BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    SB 1240


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          SENATE THIRD READING


          SB  
          1240 (Hall)


          As Amended  April 5, 2016


          2/3 vote.  Urgency


          SENATE VOTE:  36-0


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Governmental    |20-0 |Gray, Bigelow, Alejo, |                    |
          |Organization    |     |Bonta, Campos,        |                    |
          |                |     |Cooley, Cooper, Daly, |                    |
          |                |     |Cristina Garcia,      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Eduardo Garcia,       |                    |
          |                |     |Gipson,               |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Roger Hernández,      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Jones-Sawyer, Levine, |                    |
          |                |     |Linder, Maienschein,  |                    |
          |                |     |Salas, Steinorth,     |                    |
          |                |     |Waldron, Wilk         |                    |








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          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |20-0 |Gonzalez, Bigelow,    |                    |
          |                |     |Bloom, Bonilla,       |                    |
          |                |     |Bonta, Calderon,      |                    |
          |                |     |Chang, Daly, Eggman,  |                    |
          |                |     |Gallagher, Eduardo    |                    |
          |                |     |Garcia, Holden,       |                    |
          |                |     |Jones, Obernolte,     |                    |
          |                |     |Quirk, Santiago,      |                    |
          |                |     |Wagner, Weber, Wood,  |                    |
          |                |     |Chau                  |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
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          SUMMARY:  Makes detailed and extensive 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, central, and southern zones defray the costs of having  
          to transport and stable their race horses at auxiliary training  
          facilities in California.  Specifically, this bill:  


          1)Increases the amount that is required to be deducted by a  
            racing association or racing fair in the northern, central,  
            and southern zones from 1.25% to 2% and provides that this  
            amount in the northern zone, if adjusted by the California  
            Horse Racing Board (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.


          2)Establishes an auxiliary offsite stabling and training  
            facility and vanning program for thoroughbred races in the  
            northern, central, and southern zones.









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          3)Revises and recasts provisions governing the organization  
            formed and operated to administer the S&V Fund to include,  
            among other things, a 50-50% allocation of specified voting  
            interests on the board of the organization, the use of funds  
            to compensate the provider of a CHRB approved auxiliary  
            facility for offsite stabling and training of thoroughbred  
            horses in the northern, central, and southern zones, and the  
            requirement that the organization submit its proposed  
            financial and operational plans for the upcoming calendar year  
            to the CHRB for review no later than November 1 of the  
            preceding year. 


          4)Requires that the 2% of funds of the total amount handled, as  
            specified, be used to pay the organization's expenses in the  
            northern zone.


          5)Requires, in the northern, central, and southern zones and at  
            the request of the CHRB, the organization to submit a report  
            detailing all of its receipts and expenditures over the prior  
            two fiscal years and, upon request of any party within the  
            organization, that those receipts and expenditures be audited  
            by an independent third party selected by the CHRB at the  
            organization's expense.


          6)Provides that the funds be used to cover all or part of the  
            cost of vanning thoroughbred horses in the northern, central,  
            or southern zone from a CHRB approved auxiliary offsite  
            stabling and training facility.  Also, authorizes the  
            organization to enter into multiyear contracts for auxiliary  
            facilities in the northern, central, or southern zone, subject  
            to specified conditions. 


          7)Authorizes the organization to use the funds to pay back  
            commissions, purses, and owners' premiums to the extent that  








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            the deductions made exceed in any year the amount of the funds  
            necessary to achieve the objectives of the organization.


          8)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. 


          9)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.


          10)Contains an urgency clause to take effect immediately.


          EXISTING LAW:   


          1)Provides, under existing law, California Constitution Article  
            IV, Section 19(b), which the Legislature may provide for the  
            regulation of horse races and horse race meetings and wagering  
            on the results.


          2)Authorizes the CHRB to regulate the various forms of horse  
            racing authorized in this state.


          3)Defines "pari-mutuel wagering" as a form of wagering in which  
            bettors purchase tickets of various denominations on the  
            outcome of one or more horse races.


          4)Requires, when satellite wagering is conducted on thoroughbred  
            races at associations or fairs in the northern zone, that an  
            amount not to exceed 1.25% of the total amount handled by all  








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            of those satellite wagering facilities be deducted from the  
            funds otherwise allocated for distribution as commissions,  
            purses, and owners' premiums.


          5)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.  This deduction is to compensate for the  
            additional stalls beyond the number of usable stalls the  
            association is required to provide under existing law and for  
            the vanning of starters from these additional stalls on racing  
            days for thoroughbred horses.


          6)Provides an organization formed and operated by thoroughbred  
            racing associations, fairs conducting thoroughbred racing, and  
            the organization representing thoroughbred horsemen and  
            horsewomen, to administer the fund to provide reimbursement  
            for offsite stabling at sanctioned auxiliary training  
            facilities and for the vanning of starters from these  
            additional stalls on racing days for thoroughbred horses.


          7)Divides the state into three geographical zones for regulating  
            horse racing (northern zone, central zone and southern zone)  
            and with respect to racing meetings conducted in the northern  
            zone, requires the association or fair conducting the meeting  
            to provide all stabling required by the CHRB without cost to  
            participating horsemen.


          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee analysis, negligible fiscal impact.


          COMMENTS:  








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          Horse racing law provides for the Stabling and Vanning Fund (S&V  
          Fund) to help horsemen and horsewomen defray the costs of having  
          to transport and stable their races horses at auxiliary training  
          facilities.  These statutes date back to the late 1980s and  
          early 1990s when wagering at satellite facilities located on  
          fairgrounds and racetracks was the only form of off-track  
          pari-mutuel 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 pari-mutuel 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.


          In 2013, Hollywood Park racetrack 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.  










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          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.


          In addition, for more than a decade, horse racing has been a  
          declining industry in California.  Some argue that the decline  
          stems from increased competition from expanded gaming in  
          California to the inability of the industry to attract new fans.  
           Further exasperating the problem is the downturn in the  
          economy, which has significantly affected the amount, wagered  
          (the handle).  


           Purpose of the bill:  According to the author, this bill is  
          intended to address vanning and stabling issues for the racing  
          industry in California.  The author states 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 provides for additional money  
          from purses and commissions to help stabilize the S&V Fund.


          The author's office claims that without the 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.








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          Related Legislation:  AB 2011 (Cooper) of the current  
          legislative session.  Among other things, 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% to 2% of the total amount handled by  
          satellite wagering facilities, as defined.  (Pending on Senate  
          Floor)


          Prior legislation:  AB 650 (Low) of 2015.  Originally 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,  
          restructures the organization that governs the S&V Fund.   
          (Amended and changed subject matter).


          SB 766 (Negrete McLeod), Chapter 616, Statutes of 2009.   
          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.  Provides that  
          any funds that are not used to defray the cost of workers'  
          compensation insurance from the supplemental "takeout" may be  
          used for reimbursing racing organizations for safety  
          improvements to racing and training surfaces. 


          AB 701 (Horton), Chapter 40, Statutes of 2004.  Provided a  
          framework for the deduction from pari-mutuel pools in order to  
          address increased costs in workers compensation insurance in the  
          horse racing industry.  Required Thoroughbred racing  
          associations to deduct an additional one-half percent of the  
          total amount handled in exotic pari-mutuel pools to be used to  








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          defray workers' compensation costs in the horse racing industry.  
           


          AB 2931 (Horton), Chapter 922, Statutes of 2002.  Authorized  
          racing associations to use existing industry funds (stabling and  
          vanning and promotion funds) for use in developing a program to  
          offset workers' compensation rates for horse trainers in the  
          state.




          Analysis Prepared by:                                             
                          Eric Johnson / G.O. / (916) 319-2531  FN:  
          0003954