2013 Legislative Session Review

This page was last updated on May 10th - On May 8th, Governor Pence signed the two-year budget bill, HB 1001, into law. On May 9th, Governor Pence signed HB 1176 and SB 609 into law. SB 528 has yet to be signed by the Governor, but we fully expect him to do so. While IBOP will develop the implications of these bills in our next newsletter, below is a recap of those bills that survived the session and those that did not. As we had expected, SB 609 was used as the "horse racing" bill that went beyond the original intent of modifying aspects of the Indiana Horse Racing Commission's due process. Many of the provisions of SB 609 go into effect on July 1, 2013, while others are delayed until January 1, 2014.

House Bill 1001 (Budget Bill): The conference committee's two-year budget was released on April 25th with all the key leaders, including the Governor, satisfied with the result. The Republican-dominated Senate and House approved HB 1001 on Friday, April 26th. While the Governor didn't get his 10% income tax cut, he did get a 5% income tax cut phased in by 2017.

As far as the impact to horse racing, the budget bill did not change the 15% allocation to horse racing from slot machines at the racinos. In the bill, the racinos will be getting a tax break beginning July 1, 2013. The budget bill specifically defines "adjusted gross receipts" (AGR) with new language as now including the allocation to horse racing which had been challenged by the racinos during the Indiana Grand/Downs bankruptcy. The trade-off to the racinos for the inclusion of this language is that they will now only pay the slot machine tax on 91.5% of AGR, and not on the 99% they had been paying. This is an overall win for the racinos.

The budget bill does create a claiming tax amnesty program similar to the concept in HB 1350 listed under the "Dead Bills" below. Those owners who have been hit with a use (sales) tax bill, penalties, interest, fines, liens, etc. will have until January 1, 2014, to pay their taxes on claims which had always flown under the taxation radar until recently. The Indiana Department of Revenue sent tax bills to owners in an attempt to collect these taxes on prior claiming transactions. While not an abatement of the tax, if the claiming tax is paid by the year-end, all penalties, interest, fines, liens, etc. will be abated. No other elements of HB 1350 were included in the budget bill.

Senate Bill 609 Conference Committee Summary: Requires the Indiana horse racing commission (IHRC) to report on the competitive status of the Indiana horse racing industry as compared to the horse racing industries of other states. Provides that the prohibition on members of the IHRC, employees of the IHRC, racing officials, and their respective spouses wagering on horse racing at racetracks and satellite facilities located in Indiana applies after December 31, 2013. Requires the IHRC to post information concerning complaints and disciplinary actions on the IHRC Internet web site. Specifies the following concerning disciplinary action initiated by stewards and judges: (1) That unless appealed within 15 days, a suspension or civil penalty must be imposed within 180 days of the sanctioned violation. (2) That judges and stewards must prove the violation by the preponderance of the evidence. (3) That the IHRC must conduct a hearing on an appealed sanction as required by the administrative adjudication law. Allows the horse racing commission to reduce the percentage that a permit holder is required to retain from amounts wagered if reducing the amount retained is in the best interests of horse racing in Indiana. Authorizes horse racing associations and racino licensees to negotiate an agreement requiring between 10% and 12% of the licensee's adjusted gross receipts to be used to support the horse racing industry. Provides that accounts, books, and records relating to the distributions are subject to audit by the state board of accounts. Recodifies the requirement that each racino pay $250,000 to the gaming integrity fund. Provides that the racino slot machine wagering tax is imposed on 91.5% of adjusted gross receipts that include amounts used to support the horse racing industry. Makes technical corrections.

Last Significant Action: April 26, 2013 - Both the Senate and the House approved the conference committee version of SB 609 and the bill will be forwarded to the Governor for a signature. The bill included an annually negotiated 10% to 12% of revenues from the slot mahcines at the racinos for the support of horse racing. The strategy behind a negotiated amount is to eliminate the thinking in the legislature that the revenues to horse racing are a state-sponsored subsidy. The hope is that with a negotiated amount each year that the revenues will not be considered as a potential funding source for other legislative initiatives.

While IBOP will cover the pluses and minuses of this approach in an upcoming newsletter, the bill also eliminates the $3 million smoking cessation allocation and the $500,000 to the Gaming Integrity Fund which are currently subtracted from the horse racing allocation from slot revenues. The bill also eliminates the statutory caps to the horse racing allocation which were originally based upon the first year slots existed at the tracks and only provided an increase each year that was limited to the change in the consumer price index (CPI) regardless of the growth in overall slot revenues. Because of the statutory caps being limited to the CPI increases off of the first year, the 15% allocation to horse racing was actually 11.97% in the last fiscal year. So, a negotiated amount of 12% would keep all revenues whole.

While we will have more on the numbers later, in fiscal year 2012 the slots at both tracks combined produced $467,676,831 in adjusted gross receipts (AGR) with $55,990,498 to the horse racing allocation. (In fiscal year 2013, slot revenues are tracking slightly below 2012 results.) This calculates to the 11.97% allocation mentioned earlier. Whatever percentage is negotiated in the fall of 2013, will begin in 2014. The 2013 fiscal year ends on June 30, 2013, and the current law will dictate revenues to horse racing (15% with the $3 million to smoking cessation and the $500,000 to the Gaming Integrity Fund) from July through December, 2013.

Senate Bill 528 Conference Committee Summary: Authorizes the use of limited mobile gaming systems at racetracks, satellite facilities, and in the gaming area of a riverboat or racino. Allows gaming licensees to deduct adjusted gross receipts attributable to free play wagering on the day that the free play wager is made. Provides that the total amount deducted by a licensee for free play may not exceed $2,500,000 in state fiscal year 2013 and $5,000,000 in state fiscal years 2014 through 2016. Provides that certain local development agreement reports must be made available through the Indiana transparency web site for local government. Provides that the lowest bracket of the wagering tax rate schedule for riverboats that had less than $75,000,000 of adjusted gross receipts during the preceding state fiscal year is 5% instead of 15%. Imposes an additional tax of $2,500,000 if the riverboats taxed under the alternative schedule receive adjusted gross receipts exceeding $75,000,000 in a particular state fiscal year. Increases the maximum value of a prize that may be won in a toy crane machine or other device played for amusement. Requires the gaming commission to study the use of complimentary promotional credit programs. Repeals obsolete provisions concerning the riverboat admissions taxes formerly distributed to the horse racing commission. Makes technical corrections. (This conference committee report does the following: (1) Authorizes the use of limited mobile gaming systems. (2) Provides that the total amount deducted by a licensee for promotional play may not exceed $2,500,000 in state fiscal year 2013 and $5,000,000 in state fiscal years 2014 through 2016. (3) Provides that deductions may be taken at any time during a state fiscal year. (4) Reduces the tax rate for the lowest bracket from 15% to 5% for riverboats that had less than $75,000,000 of adjusted gross receipts during the preceding state fiscal year. (5) Deletes provisions that have passed in either HEA 1176 or SEA 609. (6) Deletes a provision concerning amusement devices.)

Last Significant Action: April 27, 2013 - The House-approved version of SB 528 included a negotiated 9% to 11% of racino slot revenues to support horse racing. This provision was negotiated out of the conference committee version. The Senate version included table games for the two racinos which did not make the conference committee version either. The Governor had threatened to veto any bill that expanded gaming. However, the conference committee did approve a version of SB 528 that has very little impact on horse racing as a whole. While the bill includes mostly tax benefits for Indiana's casinos and included an authorization to use limited mobile gaming systems at the race tracks, OTBs, and other parts of a casino/racino.

House Bill 1176 Summary: Prohibited horse racing and gaming wagers. Prohibits members of the Indiana horse racing commission (IHRC), employees of the IHRC, and racing officials from wagering on horse racing at the racetracks and satellite facilities located in Indiana. Provides that the prohibition also applies to the spouse of any individual prohibited from wagering. Provides that a person who wagers on horse racing in violation of the statute commits a Class A misdemeanor. Prohibits members of the Indiana gaming commission (IGC) and employees of the IGC, from wagering on gambling games at the riverboats and racinos located in Indiana. Provides that the prohibition also applies to the spouse of any individual prohibited from wagering. Provides that a person who wagers on gambling games in violation of either statute commits a Class A misdemeanor. Adds gaming agents to the definition of "law enforcement officer" for purposes of the criminal code.

Last Significant Action: April 23, 2013 - The House concurred with a minor Senate amendment so this bill is going to the Governor for a signature. The wagering prohibitions in this bill begin on January 1, 2014. The bill codifies in statute what are already prohibitions within the IHRC's administrative rules.

Dead Bills

Senate Bill 91 House Amended Summary: Authorizes horse racing associations and racino licensees to negotiate the amount of slot machine receipts used to support the horse racing industry. Provides that the agreement must require between 9% and 11% of the licensee's adjusted gross receipts. Establishes the Indiana motorsports commission. Allows the commission to adopt a resolution establishing a motorsports investment district. Specifies that the budget committee shall review and make a recommendation to the budget agency regarding the resolution. Specifies that the maximum amount of revenue allocated to the district in a state fiscal year may not exceed $5,000,000. Provides that the Indiana finance authority may issue bonds for the purpose of obtaining money to pay the cost of improving, constructing, reconstructing, renovating, acquiring, or equipping improvements within a qualified motorsports facility. Provides that the amounts allocated to the district are loans that will be repaid from the growth in sales tax and individual adjusted gross income tax revenue realized within the district and from an admissions fee imposed on race day admissions to a qualified motorsports facility. Requires goals for participation in the procurement and contracting process involved with a motorsports investment district by minority business enterprises of 15%, women's business enterprises of 8%, and veteran or disabled business enterprises of 3%, consistent with the goals of delivering projects on time and within budget.

Last Significant Action: April 27, 2013 - What had started out as a bill in the Senate that established a motorsports investment district (read Indianapolis Motor Speedway district) morphed into a version passed by the House that could have impacted horse racing. The House version of SB 91, just like the House version of SB 528, established an annually negotiated amount from slot revenues (9% to 11%) between the tracks and the horsemen. The Senate dissented with the House version, which had actually failed to reach a majority vote the first time around in the House. Once in a conference committee, the bill died as the motorsports bill became HB 1544 which had no horse racing-related items.

House Bill 1350 Summary: Provides that a person may not claim a race horse unless the person has on deposit with a permit holder an amount sufficient to pay the use tax on the claimed horse. Provides for the collection and remittance of the use tax on claimed horses for claiming transactions occurring after June 30, 2013. Provides that when a race horse is claimed for a subsequent time, the use tax rate is applied to the increase in the claiming price from the previous claiming transaction, if any. Requires the department of state revenue to establish an amnesty program for collecting the use tax on claiming transactions occurring before June 1, 2012.

Last Significant Action: January 17, 2013 - This bill was referred to the Ways and Means Committee and did not progress. However, the concept of a claiming tax amnesty program did make it into the approved version of the two-year budget which is HB 1001.

Senate Bill 607 Summary: Reduces the nominal percentage of racetrack casino slot machine revenues that must be used to support the horse racing industry from 15% to 12% and specifies that the amount is a racing support fee. Recodifies statutes governing the use of the fee. Establishes the Indiana horse racing support fund (IHRSF) for the deposit of the racing support fee. Requires that the fees must be remitted on a daily basis. Subtracts the racing support fees and county slot machine wagering fees from a licensee's adjusted gross receipts for purposes of the slot machine wagering tax. Recodifies amounts formerly subtracted from the 15% of revenue otherwise payable to support horse racing as an addition to a licensee's annual license renewal fee, a tobacco cessation support fee, and an increased gaming integrity fee. Specifies that the annual license renewal fee, tobacco cessation support fee, gaming integrity fee, and problem gambling fee may not be subtracted from a licensee's adjusted gross receipts. Repeals an obsolete definition, obsolete provisions concerning the riverboat subsidy for horse racing that predated the slot machine wagering at the racetracks, the statute requiring a permit holder to use part of the permit holder's slot machine revenue to support the horse racing industry, and the supplemental fee. Appropriates money in the IHRSF to the Indiana horse racing commission.

Last Significant Action: January 17, 2013 - This bill was referred to Committee on Public Policy and never progressed.

Administrative Rule of the Month - 71 IAC 8.5-1-1 & 71 IAC 8.5-1-1.5 Medication

This month's Indiana Breeder and Owner Protection, Inc. (IBOP) Administrative Rule of the Month is technically 'Rules' of the month. We are taking a look at why the current flat racing rule book has two separate administrative rules with a heading of 'Medication' where there should be only one. More specifically, these rules are 71 IAC 8.5-1-1 and 71 IAC 8.5-1-1.5. For the most part, they are almost identical except that one indicates that DMSO can be used (71 IAC 8.5-1-1.5) and the other indicates that DMSO is a prohibited foreign substance (71 IAC 8.5-1-1.5). If conflicting administrative rules regarding the use of DMSO sounds familiar, we've covered this conflict a few times before over the last year. Sadly, this issue has a long history that has stretched over the last year, and the Indiana Horse Racing Commission (IHRC) just can't seem to get it right. First, some background.

Over a year ago, IBOP had noticed that the recently approved 'Threshold levels' administrative rules in both the standardbred and flat racing rule books had established a threshold for the use of DMSO that was in conflict with already established 'Medication' rules. On April 27, 2012, IBOP petitioned the Indiana Horse Racing Commission (IHRC) to change the 'Medication' rules to remove the conflict. That communication can be seen on our "Letters to the Commission" page at: http://ibopindy.blogspot.com/2012/04/on-april-27-2012-following-was-sent-to.html. The IHRC chose not to fix this conflict at either of their meetings held on June 25th or August 30th. In advance of the IHRC's October 12th meeting, IBOP filed a second request, which can be found at: http://ibopindy.blogspot.com/2012/10/second-request-to-modify-medication.html. Once again, the IHRC did not resolve the DMSO use conflicts at their October 12th or December 22nd meeting. By their inaction, the IHRC actually allowed the standardbred 'Medication' to expire on January 1, 2013.

Our January, 2013, Administrative Rule of the Month reviewed exactly why '71 IAC 8-1-1 Medication' in the standardbred rule book was allowed to expire. In short, the reasons behind the IHRC allowing the standardbred 'Medication' rule to expire is a great example of their lack of respect for Indiana law. However, for this article, just know that the equivalent thoroughbred 'Medication' administrative rule was not due to expire until January 1, 2014. But, if you'd like to review why the standardbred version was allowed to expire, you can read the article at http://ibopindy.blogspot.com/2013/01/administrative-rule-of-month-71-iac-8-1.html. The fact that the flat racing 'Medication' rule didn't expire until 2014 is key to understanding the ongoing mistakes made by the IHRC staff.

At their February 22, 2013 meeting, the IHRC approved a 'Medication' administrative rule for both the standardbred and the flat racing rule books that fixed the DMSO conflicts. Or, so they thought. At that meeting, IBOP informed the commissioners and the IHRC staff that since 71 IAC 8-1-1 (standardbred version) was allowed to expire that the section heading, 71 IAC 8-1-1, could no longer be used. We suggested that due to the expiration that the old standardbred rule would always read, '71 IAC 8-1-1 Medication (Expired).' While we were met with skepticism, IHRC General Counsel Lea Ellingwood was able to verify this fact before the end of the meeting. So, the IHRC would have to submit the new standardbred 'Medication' rule under a different heading. What they ultimately chose was 71 IAC 8-1-1.5. But, what about the flat racing 'Medication' rule or should we say 'Medication' rules?

To understand why the flat racing rule book now has two 'Medication' rules, you have to understand what the IHRC staff did with the standardbred rule approved on February 22nd. First, they did nothing. If you are a regular reader of IBOP's Administrative Rule of the Month or our newsletter, you've probably read that an emergency rule is not effective until the approved emergency rule is actually filed (published) with the Indiana Register. The 2013 standardbred meet at Hoosier Park opened on April 2, 2013, and we had noticed the new 'Medication' rule had not been filed. Therefore, the standardbred meet opened without a valid 'Medication' rule being in effect. So, we reminded the IHRC staff that the rule had not been filed. Sure enough, the standardbred rule, under the heading of 71 IAC 8-1-1.5 Medication,' was filed the very next day on April 3, 2013. And, the flat racing emergency rule that was approved back on February was also filed at the same time.

While the flat racing rule '71 IAC 8.5-1-1 Medication' had not expired, the IHRC staff had submitted the new rule to the Indiana Register under a different section heading '71 IAC 8.5-1-1.5 Medication' as if the rule had expired. So, now the flat racing rule book has as active rules '71 IAC 8.5-1-1 Medication' and '71 IAC 8.5-1-1.5 Medication' and, as stated earlier, one says DMSO is a prohibited foreign substance and the other allows for the use of DMSO. If you'd like to see how these rules read in the Indiana Administrative Code, click the following link: http://www.in.gov/legislative/iac/T00710/A00085.PDF? or go to the two pages we've downloaded via: http://freepdfhosting.com/1dd8802c3b.pdf.

At some point, we believe that the IHRC will get this right. Left to their own initiative, probably not, so we sent the following petition to the IHRC on April 23, 2013, to have '71 IAC 8.5-1-1 Medication' repealed.

"Pursuant to '71 IAC 2-12-1 Procedures,' Indiana Breeder & Owner Protection, Inc. (IBOP) is requesting that the Indiana Horse Racing Commission (IHRC) consider the repeal of '71 IAC 8.5-1-1 Medication.' IBOP would appreciate this request be considered as an agenda item at the next regularly scheduled IHRC meeting. Please consider this correspondence as our petition for the repeal of 71 IAC 8.5-1-1, which is a flat racing administrative rule, due to its conflict with '71 IAC 8.5-1-1.5 Medication' which was put into effect on April 3, 2013.

As background, on April 27, 2012, IBOP submitted a petition to have '71 IAC 8.5-1-1 Medication' modified to conform 71 IAC 8.5-1-1(e) with the newly established threshold for dimethyl sulfoxide (DMSO) in '71 IAC 8.5-1-4.2 Threshold levels.' Effectively, 71 IAC 8.5-1-4.2 established a specific gravity for the use of (DMSO) while 71 IAC 8.5-1-1(e) classified DMSO as a prohibited foreign substance. At the February 22, 2013, IHRC meeting a modification via an emergency rule was approved to fix the conflicting language in 71 IAC 8.5-1-1.

However, on April 3, 2013, the modified rule was actually filed with the Indiana Register as having a new section heading of '71 IAC 8.5-1-1.5 Medication' and not simply filed as an update to the existing '71 IAC 8.5-1-1 Medication.' With 71 IAC 8.5-1-1 still being an active rule at the time, a filing with a separate section heading was not actually necessary. (The equivalent rule in the standardbred rule book did have to be filed with a new section heading due to the rule's expiration on January 1, 2013.) The net result to the flat racing rule book is that now there are two 'Medication' sections; 71 IAC 8.5-1-1, which still indicates DMSO as a prohibited foreign substance, and 71 IAC 8.5-1-1.5, which is in concert with the intent of '71 IAC 8.5-1-4.2 Threshold level.'

Therefore, the flat racing rule book will still have conflicting administrative rules regarding the use of DMSO for the beginning of the flat racing meet at Indiana Downs. However, this year, the conflict is between 71 IAC 8.5-1-1 and 71 IAC 8.5-1-1.5. Both of these 'Medication' rules can be viewed in the Indiana Administrative Code at http://www.in.gov/legislative/iac/T00710/A00085.PDF? . We've also attached a two-page pdf that captures both 'Medication' rules. Our view is that simply repealing 71 IAC 8.5-1-1 will match the stated intent of the IHRC.

Thank You,

Jim Hartman
IBOP Vice-President

CC: Chairman Diener
Vice-Chair Schaefer
Commissioner Grimes
Commissioner Barclay
Commissioner Schenkel"