BILL ANALYSIS
Bill No: AB
2258
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Dean Florez, Chair
2007-2008 Regular Session
Staff Analysis
AB 2258 Author: Evans
As Amended: April 3, 2008
Hearing Date: June 10, 2008
Consultant: Chris Lindstrom
SUBJECT
Horse racing: license fees: shortfalls: pro rata
assessment.
DESCRIPTION
AB 2258 clarifies language in current horse racing law
relating to the amount of licensee fees that must be paid
to the state by racing associations and fairs in any
calendar year. Specifically, AB 2258 provides that if the
total amount paid to the state as license fees by racing
associations and fairs is less than $40,000,000 in any
calendar year, all associations and fairs that conducted
live racing during the year of the shortfall shall remit to
the state, on a pro rata basis according to the amount paid
as license fees by each association or fair, the amount
necessary to bring the total amount paid to the state as
license fees to $40,000,000.
EXISTING LAW
Existing law authorizes the California Horse Racing Board
(CHRB) to regulate the various forms of horse racing
authorized in this state.
Existing law provides if the total amount paid to the state
by racing associations and fairs is less than forty million
dollars ($40,000,000) in any calendar year, beginning
January 1, 2001, and thereafter, all associations and fairs
AB 2258 (Evans) continued
Page 2
that conducted live racing during the year of the shortfall
shall remit to the state, on a pro rata basis according to
the amount handled in-state by each association or fair,
the amount necessary to bring the total amount paid to the
state to forty million dollars ($40,000,000). The amounts
due, if any, shall be paid from the amount available for
commissions, purses, and breeder awards, and shall be paid
to CHRB prior to March 1 of the year following the year of
the shortfall.
Existing law provides that all revenues distributed to the
state as license fees from satellite wagering facilities
are deposited in the Satellite Wagering Account (SWA)
within the Fairs and Exposition Fund (F&E) and are
continuously appropriated and prioritized as follows:
1) Paying bond obligations at $2.6 million;
2) Paying for specified infrastructure projects;
3) Parimutuel projects for establishing,
maintaining and operating satellite wagering and
live racing facilities;
4) Operations of a consolidated California signal
at satellite wagering facilities;
5) Spending for health and safety improvements;
and,
6) Projects that result in a cost savings by more
efficient utilization of existing fair resources.
Existing law provides that the amount of funds to be spent
on item numbers 3-6, above, be decided by the Joint
Committee on Fairs Allocation and Classification.
Existing law provides that from the total revenue received
by CHRB, including revenues transferred from the SWA, the
sum of two hundred sixty-five thousand dollars ($265,000)
plus an amount equal to 63/100 of 1 percent of the gross
amount of money handled in the annual parimutuel pool
generated within this state, or the maximum amount received
by the state from the parimutuel pool of a racing meeting
held in this state, whichever is less, shall be paid into
the State Treasury to the credit of the F&E Fund.
Existing law provides if the revenues paid into F&E Fund is
in excess of thirteen million dollars ($13,000,000) in any
fiscal year, one-half of the amount in excess of the
thirteen million dollars ($13,000,000) shall be transferred
AB 2258 (Evans) continued
Page 3
to the state's General Fund.
Existing law provides the Legislature shall annually
appropriate and CHRB shall deposit to the credit of the F&E
Fund, such sums as it deems necessary for the following
purposes:
1) For the support of CHRB, including any costs
and expenses incurred by the Attorney General, as
defined;
2) To the Department of Food and Agriculture (Food
& Ag) for the oversight of the network of California
fairs receiving money from the fund;
3) To Food & Ag for the contributions, or the cost
of benefits in lieu of contributions, payable to the
Unemployment Fund by the network of California
fairs, as specified; and,
4) To Food & Ag for the auditing of all district
agricultural association fairs, county fairs, and
citrus fruit fairs.
BACKGROUND
Purpose of the bill. According to the author's office,
there is confusion within California's Horse Racing
Industry regarding what payments to the state shall be used
to meet the requirements of current law for the financial
support of California's Network of Fairs. Some parties
within the racing industry believe that current statute
stipulates that all monies collected by the state shall be
used in the calculation while the sponsor of the bill, the
California Authority of Racing Fairs (CARF), believes that
only license fees paid to the state are to be used in the
calculation. AB 2258 clarifies the issue.
In addition, the author's office and sponsor contend that
AB 2258 represents continued discussions from last session
involving the reauthorization of Advance Deposit Wagering
(ADW) which is the system whereby racing associations and
fairs may accept wagers on horse races via the telephone or
Internet. AB 765 (Evans), Chapter 613, Statutes of 2007,
extended and included a variety of changes to the ADW law
positively impacting the industry as a whole. Currently,
there are no license fees assessed on ADW wagers and ADW is
the one segment of the industry that is growing. With the
enactment of AB 2258, it is likely that there will be no
AB 2258 (Evans) continued
Page 4
efforts to try to add license fee provisions to the ADW
authorization.
Background. In 1998, SB 27 (Maddy) was enacted which
granted substantial license fee relief ($40 million,
annually) to the California horse racing industry. This
license fee relief essentially cut horse racing license
fees in half and enabled the struggling industry to retain
an additional $40 million of its own money. As part of
that license fee relief package, the racing industry agreed
that it would provide a guaranteed minimum of $40 million,
annually, to the F&E Fund for the support of the California
Fair Network. SB 27 also provided that if the annual
license fees fall below $40 million, then all associations
and fairs that conducted live racing meetings during that
year, shall pay the state, on a pro rata basis according to
the amount handled, a sum necessary to bring fees up to $40
million.
Ambiguity arises in the language enacted by SB 27 which
bases the $40 million threshold - and any shortfall - on
the, "[T]otal amount paid to the state by racing
associations and fairs". Total payments to the state
include things other than license fees such as breakage
(the odd cents by which the amount payable on each dollar
wagered exceeds a multiple of ten cents), unclaimed
tickets, costs associated with the Kenneth L. Maddy Equine
Research Laboratory at UC Davis, and license application
fees. AB 2258 intends to clarify that language by
specifying that the $40 million guarantee is based on the
total amount paid to the state as license fees.
State horse racing revenue. State revenue from horse
racing comes primarily from license fees imposed on the
amount wagered by the public. The license fee revenue
schedule is based on such factors as the amount wagered,
track location, type of horse racing, type of wager, and
whether the wager is made ontrack or at a simulcast
facility. The state's share of horse-racing revenue is
either deposited in the state General Fund or a special
fund (e.g., F&E Fund or SWA).
Horse racing no longer generates enough license fees to
fund the fairs. For the second year in a row, license fee
revenue has fallen below the legally mandated $40 million
floor for supporting the fairs and the industry is required
AB 2258 (Evans) continued
Page 5
to make up the difference.
On January 26, 2007, the CHRB sent letters to each racing
association and fair regarding the shortfall for calendar
years 2005 and 2006. The CHRB stated, "that pursuant to
Section 19616.51 of the Business and Professions Code, cash
receipts for calendar years 2005 and 2006 to the Sate of
California fell short of the $40 million by a combined
total of $1,528,187. Each racing association and fair was
requested to submit to the CHRB their pro rata share of the
shortfall.
As of March 1, 2007, the CHRB received six remittances
totaling $101,367. Some associations questioned CHRB about
the dollar amounts reported. They cited CHRB's Annual
Reports show amounts above the $40 million baseline. Those
reports include receipts other than amounts deposited to
the F&E, Satellite Wagering Account, and Equine Research
Funds.
SB 1825 (Kelley) of 2000. In 2000, the California
Authority of Racing Fairs (CARF) sponsored SB 1825 (Kelley)
Chapter 342, Statutes of 2000. The sponsor stated, "that a
key part of the continuing success and public benefit of
the California fairs is the relationship it shares with the
state's horse racing industry. The California Horse Racing
Act of 1933 promised that the state's revenue from license
fees paid by racing associations would be pledged to create
a self-supporting network of agricultural fairs. This bill
places into law the necessary guarantee to ensure the
economic future of these fairs." The author's office
reported, "that as part of the negotiations regarding SB 27
(Maddy), Chapter 335, Statutes of 1998, the fairs consented
to the removal of language from SB 27 that would have
guaranteed a specified minimum annual funding level for the
Network of California Fairs, CHRB, and the U.C. Davis
Center for Equine Health."
PRIOR/RELATED LEGISLATION
SB 1825 (Kelley) Chapter 342, Statutes of 2000 . Provides
for a minimum of $40 million per year in license fees paid
to the state by racing associations and fairs for support
of the Network of California Fairs, CHRB, and the Kenneth
L. Maddy Equine Research Facility at U.C. Davis.
AB 2258 (Evans) continued
Page 6
SB 27 (Maddy), Chapter 335, Statutes of 1998 . Provided
extensive license fee relief ($40 million annually) to the
horse racing industry in California.
SUPPORT: (As of June 6, 2008)
California Authority of Racing Fairs (Sponsor)
Golden Gate Fields
Santa Anita Park
Western Fairs Association
OPPOSE: (As of June 6, 2008)
None on file.
FISCAL COMMITTEE: Senate Appropriations Committee
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