPH: Excuse me, sir. Could

you identify yourself. Thank you.

MR. BALLEZZI: Yes, Mr. Chairman. I'm

Michael Ballezzi. I'm the executive director of

Parks Racing Horsemen's Association. I'm also the

attorney for Parks Racing.

I specifically conducted the survey of

the number of individuals who reside out of state in

Pennsylvania, and it's well over 85 percent of our trainers and owners are in Pennsylvania. A small minority are in New Jersey, some are in New York, and further south.

The real issue is where the horses reside. The horses are in Pennsylvania.

The horse really is like a mini factory. We bring horses to Pennsylvania. You hire employees. You need green space. You need suppliers, vendors. You need all the ancillary elements that create a scenario to have racing.

Those horses stay in Pennsylvania. So when purses are home, an individual owner may live in

New York, but if he pays for a trainer in

Pennsylvania, the money stays in Pennsylvania. It goes to the trainer. The trainer then hires individuals from Pennsylvania, to pay salaries. He then pays for feed. He pays for jockeys. He has vendors who supply him equipment, et cetera.

So my statistics show that well over 92 percent -- 92 percent of the revenue generated from this Commonwealth for purses through Act 71 stays in

Pennsylvania. And that's a significant number. A number that we're proud of and a number which strictly represents an issue that can only be credited to Act 71. And those numbers we put in a report that we have shared with the legislature.

MR. DeBUNDA: I think that Brian

Sanfratello wants to -- he is the president of the

Thoroughbred Breeders Association.

CHAIRMAN ADOLPH: You're going to have to pass the mike back.

MR. DeBUNDA: Yeah.

CHAIRMAN ADOLPH: And the gentleman will identify himself.

MR. SANFRATELLO: Good afternoon. I'm

Brian Sanfratello. I'm the president of the

Thoroughbred Horse Breeders Association.

I just would like to say as an --- as an answer to the point brought up that our number one breeder, George Strawbridge, last year received

$268,000 in breeders awards. Those awards were sent to Delaware because that is where his business is.

His horses are based in Pennsylvania, and he spends that money in Pennsylvania. So just as a -- just as an added point. Thank you.

REP. O'BRIEN: All right. So let's turn the conversation to the horses for a second. From birth to starting gate, what kind of investment is made in a horse?

MR. DeBUNDA: Can I? MR. SIMPSON: Can I just speak to that?

MR. McENTREE: Yeah, me too.

MR. DeBUNDA: Okay. In the sheet that you have is a -- is a thing called For

WhisperDowntheLane, which is one of my horses.

REP. O'BRIEN: I'd really like to move on.

MR. DeBUNDA: Okay. He -- he was -¬ he -- just turned three. I had $42,000 invested in the horse as of that date, including the stallion fees for Real Quiet, who lives in Pennsylvania, was also a Kentucky Derby winner, $7,500. The stallion fee was 7,500. There's all sorts of expenses there, veterinary, training, training at the farm, training at the track, all sorts of expenses.

But I have about $42,000 before that horse ever had its first race. Now, luckily I won my first race, and I got 20-some thousand dollars of that back. Okay? But that's the average for a thoroughbred by the time you -- 40 to $50,000.

Jim, you can talk about the harness racing.

MR. McENTREE: In our industries, it's about $50,000 to get them -- get them to the starting gate, including where they board at the farm, foaling fees, inoculations, veterinary visits, breaking, pretraining, getting them on -- getting them onto the race track.

It's an important point to remember. In

2006, 49 percent of Pennsylvania breds, horses born and raised in this state, earned their money in

Pennsylvania.

As of 2010, just under 80 percent of horses born and raised in this state earned their money in this state. Our horses are staying at home because of Act 71.

REP. O'BRIEN: Two more questions, gentlemen. Of horses bred and trained for racing, what percentage of them bring a positive return on investment?

MR. MOSTOLLER: Very small is the answer.

MR. DeBUNDA: The answer is very small, but I -- I won't go there. I lecture about owning horses. I won't go into that here.

It's very small, because the cost is -¬ you have to be really lucky to make a profit at this.

REP. O'BRIEN: And the recurrent commentary we hear on this proposal is its impact on purses. MR. DeBUNDA: Purses drive the industry. Purses are what decides people where to bring these job creators. I mean right now New York is getting slots. Their purses are going to go up significantly.

So the argument is, do I breed my next horse in Pennsylvania or do I breed it in New York and make it a New York bred?

And that's the kind of decision that -¬ now, I'm probably going to still do it here, but a person who's in -- somewhere is going to say, why should I do it in Pennsylvania? I -- I'm going to do

-- or his stallion, the person who owns his stallion may say, I'm going to make my horse a New York stallion because -- I'll be better off.

MR. MOSTOLLER: Purses are the only way that we earn money. We have no other revenue source as Horsemen that participate in racing and to do that you must run for a purse and you must be successful in running for that purse.

The purses, as Sal said, drive the industry.

REP. O'BRIEN: I appreciate your time, gentlemen.

Thank you very much, Mr. Chairman MR. DeBUNDA: I hear you.

CHAIRMAN ADOLPH: Thank you.

The next question will be by

Representative Gordon Denlinger.

REP. DENLINGER: Thank you,

Mr. Chairman.

Good after -- good evening, gentlemen.

Just -- most of my questions have been asked and

answered and I appreciate that.

Just a quick question. I'm trying to

get a sense of the competitive environment. We've

passed Act 71. It took -- it -- it was a huge leap

forward for your industry. A lot of states have made

adjustments in the interim, I assume.

Can you bring us up to speed?

I think, Sal, you mentioned that we're

seventh roughly in the nation. When you say seventh,

what does that mean and what's -- what's the

landscape like out there?

MR. DeBUNDA: All right. Let me first

give you -- before Act 71, what was happening in the

Commonwealth was that the better owners -- it's just

like -- an illustration, if you have employees and

things are tough on the employees, the ones who can

leave will leave and the ones who can't afford to leave or can't get another job, they won't leave.

So what would happen here, the better owners, the better trainers, the better jockeys were leaving. They were going to Delaware. They were going to West Virginia. They were going to other jurisdictions.

And that was -- so we were seeing an outflow of those job creators. Act 71 did two things. It made them come back. A pretty famous one is John Servis who was -- who was basically -- and was Smarty Jones' trainer, was spending a lot of his time out of state. He now has a home in

Pennsylvania. He's now permanently in Pennsylvania.

But it brought those people back, the jockeys who had left. But it also brought new trainers, new train -- new jockeys, new owners to

Pennsylvania. So it really had a double effect on us .

I'll let Todd talk about the purses if I can.

MR. MOSTOLLER: In your packet, sir, on the bottom right-hand corner, I'm not sure if the copies that you guys received have a number, but you'll see a purse comparison by state for 2010.

Those numbers are from the Jockey Club. As Sal had indicated previously, in

2010, Pennsylvania, we ranked seventh. If 72 million were to be taken -- and this is from the thoroughbred side -- if 72 million were to be taken through the budget process, we would drop to 17th and we would be below Oklahoma and Maryland, our neighbor to the south, and just above New Mexico.

And, again, I reiterate, the only way we earn dollars is through purse earnings and that would obviously have a devastating effect.

REP. DENLINGER: And — and all of those numbers would be in advance of New York's inclusion of slot machines and their proposed increase of purses accordingly?

MR. DeBUNDA: That's correct.

MR. MOSTOLLER: Yeah. I looked for 2011 numbers, but unfortunately the Jockey Club does not have those updated yet so I was forced to use 2010.

REP. DENLINGER: One — one final question if I may, and I know the hour is late.

With Act 71 being now a few years down the road, are there -- are there imbalances in that legislation that you as an industry deal with that would cause all of us to say we need to go back and do corrective legislation, the allocations within it, any of the other aspects of the structure of the

law?

MR. MOSTOLLER: I think the economic

impact on the Commonwealth and the growth of the

industry within the Commonwealth speaks for itself.

You know, there's obviously always going to be some

disagreement on where it should go, why it should go

there; but when we look at the industry as a whole,

it's been a tremendous success.

We have accomplished everything the

legislature had intended. We continue to expand the

foal crop. We continue to increase our number of

races that we offer for PA breds as those horses have

been bred and now they're of racing age.

You got to remember, it takes time to

not only breed a horse but to get that horse to a

racing age and we've just achieved that. I mean that

Act was passed. Slots didn't start running at most

race tracks until 2007 or 2008.

So we're basically four or five years

past that, and now those horses are finally coming to

the race track at racing age, and we're putting in

programs to help support that which all invigorates

the agricultural economy.

MR. DeBUNDA: I would also answer your question with two comments, if I may. One, is Ohio adopted a slots legislation recently. They copied your legislation. Okay?

Number two is that Kentucky writers who say in the press, if you want to see how a breeding program should be done and a slots program should be done, look at Pennsylvania. We can give those quotes. I mean so they actually look at us as a model of how it should be done

REP. DENLINGER: I appreciate that.

It's good -- good to hear.

Jim, did you want to make a comment there?

MR. SIMPSON: Yes, I can speak for the standardbred side of this. It's very similar to the thoroughbred, but by rule or regulation the breeder's award is distributed and in cooperation with the

Harness Racing Commission we have eliminated the

Breeder's Award for outside domiciled mares.

The only way the owner of that mare can get a Breeder's Award now as it phases in is to board that mare 180 days in Pennsylvania. And from a practical standpoint, to board a mare here for six months, you might as well stay year round.

And, anecdotally, we're seeing that. We have no real way to track it exactly, but there's no point in moving in and out. So we're seeing an influx of resident mares in the state.

REP. DENLINGER: Very good. Go ahead.

MR. DeBUNDA: I just want to clarify that. We -- in the thoroughbred side, we have a requirement for 90 days, but there is a difference.

We have a natural cover. They have artificial insemination.

So they could actually just ship the semen out of state, and -- but we have artificial -¬ art -- we have natural covers and, therefore, the -¬ you have to be here for at least a hundred -- 90 days to qualify for a Breeder's Award.

MR. McENTREE: In addition to that, I mean some of the positives that we've seen since the enactment of Act 71 in the breeding industry, the national percentage that Pennsylvania held of the production of foals was 2.7 percent in 2000. In 2010 we're now six percent of the national production.

That's a 125 percent increase.

The national product has dropped 42 percent, and we've increased 65 percent. The -- in

2003, the number of covers per stallion -- basically the number of mares each stallion bred in Pennsylvania was 8.5. The national average was

14.2.

Since the passage of Act 71, in 2010, which is the most current figures I could get from the Jockey Club, we're -- we're at 13.6 and the national average is now 15.

So we're finally getting to the point where we're -- we're in comparison to the rest of the states in this country, and we're being stifled.

MR. BALLEZZI: And the reason for that, the reason for that, is because purses drive our industry. Now, what happened was prior to Act 71 purses were so low that we didn't attract business investment here. We didn't attract owners, trainers. Certainly we didn't attract any breeders.

Act 71, through purses, and that's what the complicated proposal by the Governor's office, will reduce purses substantially, 30 or 40 percent.

By reducing the purse structure in Pennsylvania across the board, you will then have folks leave the state.

If you own a race horse, you don't necessarily have to have your -- your residence in

Pennsylvania. You could live in New Jersey or New

York, but hire a Pennsylvania trainer, buy Pennsylvania breds, race in Pennsylvania, pay all the expenses in Pennsylvania, because the purses are conducive to be in Pennsylvania. Your business -¬ business model.

Reduce the purses and have New York,

Delaware, Maryland increase their purses, which they're doing, I will then leave Pennsylvania and go to New York or Delaware or Maryland, and we will lose all that business because the horse is easily vanned from one state to the other.

To keep the business in Pennsylvania, you must have the purse structure, and our purse structure right now is at a level where we can sustain that business model. Investment can still come to Pennsylvania.

Reduce it as contemplated, and I'm already being called in my office by trainers and owners saying, should I leave Pennsylvania? I'm worried about the budget proposal. If the purse is reduced by 34 -- by 30 or 40 percent, I cannot afford to continue to race in Pennsylvania. I'm looking to

New York. I'm looking to Maryland.

And that creates a chilling effect on the entire industry, and that's where we are right now, in this unknown atmosphere of whether we're going to lose 30 or 40 percent.

REP. DENLINGER: I appreciate the — the passion, gentlemen. I certainly sense that.

And back to my original question which was is Act 71 holding up fairly well. I -- I'm hearing, yes, it is.

MR. DeBUNDA: Correct.

REP. DENLINGER: And that's the end of my question.

Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: Thank you, representative.

Representative of Bucks

County.

REP. PETRI: Thank you, Mr. Chairman.

I'm going to be direct and quick.

I think you've identified, at least for my satisfaction, the purses, how important they are, and the business model, what happens with breeding.

What I don't think you've spoken to, that I think is very important, and I'd like you to educate the Committee about, you know, we're looking at a spreadsheet that shows -- whether it's 135 million, 170 million, 180 million, take a number.

What we haven't -- what I think you need to identify are what are the expenses, fixed and -¬ and variable, that come out of that that are obligated to be paid out of -- out of those purses?

MR. MOSTOLLER: In your packet the -¬ there is a potential broken business model that shows the thoroughbred purses, of what they were to be if we were to lose 72 million, and it also shows the associated expenses with the horse, the training expenses, what we pay, a day rate to a trainer to train our horse. The jockeys obviously get a portion of that. A blacksmith -- horses are required to have a new set of shoes once a month. And the vet expense.

And those are the actual averages and the actual expenses that we have to conduct our business at those three race tracks.

And when you look at the amount of purse money that we'll be able to offer, every single one of those become a nonviable business model under the potential take of 72 million.

MR. BALLEZZI: May I answer that also?

MR. SIMPSON: And if — okay.

MR. BALLEZZI: We've created a -- we've created a new economic paradigm in Pennsylvania.

With increased purses you have all the ancillary vendors also increase their prices, which were long overdue. For example, a blacksmith who shoes a horse went from 80 or $90 to $125. A bail of hay or straw went from $3 to $6.

So the paradigm now is based on the additional purses, we have additional expenses. And, in turn, the trainers now are paying their employees long overdue increases also for their wages for the work they do, the exercise riders, the grooms, the hot walkers, et cetera. Now, based on the business model of Act 71.

Now, pull that rug out from under us, create a 30 or 40 percent reduction in the economic model, you have a devastating effect, because now those prices the veterinarians charge are not going to go down, the blacksmith, the feed vendor. All the individuals who create that scenario are still charging the same amount of money, yet the purse structure which pays for those expenses is cut 30 or

40 percent.

Place yourself in that position. You know what your fixed expenses are at home. Have someone cut your income by 30 or 40 percent and see if you could survive that based on your fixed expenses, a mortgage, utilities, et cetera. And that's exactly what's happening to our industry. We created a new economic paradigm.

We have all those expenses, long overdue, and now you're taking the revenue source to pay for those expenses away from us and that's a disastrous effect for the industry.

MR. DeBUNDA: I just want to add one other thing if I can. This is an illustration. We

-- we -- if you have an employee that takes care of four horses right now, for example, and you pay him a salary, because of this, you're probably going to say to that employee, well, guess what, next week you're taking care of five or six horses. That means one person is let go,

And that's how the ripple effect of this, we now -- to keep the prices down, they're going to basically try to say we're going to have to spread our help out, we're going to have to -- you know, and -- that's what -- the effect is going to be here .

Because the only way -- we will not be able to afford -- I mean I went from $45 a day. I pay $80 a day now for my -- I'm not going to be afford that if I'm taking a 30 -- I'm going to go back to them and say, guess what, you're only charging me $65 or $60 a day or say -- or I'm going

to go to the next person who may be charging me that,

which means he's going to have to cut back what he

pays or -- or the services he provides.

And that's the ripple effect or the

negative ripple effect of this.

REP. PETRI: Thank you.

Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: Thank you.

Next question by Representative Mark

Mustio.

REP. MUSTIO: Thank you.

Thank you, gentlemen. This has been

very enlightening. Actually some of the information

that you provided we as a Caucus were trying to

recreate back when we originally passed the

legislation, particularly speaking of the revenues to

the industry, when you did the range there of 227 to

$330 million.

Now, was that with just the existing

race tracks or did that take into consideration -¬

there -- I think there's one more license, isn't

there, out there?

MR. DeBUNDA: There's a harness license

that has not been given out. REP. MUSTIO: Was that including that license as well?

MR. DeBUNDA: That was -- no. It was including the six that we now have.

REP. MUSTIO: Okay. And do you have some sort of correspondence or documentation from years ago when this was -- that would help us just as we move forward on the debate because this -¬

MR. DeBUNDA: I'd have to go back -- you had a consultant. I think that's where the information came from. You had a consultant that you hired at that time. I forget the name of it.

MR. MOSTOLLER: The Innovation Group would have done -¬

MR. DeBUNDA: The Innovation Group.

MR. MOSTOLLER: -- would have done the original study that Act 71 was based on.

REP. MUSTIO: As part of the legislation I think -- are there a specific number of racing days?

MR. DeBUNDA: I want to add to that.

REP. MUSTIO: Yeah.

Mr. DeBUNDA: I just realized something.

Initial -- the numbers were only to put slots at race tracks. Okay. And you may recall this. The

Governor was looking for a goal of hitting $1 billion for real estate tax relief.

The race tracks weren't going to give him enough, so he decided to have -- that's how the standalones and the -- and the Category 3s came about. He needed to have more casinos without them being race tracks.

So The Innovation Group showed that's where all that -- those projections came from. The fact that they needed to have enough -- the goal was to have $1 billion in tax relief throughout the

Commonwealth.

REP. MUSTIO: Number of race days, was that a requirement in the legislation?

MR. MOSTOLLER: There is -- there is language that does protect live racing. The language is 100 days per license. And at Penn National we race year round. We -- they actually have two races. I think Philadelphia Park or Parks is in the same position.

MR. BALLEZZI: Right.

MR. MOSTOLLER: At Presque Isle, due to the weather concerns, we only race during the summertime and therefore there was a weather provision that was included for that license that was

100 days and we race from May to September. REP. MUSTIO: So was that a good thing for you or a negative?

MR. MOSTOLLER: To protect live racing with the -- with that information?

REP. MUSTIO: Having the 100. In other words, I look at the average here, the chart that you prepared.

I'm assuming in New Jersey their average per race in purse is higher but they don't race -¬ there aren't as many races.

MR. MOSTOLLER: Correct. The industry within the Commonwealth is -- is substantial.

It's -- it is a large industry.

What we've created in Pennsylvania is a situation where most -- a lot of race tracks throughout the country are transient. For New

Jersey, for instance, people go there for the meet and they leave. In Pennsylvania, the unique part about it was, we had people that resided around the race tracks, both Parks and Penn National, and they could remain there year round. They could take advantage of the economic situation year round.

There's good schools.

So it became a nontransient business which was extremely important if you were growing a family and wanted to have a family, obviously you don't want to move every six months to go to your new destination.

REP. MUSTIO: Because of the number of races? Right?

MR. BALLEZZI: Right.

REP. MUSTIO: So that was something that you wanted to see. It's not necessary -- my concern was it was a mandate that you could -¬

MR. MOSTOLLER: No.

REP. MUSTIO: -- change that and increase your average purse.

MR. MOSTOLLER: The language is there for a purpose.

REP. MUSTIO: Okay.

MR. BALLEZZI: It protects live racing.

REP. MUSTIO: All right. Just as, I guess, a point of information, I think our policy committee on the Republican side, I think, had sent out an e-mail today that there was going -- they're trying to set up a tour at the facility, because this certainly is a -- an item that was debated in our caucus, and I don't think that the members -- half of whom weren't here when the legislation was initially passed. So I think a lot of the information that you've shared today, if you could share it that day with the -- with the committee when they come out it will be very beneficial as we move forward with the budget process.

Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: Thank you, representative.

Mr. Simpson, you have a -¬

MR. SIMPSON: Yes, sir. If you are in the mood to do a tour, I think it's imperative that you stop by Hanover Shoe Farms. It's 40 miles from here. It is the largest breeding farm in the world of any breed.

CHAIRMAN ADOLPH: I'm sure we're going to get quite a few invites to visit these facilities between now and June 30th.

MR. MOSTOLLER: It's an open invitation, sir.

MR. DeBUNDA: If anyone wants to buy an interest in a horse, too, I could accommodate you.

CHAIRMAN ADOLPH: Thank you.

Representative .

REP. GRELL: Thank you. And, gentlemen, thanks for the education. I'm wondering what other sources of

revenue go into your purses?

MR. DeBUNDA: We -- we have two sources

of revenue, from the pari-mutuel betting and from

slots.

REP. GRELL: Okay. And so before this

Act, all of your purse money was coming from

wagering?

MR. DeBUNDA: That's correct

REP. GRELL: Okay. What is the -- what

has been the trend in attendance and wagering?

I mean has this -- I mean I know it's

been beneficial to the breeders and the Horsemen and

all that, but has the common citizen embraced this

and are your attendance numbers up, are your wagering

numbers up, and how might that affect the -- the

success of this Act?

MR. DeBUNDA: Todd is going to talk

about the numbers, and I'll have a little thing to

add at the end of that. Todd?

MR. MOSTOLLER: Pari-mutuel wagering

across the country is down. It continues to

decline.

Pennsylvania, it's been a much slower

decline and, in fact, since Act 71, when the quality of our product increased, the export product, in other words, the product that we send throughout the country and the dollars that are wagered on that product, have actually increased.

So it speaks volumes to the increase in the quality of the product that we are sending across the country. But, unfortunately, due to the hard economic times and the recession, overall it has been a decline but export is up, which speaks volumes to our product.

REP. GRELL: Okay.

MR. DeBUNDA: If I can just speak, just add a comment I was going to make.

Part of the problem we have with handle is that the -- there now is what they call offshore, or other alternatives, to place your bet and they don't have to right now pay a tax to the

Commonwealth. They don't pay that tax that you pay on a regular bet. If I bet $2, the state gets a percentage. A person bets 200,000 somewhere else, they don't pay any tax on that.

The people who are collecting that money, since they don't have to pay the tax, are able to give rebates to the vendors and say, if you bet with us, we're going to give you back at the end of the year five percent of the money you bet with us as a rebate.

The person who bets at Parks or Penn

National doesn't get that rebate. I'm sure that also -- this is a matter of information, that the former attorney general, now Governor, was approached about dealing with that and chose to not get involved. Okay?

So that could very much help us in terms of making that not permitted or providing for a tax on that, would generate money for this Commonwealth.

But the -- we have seen our handle go down at Parks from $130,000 a day to -- to about $70,000 a day.

So the first 65,000 of that is what slot's making up. It's only the amount above that that is there.

So that's partially -- but there's two reasons for that. One was the one I mentioned. The other thing is that a lot of these race tracks had to go through permutations. They closed down to make it a casino and refurbish. That audience is starting to come back.

But, for example, Penn National was closed for a year. We basically were operating with a very small footprint for -- and that's starting to come back. So I think that there is a difference that's -- that's going on here.

REP. GRELL: If -- if you could follow up maybe -- and if it's in here, I apologize. I didn't get through all of this yet.

But if you could follow up with some information on that, because I mean in -- in my view it's -- it's great that the breeders and others are benefiting from this; but if the citizens of

Pennsylvania aren't embracing your product and aren't coming to your tracks and aren't wagering, then that casts a little bit different light on -- on the value -¬

MR. DeBUNDA: I can sit at Parks and make a bet on my phone that's not in Pennsylvania. I could do that right now. I could be sitting at the track watching the race and not betting there if I wanted to.

REP. GRELL: Okay. Well -¬

MR. DeBUNDA: By picking up my phone.

REP. GRELL: And it's part of the continuing education of -- of legislators on this.

But if you could give us that information, I think it's important to know, you know, how the citizens have embraced the industry as a result of the increased purses and the enhancement of the product you're putting out there.

MR. BALLEZZI: One thing if I just may add to that. We have our biggest day -¬

REP. GRELL: Microphone.

MR. BALLEZZI: Oh, I'm sorry. We had our biggest year in terms of participation at the race track because we now have a grade one stake race, the Cotillion, which is now recognized as one of the premier races in the country. We also have the grade two Pennsylvania Derby which is a million dollar race.

Because of those races, we've seen attendance on our big days -- we have five significant weekends -- increase neither -- nearly 60 percent, and it's all as a result of our ability through purses, to pay increased purses, that we're now attracting the national caliber horses.

And when the folks, our Pennsylvania citizens see national caliber horses in racing, they flock to the race track.

REP. GRELL: Okay.

MR. BALLEZZI: So that's a significant increase.

REP. GRELL: Well, I think that is -- that's what I'm looking for and that -- if you can

provide us, I think that would be very helpful to

your cause to -- to show that this is benefiting not

just a group of businessmen -- businessmen and women

but also the -- the average citizen of Pennsylvania.

Thank you.

Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: Thank you,

representative.

I understand Representative Paul Costa

has a question.

REP. PAUL COSTA: Thank you,

Mr. Chairman.

And real quick. I apologize. I know

it's been a long day.

But when the Secretary of Agriculture

was here last week or the week before, he talked

about if people from Penn State and the University of

Pennsylvania veterinarian alumni -- if they knew that

money was coming from the horse industry, that they

would invest more, and if we passed out flyers at

state fairs saying that this money is being supported

by the Horsemen's Association, do you think that that

money is coming back full circle or do you think he's

out of his mind? MR. DeBUNDA: We do not under -¬

CHAIRMAN ADOLPH: Strike -- strike -¬ strike that last comment, please.

REP. PAUL COSTA: I apologize. I shouldn't have said that, Mr. Chairman.

MR. MOSTOLLER: We do not understand his concept, nor would we agree, that to hand a pamphlet to somebody that has graduated from a university and to say that they're going to go to the races, that -¬ that escapes us as far as how that will happen.

REP. COSTA: Thank you very much.

CHAIRMAN ADOLPH: Thank you.

REP. COSTA: And, Mr. Chairman, I apologize. I should have never said that last thing.

CHAIRMAN ADOLPH: We would -- we agree.

Gentlemen, I want to thank you for coming before the Appropriations Committee. I think scheduling this hearing provided an awful lot of information to the Appropriations Committee, and we're looking forward to hearing from you over the next several months as we put together this budget.

Thank you. We think a great deal of your industry. Thank you.

MR. DeBUNDA: Thank you very much.

CHAIRMAN ADOLPH: Thank you. MR. McENTREE: Thank you.

(The proceedings were adjourned at

6:13 p.m.) I hereby certify that the proceedings and evidence are contained fully and accurately in the notes taken by me on the within proceedings and that this is a correct transcript of the same.

Brenda S. Hamilton, RPR Reporter - Notary Public