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Pennsylvania prioritizes horse racing subsidies over needy schools

By   /   February 20, 2017  /   News  /   No Comments

AP Photo: Alex Brandon

THEY’RE OFF: The Pennsylvania Derby benefits from $250 million in state subsidies every year paid to the horse racing industry.

Erie School District officials say they need $30 million from the state to fund basic school programs and close a budget gap, or the city’s schools could face “devastating” cuts.

Gov. Tom Wolf’s budget would allocate $1.5 million toward meeting Erie’s request.

But Wolf’s budget also includes $250 million in subsidies for the state’s horse racing industry, and millions more in corporate welfare for private-sector businesses.

And Erie lawmakers who spoke with Watchdog.org say that while they will continue to push for more aid for local schools, for the most part they’re OK with preserving the corporate subsidies.

Republican State Sen. Dan Laughlin told Watchdog.org that “finding enough money for Erie is number one on my to-do list.”

But Laughlin also said that Wolf’s budget proposal seemed like a “reasonable attempt at being fiscally conservative” while also showing genuine concern for funding public education.

“Everything should be looked at,” he said in regard to cutting spending elsewhere, but he is unsure of the economic impact of taking too much out of the horse race fund.

Democratic state Rep. Florindo Fabrizio told Watchdog.org that the Erie delegation is working to help the school district gets the funding it requested. But he, too, warned that lawmakers have to be “very careful” about raiding the horse racing fund.

“I’m not saying we can’t look at it,” he said, while arguing that the quarter-billion dollar a year subsidy “provides a lot for the commonwealth.”

‘A big part of Pennsylvania agriculture’

Bob Dick, a senior policy analyst with the Commonwealth Foundation, a free-market think tank in Harrisburg, has a less sanguine view of state spending priorities.

“If an industry is healthy, it shouldn’t have to rely on government subsidies to thrive,” he told Watchdog.org via email.

And healthy is not necessarily how horse racing should be described.

“Even with a quarter of a billion [dollars] in subsidies each year, the racing industry has still seen a decline in attendance, wagers and the number of breeders,” he said.

“If lawmakers opted to redirect the $250 million to pressing priorities, it would have saved a lot of pain for many small business owners who lost their jobs and for low-income people who now have to pay higher taxes as a result of Harrisburg’s out-of-control spending,” Dick elaborated.

Although horse racing is the biggest chunk of corporate welfare in Pennsylvania, it is not the only area in which Pennsylvania funds private-sector businesses. According to the Commonwealth Foundation, Pennsylvania has spent $6 billion on corporate welfare since 2007, more than any other state — by a lot.

Ohio comes in a distant second, at $4.2 billion. To put it into perspective, Pennsylvania spends about as much as the fourth (Texas) and fifth (New York) highest corporate welfare spenders combined, both of which have larger populations than Pennsylvania.

The results are at best mixed. The Keystone State spent nearly $800 million in the 2016-2017 fiscal year on corporate welfare, while ranking 35th nationally in job growth.

“Lawmakers should reduce or eliminate these handouts and use the savings to bridge the budget deficit or provide tax relief for working people,” Dick said.

In raw terms, 12 percent of the money spent by the state on horse racing — or less than 4 percent of all corporate welfare — would cover the request by the Erie School District.

Cutting horse racing subsidies to boost education spending was proposed three years ago by state Rep. Todd Stephens, a Republican from Horsham Township north of Philadelphia.

At that time, Stephens told Philly.com — in jest, mostly — that “someone said ‘you might end up with a horse head in your bed,’” alluding to a famous scene from The Godfather.

The racing lobby pushed back in less gangsterish ways, and the proposal went nowhere. Stephens did not return multiple requests for comment for this story.

When the state legalized gambling in 2004, it tied the industry closely to horse racing.

Most significantly, a percentage of the revenue generated by slot machines — currently 11 percent — was allocated to the Race Horse Development Fund.

Since 2004, Pennsylvania has provided about $250 million annually to fund horse racing, including cash prizes mostly won by non-Pennsylvanians. According to the Pittsburgh Tribune-Review, millions of dollars have gone to people from around the world, including a Saudi prince and the prime minister of the United Arab Emirates.

In justifying the expense, Michael Smith, executive deputy secretary of the Department of Agriculture, told Watchdog.org that the horse racing industry is “a big part of Pennsylvania agriculture,” claiming about  20,000 jobs.

‘Nothing much left to cut’

Watchdog.org reported in December that the Erie School District planned to spend $25.5 million of the state aid it requested on eliminating its current deficit and improve academic programs, and $6.3 million on maintenance and renovations.

There seems little chance anything close to that amount will be on the way.

Wolf included in his budget proposal a general increase in school funding, including $75 million for early childhood education and $125 million in basic education funding for schools across the state.

Wolf spokesman J.J. Abbott told Watchdog.org via email that the proposed education spending would provide Erie with an additional $1.5 million.

Erie School District Chief Financial Officer Brian Polito said ESD faces a $10 million deficit in the upcoming school year. Independent auditors say the district would be on the verge of bankruptcy if it were a business.

Polito, who will transition to the role of superintendent in July, cautioned that “there’s nothing much left to cut that isn’t going to be devastating.” The cuts could extend to eliminating arts, music, extracurricular activities and other areas.

The economically challenged region’s dwindling tax base makes it difficult to raise more money locally. And Erie is already lagging in per pupil spending. The state average was more than $17,000, in the 2014-2015 school year. Erie spent just over $13,100.

To be sure, the district has made some spending decisions that call into question its commitment to fiscal responsibility.

The school board gave Erie teachers an across-the-board raise late last year, and last month gave a raise to supervisors and administrators.

Polito defended the raises, saying teachers hadn’t had a pay increase in three years and citing about 20 teachers who left Erie for nearby school districts in search of better pay and more job security.

As for the horse racing subsidies, Polito thinks schools could make better use of that money.

“Pennsylvania has frequently been cited as having one of the worst funding gaps between wealthy and low-income schools in the nation,” he said. “[The money spent on horse racing subsidies] would certainly be better spent leveling the playing field for students in districts like Erie that receive fewer educational resources solely because of their zip code.”

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