BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                              Senator Isadore Hall, III
                                        Chair
                                2015 - 2016  Regular 

          Bill No:           AB 2011          Hearing Date:    6/14/2016
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          |Author:    |Cooper                                               |
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          |Version:   |2/16/2016    Introduced                              |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Arthur Terzakis                                      |
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          SUBJECT: Horse racing:  thoroughbred racing:  northern zone:   
          auxiliary offsite stabling, training, and vanning


            DIGEST:    This bill makes modifications to existing provisions  
          in Horse Racing Law pertaining to the Stabling and Vanning Fund  
          (S&V Fund) to help horsemen and horsewomen in the northern zone  
          defray the costs of having to transport and stable their race  
          horses at auxiliary training facilities.  Specifically, this  
          bill increases the amount that is required to be deducted by a  
          racing association or racing fair in the northern zone for the  
          S&V Fund from an amount not to exceed 1.25% of handle on wagers  
          made on thoroughbred races at satellite wagering facilities to  
          an amount not to exceed 2% of the handle.  This bill also makes  
          changes to provisions governing the organization formed to  
          administer the S&V Fund.  
           
          ANALYSIS:
          
          Existing law:
          
          1)Stipulates, pursuant to Article IV, Section 19(b) of the  
            Constitution of the State of California, the Legislature may  
            provide for the regulation of horse races and horse race  
            meetings and wagering on the results.

          2)Provides that the California Horse Racing Board (CHRB) shall  
            regulate the various forms of horse racing authorized in this  
            state.







          AB 2011 (Cooper)                                   Page 2 of ?
          
          

          3)Divides the state into three geographical zones for purposes  
            of regulating horse racing - northern zone, central zone and  
            southern zone. 

          4)Provides that, when satellite wagering is conducted on  
            thoroughbred races at associations or fairs in the northern,  
            central, or southern zone, an amount equal to 1.25% of the  
            total amount handled by all of those satellite wagering  
            facilities must be deducted from the take-out for the benefit  
            of the S&V Fund.  Proceeds therein are distributed to the  
            organization representing the racing associations and horsemen  
            and horsewomen for the purpose of providing reimbursement for  
            off-site stabling and vanning at CHRB-approved auxiliary  
            training facilities of licensed racing associations.  This is  
            to compensate for the additional stalls beyond the number of  
            usable stalls the association is required to provide under  
            existing law.

          This bill:

          1)Increases the amount that is required to be deducted by a  
            racing association or racing fair in the northern zone for the  
            S&V Fund from an amount not to exceed 1.25% of the total  
            amount handled by satellite wagering facilities to an amount  
            not to exceed 2% of the handle.

          2)Provides that this amount, if adjusted by the CHRB, may be a  
            different percentage of the handle for different associations  
            and fairs but only if all the associations and fairs agree to  
            the differing percentages.

          3)Revises and recasts the provisions governing the organization  
            formed and operated to administer the S&V Fund to include,  
            among other things, a 50-50% allocation of voting interests on  
            the organization's governing board and the use of funds to pay  
            the organization's expenses and compensate the provider of a  
            CHRB approved auxiliary facility for offsite stabling and  
            training of thoroughbred horses in the northern zone.

          4)Requires that the governing organization submit its proposed  
            financial and operational plans for the upcoming calendar year  
            to the CHRB for review no later than November 1st of the  
            preceding year.









          AB 2011 (Cooper)                                   Page 3 of ?
          
          
          5)Requires that the funds be used to cover all or part of the  
            cost of vanning thoroughbred horses in the northern zone from  
            a CHRB approved auxiliary offsite stabling and training  
            facility and authorizes the organization to enter into  
            multiyear contracts for auxiliary facilities in the northern  
            zone.

          6)Authorizes the governing organization to use the funds to pay  
            back commissions, purses, and owners' premiums to the extent  
            the deductions made exceed in any year the amount of the funds  
            necessary to achieve the objectives of the organization.
           

          7)Authorizes a thoroughbred racing association or fair in the  
            northern zone to opt out of the auxiliary offsite stabling and  
            training facility and vanning program, as specified.

          8)Provides that the CHRB shall reserve the right to adjudicate  
            any disputes that arise regarding costs, or other matters,  
            relating to the furnishing of offsite stabling, training, or  
            vanning.

          9)Provides that at the request of the CHRB, the organization  
            shall submit a report detailing all of its receipts and  
            expenditures over the prior two fiscal years and, upon the  
            request of any party within the organization, that those  
            receipts and expenditures be audited by the CHRB.

          Background

          Horse racing law provides for the S&V Fund to help horsemen and  
          horsewomen defray the costs of having to transport and stable  
          their race horses at auxiliary training facilities.  The S&V  
          Fund is divided into northern and southern California accounts,  
          both of which are administered by similar organizations and  
          governing boards.  These statutes date back to the late 1980s  
          and early 1990s when wagering at satellite facilities located on  
          fairgrounds and race tracks was the only form of off-track  
          parimutuel wagering available.  The S&V Fund was financed  
          exclusively from revenue generated at satellite wagering  
          facilities in this state.  With the advent of advance deposit  
          wagering (ADW), the parimutuel handle began to migrate from  
          satellite wagering facilities to online ADW sources.  The  
          subsequent decline in handle at satellite facilities has  
          resulted in a significant depletion of revenue to the S&V Fund.








          AB 2011 (Cooper)                                   Page 4 of ?
          
          

          In 2013, Hollywood Park race track announced the discontinuance  
          of racing which created a severe stabling and training problem  
          for the horse racing industry.  The CHRB and the racing industry  
          were able to negotiate an agreement for Hollywood Park to remain  
          open for stabling and training through the first quarter of  
          2014, but had to find other stabling and training facilities to  
          replace Hollywood Park immediately thereafter.  

          Industry stakeholders and the CHRB came together to reach  
          agreements and the necessary commitments were made to preserve  
          thoroughbred racing in southern California.  Specifically, Los  
          Alamitos race track built 500 new stalls to accommodate  
          thoroughbred training on a year-round basis; the San Luis Rey  
          Training Center, located in Bonsall (San Diego County) was  
          upgraded with an improved track and renovated barns to play a  
          major stabling role; Fairplex Park, located in Pomona, agreed to  
          provide stabling and training for a limited time; and, Santa  
          Anita race track and Del Mar race track continued to operate  
          race meets and stabling programs.  

          More recently, due to the decision by Fairplex to discontinue  
          training and racing, the CHRB granted Galway Downs training  
          center in Temecula a conditional license to begin providing  
          stalls and training.  The CHRB and the industry are hopeful that  
          a new training center will eventually be built somewhere in  
          southern California to accommodate the horse racing industry  
          which plays a vital role in the state's economy. 

          In northern California, the two licensed auxiliary offsite  
          stabling facilities, Alameda County Fair and Golden Gate Fields,  
          have been operating with deficient balances.  In 2014, the  
          Alameda County Fair lost approximately $300,000 in off-track  
          stabling operations.

          Purpose of AB 2011.  According to the author's office, this bill  
          is intended to address vanning and stabling issues for the  
          racing industry in northern California.  The author's office  
          emphasizes that northern California's S&V Fund will continue to  
          operate in the red if it is not restructured.  

          The author's office notes that current statutory language limits  
          available funding and decision-making flexibility.  This bill  
          gives the CHRB and the organization governing the S&V Fund more  
          flexibility in governance and decision-making. Furthermore, it  








          AB 2011 (Cooper)                                   Page 5 of ?
          
          
          provides for additional money from purses and commissions to  
          help stabilize the S&V Fund.  The author's office claims that  
          without these changes the S&V Fund will continue to operate in  
          the red and the two licensed auxiliary offsite stabling  
          facilities in northern California will continue to lose money. 

          Prior/Related Legislation
          
          SB 1240 (Hall, 2016) makes extensive modifications to existing  
          provisions in Horse Racing Law pertaining to the S&V Fund to  
          help horsemen and horsewomen in the northern, central, and  
          southern zones defray the costs of having to transport and  
          stable their race horses at auxiliary training facilities.   
          Specifically, this bill increases the amount that is required to  
          be deducted by a racing association or racing fair in the  
          northern, central, and southern zones from an amount not to  
          exceed 1.25% of handle on wagers made on thoroughbred races at  
          satellite wagering facilities to an amount not to exceed 2% of  
          the handle and also makes changes to provisions governing the  
          organization formed to administer the S&V Fund.  (Pending in  
          Assembly policy committee)  
           
          AB 650 (Perea, 2015) would have increased the portion of the  
          take-out used to fund the S&V Fund from 1.25% of handle on  
          wagers made on thoroughbred races at northern California  
          satellite facilities to 2% of handle.  Also, would have  
          restructured the organization that governs the S&V Fund.   
          (Gutted and amended in the Senate on April 14, 2016 to become a  
          bill relating to regulation of taxicabs.)

          SB 766 (Negrete McLeod, Chapter 616, Statutes of 2009), among  
          other things, authorized the CHRB to shift money around from  
          various funds dedicated for specific purposes within horse  
          racing that are in surplus, such as the promotions fund and  
          workers' compensation fund, to others that are in deficit, such  
          as the S&V Fund.

          SB 1805 (Florez, Chapter 883, Statutes of 2006) provided that  
          any funds that are not used to defray the cost of workers'  
          compensation insurance from the supplemental "take-out" may be  
          used for reimbursing racing organizations for safety  
          improvements to racing and training surfaces. 

          AB 2931 (J. Horton, Chapter 922, Statutes of 2002), among other  
          things, authorized the racing associations to use existing  








          AB 2011 (Cooper)                                   Page 6 of ?
          
          
          industry funds (stabling and vanning and promotion funds) to  
          develop a program to off-set workers' compensation rates for  
          horse trainers in the state.

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          Yes


            SUPPORT:  

          California Authority of Racing Fairs

          OPPOSITION:

          None received

          ARGUMENTS IN SUPPORT:    Writing in support, the California  
          Authority of Racing Fairs states, "AB 2011 will give affected  
          parties more flexibility in governance and decision-making and  
          allow money from purses and commissions to stabilize the S&V  
          Fund.  Without these changes, the fund will continue to operate  
          in the red.  As a consequence, the two licensed auxiliary  
          offsite stabling facilities in Northern California, Alameda  
          County Fair and Golden Gate Fields, will continue to lose  
          money."