(The Center Square) — Pennsylvania has a number of tax subsidy programs that boost favored industries with public funding.
The state’s largest program, however, attracts less attention than many smaller programs. And it isn’t a fund for economic development, or emerging tech, or health care.
Rather, it’s an industry that saw its heyday in the 19th and 20th centuries: horse racing.
In fact, Pennsylvania taxpayers send more – significantly more – to horse racing in one year than the federal government will give the state in five years to build electric vehicle charging stations. Horse racing receives almost twice as much as Tennessee’s airports want from the southern state’s Legislature.
In fiscal year 2021-22, Pennsylvania’s Horse Race Development Fund received almost $211 million generated from tax revenue, according to the Pennsylvania Gaming Control Board. That money, however, is only a fraction of the financial support horse racing has received from the public.
Since 2004, when the fund was established, horse racing has received $3.5 billion thanks to a deal brokered to expand legalized gambling throughout the state.
That money supports race tracks, horse breeders, jockeys, trainers, and support staff, along with health and retirement benefits. It also accounts for most of the prize money: almost 90% of the money in the purse for winning horses comes from tax revenues.
With the growth of casinos came state support to ensure horse racing didn’t go bust. Without state support, it’s unclear what else would keep horse racing alive. Public interest in Pennsylvania’s six horse tracks has almost disappeared.
Even at those tracks, the money comes from other forms of gambling on offer. Slot machines, table games, and sports betting grab the attention of visitors. When horse racing does attract bets, the vast majority of wagers comes from out-of-state gamblers.
It appears residents have largely deserted horse gambling as a pastime. Yet, despite a lack of public enthusiasm, legislators have been quite friendly – in Pennsylvania and elsewhere.
“The horse racing industry in a number of states had enough lobbying power where they would prohibit, and they had the ability to kill the casino gambling legislation unless the horse racing industry was paid off,” said Jeffrey Hooke, a senior lecturer in the Carey Business School at Johns Hopkins University and a former investment banker who has written on horse racing and gambling in Maryland. “They knew how to wire things in these state capitals, Pennsylvania included.”
Pennsylvania and New York have led the subsidy race, accounting for much of the horse racing subsidies offered nationally.
“We spend a lot of money: We are actually – on a per-track basis, we had the highest subsidies in the country,” said Sharon Ward, senior fellow at Education Voters of Pennsylvania and the author of a 2020 report highly critical of horse racing subsidies. “Pennsylvania derives very little economic benefit from the horse racing industry.”
In Pennsylvania, the money comes from a 55 percent tax on revenue from casino slot machines. Horse racing gets a larger cut (11 percent) of that revenue than counties and municipalities that host a casino (4 percent), and more than economic development projects as well (5 percent). Only property tax relief gets a bigger share of the spoils (34 percent).
That extra cash, while keeping the industry alive, has not led to a resurgence of popularity.
“Over the last ten years, racing days have declined a lot in Pennsylvania, the number of breeding horses born or the number of race horses born in the state declined, so the activity in the industry has declined substantially despite the huge subsidies,” Hooke said. “On the surface, it doesn’t look like it makes any sense.”
Beyond being a source for subsidies, the industry might not have much left in it.
“It is a sport that is dying,” Ward said. “It has been in a long decline. There is a desperate effort at this point to make it relevant that I don’t think will be successful.”
Ward’s report, written for Education Voters of Pennsylvania, found little merit in the subsidies and advocated the money should instead go to education. The connection to education is instructive: when compared on a per-capita basis, Pennsylvania prefers horses over students.
“Pennsylvania subsidizes horses three times as much as it subsidizes students attending PASSHE schools,” the report noted, referring to the Pennsylvania State System of Higher Education.
Dividing the subsidy by the number of horses in 2019, Pennsylvania provided $15,271 per horse. College students enrolled in one of the state’s public universities, however, received an average of $5,739 per student.
Far from stabilizing and transitioning the industry into something sustainable, Ward argued the subsidies prevent it.
“The subsidies have insulated this industry from changing and, frankly, have done as much to create its demise as anything,” Ward said. “They refuse to adapt to the new reality and they don’t operate on the same business model – the same competitive business model – that most businesses do. I can’t understand why the business community tolerates this.”
Advocates of horse racing dispute such criticisms, arguing that horses are critical to Pennsylvania’s agricultural sector.
“The equine industry is the second-largest agricultural industry in Pennsylvania; it has such a broad impact on agriculture,” said Pete Peterson, spokesman for the Pennsylvania Equine Coalition, which represents horse owners, trainers and breeders. “There’s 23,000 direct and indirect jobs that are supported by the industry, a $1.6 billion economic impact.”
He said keeping horse racing alive, in that view, was a way to boost rural areas that might not otherwise get any benefits from the expansion of gambling.
“It’s another way to ensure that the benefits of gaming are spread throughout the rural areas” that don’t have a casino, Peterson said. “Breeders are spread throughout the state, for example; there’s 105,000 acres of direct open space that are attributed to racing and breeding farms.”
The wider agricultural economy is also affected, even when far from a stable, Peterson argued.
“Without the horse racing industry here in Pennsylvania, it would greatly disrupt the entire farming industry,” Peterson said.
He pointed to horse-driven demand setting the market price for commodities such as hay, and the building and construction needs of the industry.
Horse farms also stop other, less-bucolic activity, according to Peterson.
“Without the equine industry, there could be over 1 million acres subject to development,” Peterson said.
Rather than reducing or abolishing taxpayer support, the PEC wants this support to hold steady – or grow. The industry has advocated to keep the subsidy at a “do-no-harm” level that doesn’t decrease state support, Peterson said, so any “erosion of the slots revenue doesn’t impact the horse racing industry.”
Reroute the tax revenue, he said, and the results would be painful.
“We view it as very much tied into the agricultural industry as a whole in Pennsylvania,” Peterson said. “You’d create disruption throughout Pennsylvania’s agriculture industry and jeopardize open space, and the livelihood of many farmers as well.”
Though the equine industry is significant in Pennsylvania agriculture, horse racing is a minority part. The subsidies, too, go to very few farms. In Ward’s report, she found 47 farms for Standardbred stallions and 26 for thoroughbreds.
Instead of racing, horsing around in the commonwealth tends to be focused on pleasure riding, hunting and jumping, and dressage. A 2017 study by Delaware Valley College that focused on 10 eastern counties with 36% of the state’s horse population found that racing was the least-popular activity.
When the state’s impartial economic analysis office looked at the horse racing subsidy specifically, rather than the horse industry in general, it found some benefits – but also noted how the money could have had a greater impact if it was spent in other ways.
The Independent Fiscal Office’s 2017 report estimated that the $225 million given to the industry in 2016 led to $397 million in economic output, or roughly $1.77 for every $1 in subsidies.
However, the money could have had a bigger economic return if it had been spent differently. The IFO noted that every dollar for elementary and secondary education would have brought a $2.08 return. If the state had instead spent the money on highway and street infrastructure upgrades, it would have returned $2.15 for every dollar. For water and sewer infrastructure improvement, $1.83 for every dollar.
Of the four alternatives compared by the IFO, only tax relief for households would have created less economic activity: somewhere between $1.20 to $1.40 per dollar.
Despite the potential to stretch the money further if put to other uses, the subsidies have been difficult to stop. Former Democratic Gov. Tom Wolf tried to divert a portion of it to fund college scholarships – and failed.
“It’s gambling wrapped in a facade of agriculture,” said Ward, the Education Voters of Pennsylvania report author. “Agriculture is untouchable in Pennsylvania.”
Racing takes a toll on the horses as well as the state budget, too. As noted in a 2022 IFO presentation on the Department of Agriculture, the state counted 368 horse deaths between 2017 to 2020.
Ward isn’t on a crusade to ban horse racing entirely. Instead, she argues it needs to be right-sized.
“We should have a commission, it should rethink what to do with this industry and create a new strategy that will get the state out of the business and support self-sufficiency,” she said.
As it stands, horse racing serves as an excuse of sorts for the rest of the gambling industry to operate, according to Hooke, the Johns Hopkins’ lecturer.
“The horse racing is sort of a sideshow to justify the slots of the casino business,” he said. “It would be like keeping a Blockbuster open while you got a casino next door to it.”
Anthony Hennen is a reporter for The Center Square. Previously, he worked for Philadelphia Weekly and the James G. Martin Center for Academic Renewal. He is managing editor of Expatalachians, a journalism project focused on the Appalachian region.
This article was republished with permission from The Center Square.