The section of Indiana law that provides the formula for the distribution of slot revenues to horse racing interests is IC 4-35-7-12. The formula includes allocations to each breed for backside benevolence, equine promotion and welfare, purses, breed development funds, and the horsemen's associations. When the law was first established in 2007, the title for this particular section read "Part of adjusted gross receipts that must be devoted to purses, horsemen's associations, and the gaming integrity fund." After the most recent changes in the 2013 legislative session the title for IC 4-35-7-12 now reads "Mandatory support for the horse racing industry; allocation among breeds; regulatory oversight." Even though the title now includes "regulatory oversight," the Indiana Horse Racing Commission (IHRC) has always had the statutory responsibility of the oversight of these funds.
While new subsections have been added to the IC 4-35-7-12 over the last six years of legislative action, the oversight responsibility of the IHRC has always read as follows:
"(h) Money distributed under this section (Note: meaning section 12) may not be expended unless the expenditure is for a purpose authorized in this section and is either for a purpose promoting the equine industry or equine welfare or is for a benevolent purpose that is in the best interests of horse racing in Indiana or the necessary expenditures for the operations of the horsemen's association required to implement and fulfill the purposes of this section. The Indiana horse racing commission may review any expenditure of money distributed under this section to ensure that the requirements of this section are satisfied. The Indiana horse racing commission shall adopt rules concerning the review and oversight of money distributed under this section and shall adopt rules concerning the enforcement of this section. The following apply to a horsemen's association receiving a distribution of money under this section:
(1) The horsemen's association must annually file a report with the Indiana horse racing commission concerning the use of the
money by the horsemen's association. The report must include information as required by the commission.
(2) The horsemen's association must register with the Indiana horse racing commission."
The IHRC has the responsibility to make sure that slot funds are used only for the intended purposes of supporting the horse racing industry and only "for a purpose authorized in this section." What the law also did was grant the IHRC rulemaking authority "concerning the review and oversight of money distributed under this section" which leads to Indiana Breeder and Owner Protection, Inc.'s (IBOP) Administrative Rule of the Month. With that rulemaking authority, the IHRC has established an entire section in the Indiana Administrative Code entitled "Registered Horsemen's Associations." We are going to focus on parts of '71 IAC 13-1-3 Information to be submitted with a registration' which defines part of the requirements that horsemen's associations must provide to be considered to receive benevolence funding, equine welfare and promotion funding, and funding for the administrative budgets of the association. First, a little background.
No later than September 1st each year, prospective horsemen's associations who claim to represent "owners and trainers" for each breed and, with thoroughbreds, an additional association claiming to represent "owners and breeders" can apply for registration. In the history of these registration applications, only once have two competing organizations ever filed applications for slot funding in the same category. Per commission regulations, not Indiana law, the IHRC must approve a registration application for the upcoming year by December 31st if there are no competing applications for registration. Below is '71 IAC 13-1-3' and we are going to focus specifically on '71 IAC 13-1-3(3) and 71 IAC 13-1-3(5).'
71 IAC 13-1-3 Information to be submitted with a registration
Authority: IC 4-31-3-9; IC 4-35-7-12
Affected: IC 4-31; IC 4-35
Sec. 3. In addition to the information described in section 2(b) of this rule, the registration of a horsemen's association to
receive monies allocated pursuant to IC 4-35-7-12 shall include, but not be limited to, the following information:
(1) A proposed budget for the calendar year (or, in the case of a registration under section 1(c) of this rule, the calendar
years) to which the registration applies that separately identifies general categories for the expenditure of funds anticipated
to be paid by the permit holders to the horsemen's association for:
(A) equine promotion or welfare pursuant to IC 4-35-7-12(b)(1);
(B) backside benevolence pursuant to IC 4-35-7-12(b)(2); and
(C) the purposes provided for in IC 4-35-7-12(f) in the amount provided for by IC 4-35-7-12(d)(1)(A)(ii) and IC 4-35-
7-12(d)(1)(A)(iii), IC 4-35-7-12(d)(2)(C)(ii), or IC 4-35-7-12(d)(3)(A)(ii).
(2) A specific description of the accounting, auditing, internal control, and reporting procedures that will be maintained by
the horsemen's association with respect to the three (3) separate accounts required by section 8(a)(7) of this rule during the
calendar year for which payments will be made, as well as the name and contact information of the individuals responsible
for each function.
(3) A certification by the board of directors of the horsemen's association that the expenditures from funds paid by the permit
holders for (1)(A) and (1)(B), above [subdivision (1)(A) and (1)(B)], are in the best interests of horse racing in Indiana for
the breed represented by the horsemen's association.
(4) A conflict of interest policy approved by the commission that has been executed by all of the officers, directors, and
employees of the horsemen's association.
(5) Certification by an officer of the horsemen's association that no monies distributed pursuant to IC 4-35-7-12 have been
used in either the current year or will be used from the budget year for either:
(A) a contribution to a candidate or committee; or
(B) lobbying, as defined in IC 2-7-1-9.
(6) Any other information requested by the commission or its executive director.
(Indiana Horse Racing Commission; 71 IAC 13-1-3; emergency rule filed Jul 11, 2008, 2:13 p.m.: 20080723-IR-071080595ERA;
emergency rule filed Sep 10, 2012, 2:01 p.m.: 20120912-IR-071120525ERA; emergency rule filed Apr 4, 2013, 1:05 p.m.:
20130410-IR-071130134ERA)
At their October 29th meeting, the IHRC was scheduled to consider the applications of the Indiana Horsemen's Benevolent and Protective Association (IHBPA), the Indiana Standardbred Association (ISA), the Quarter Horse Racing Association of Indiana (QHRAI), and the Indiana Thoroughbred Owners and Breeders Association (ITOBA). There were no competing applications for registration. Chairman Bill Diener admonished all four horsemen's associations for submitting incomplete applications and suggested that in the future incomplete applications will not be considered. With each submission, there was a "Staff Report" that provided the commissioners a review of the application. To be fair, the QHRAI submission was deemed to have not provided a particular certification letter for an IHRC requirement, but the staff considered that their application demonstrated that they did meet the requirement.
The Staff Report for each applicant for 2014 funding can be found at: http://freepdfhosting.com/6c710668f3.pdf.
The applications from the IHBPA, ITOBA, and ISA, however, were all deficient in providing a certification under 71 IAC 13-1-3(5) which only requires a single officer (President, Vice-President, Secretary, or Treasurer) to certify that no slot funds were used as political contributions or for lobbying. 71 IAC 13-1-3(5) is simply incorporating a requirement from the law that prohibits slot fund to be used in these ways. Shame on the IHBPA, ITOBA, and ISA as this statutory requirement has been in effect from day one. Since 71 IAC 13-1-3(5) is based in a statutory requirement, we're not suggesting there's a problem with the requirement. However, 71 IAC 13-1-3(3) might be a different story.
71 IAC 13-1-3(3) requires that the entire board of directors of a prospective horsemen's association certify that the monies spent on equine promotion and welfare and backside benevolence "are in the best interests of horse racing in Indiana." The staff reports cited both ITOBA and the ISA as having not provided the required certification under 71 IAC 13-1-3(3). First of all, for the IHRC staff to cite ITOBA for not providing this certification is absolutely ridicules, but what else is new. Per statute, ITOBA doesn't receive equine welfare and promotion money nor do they receive backside benevolence funds. Yet, they are required to certify that the funds they don't receive are used in the best interests of horse racing. Perhaps the IHRC staff should read the law. The ITOBA application was approved for 2014 anyway. However, the ISA does receive equine promotion and welfare funding as well as backside benevolence funding, and their application was approved as well.
What we found interesting is that the IHRC staff in their report didn't consider a lack of certification under 71 IAC 13-1-3(3), or 71 IAC 13-1-3(5) for that matter, as being substantive deficiencies! Here's the exact statement on the IHBPA, ISA, and ITOBA applications, "The Commission staff finds no substantive deficiencies in the application for registration." What! First, 71 IAC 13-1-3(5) is based in Indiana state law, so any certification is substantive according to the Indiana legislature. Second, 71 IAC 13-1-3(3) is a fundamental extension of the law as well and beyond substantive in the IHRC oversight. 71 IAC 13-1-3(3) mirrors a huge part of the IHRC's required oversight.
71 IAC 13-1-3(3) was added to the Indiana Administrative Code in April, 2013, but approved by the IHRC at their March meeting. The addition of this subsection was a specific request by Chairman Diener. Here's what he said, direct from the official transcript, "This commission when it operates and considers applications for registration, we have to meet the standard that expenditures of state directed funds by these horsemen's associations are in the best interest of horse racing in Indiana and that particular breed. This commission is not in the business of micromanaging horsemen's associations and how they operate, but we felt that or I felt -- I'm the proponent of this rule. I felt that it was important that the Board of Directors of the association, when they submit their applications, certify that their proposed budgets meet the same statutory standard."
We understand the sentiment behind Chairman Diener's remarks; however, this rule is not about "proposed budgets." The rule is about "expenditures from funds paid" which is past tense and not prospective as in a proposed budget. This is a requirement about what has already happened, as required by Indiana law. Now, imagine a new board member's position regarding past slot fund use by a horsemen's association. Realistically, we don't see how the IHRC can require a board member to sign off on expenditures that pre-dated their involvement with the board. In the case of the IHBPA, we don't see how the IHRC can require a certification from a new board member, or any board member for that matter, to sign off on the activities of the Indiana HBPA Benefit Trust and their expenditures since the IHBPA is the the only organization that has a separate structure and a separate board for its benevolence activities.
An approval of the registration of a horsemen's association to receive slot funding by the IHRC should require each commissioner and each staff member involved in the application review to sign an affidavit stating that all expenditures of slot funds have met the statutory standard of being in the best interests of horse racing in Indiana. The law requires the IHRC to be the ultimate guarantor of compliance with the statute, so this is not an unreasonable thought. Also, in our view, the requirement in 71 IAC 13-1-3(3) doesn't actually go far enough as any ex-board member or any ex-employee should be required to sign a similar affidavit if slot funds were received during their tenure.
No one should be able to leave a board or leave employment with a horsemen's association to potentially avoid the scrutiny of how slot funds were handled under their watch. Plus, any current employee, including Executive Directors of a horsemen's association, or appointees to a committee of a horsemen's association or benefit trust that has any potential influence over how slot funds are distributed or is in a position to determine who qualifies to receive benevolence funding should have to sign a similar affidavit. Yet, according to the IHRC's administrative rules, they don't. Many times individual board members are not in positions to fully understand or scrutinize the daily activities of others, especially employees, and are generally provided only summaries of those activities. Having all individuals involved with the handling of slot funds provide a written statement is a must. How else can the integrity of the use of slot funds be maintained? How else do you hold all parties accountable for their actions or inactions? That's what Indiana law mandates.
