Analysis of the 2006-07 Budget Bill
Legislative Analyst's Office
The California Horse Racing Board (CHRB) licenses racing industry participants, enforces racing rules related to drugs and other offenses, administers efforts to protect racing horses, and oversees programs to improve the health of jockeys and other industry employees. The CHRB regulates operations at 14 racetracks, 20 simulcast facilities, and advance deposit wagering services (available via telephone or on-line). In total, the horse racing industry employs an estimated 30,000 Californians.
The state collects $44 million from racing-related activities each year. The CHRB’s appropriations are provided from special funds that receive some of these collections. The 2006-07 Governor’s Budget proposes $10.1 million of CHRB expenditures in 2006-07, up $1.4 million (16 percent) from estimated spending in 2005-06. More than 85 percent of CHRB’s proposed budget comes from the Fair and Exposition Fund. The rest comes from the Racetrack Security Fund, which receives revenues from winning tickets that are not cashed in by bettors. More than $1.1 million of the proposed increase would come from the Racetrack Security Fund and be directed to drug testing (discussed below) and administrative hearings.
We recommend rejecting the request for $851,000 from the Racetrack Security Fund to expand the California Horse Racing Board (CHRB) equine drug testing program. The CHRB should explore other options to fulfill the Legislature’s mandates on drug testing and avoid increasing state costs. (Reduce Item 8550-001-0942 by $851,000 resulting in a commensurate General Fund revenue increase.)
Testing Budget Prior to 2005 Legislation. In 2004-05, the CHRB spent $1.1 million on its equine drug testing program, which tested about 32,000 urine and blood samples. Positive drug tests result in fines or suspensions and loss of ill-gotten winnings for owners, trainers, and/or others associated with an implicated horse. Two-thirds of samples were sent to a private laboratory chosen by competitive bid at a cost of $540,000. The remaining one-third of samples was sent to the Kenneth L. Maddy Equine Analytical Laboratory (Maddy Lab) at the University of California, Davis. The Maddy Lab charged CHRB $541,000-roughly twice as much per sample. One reason for the price difference is that the Maddy Lab uses more advanced technology-with broader capabilities to detect prohibited substances-than nearly all private testing facilities.
2005 Legislation and 2005-06 Testing Budget. In 2004 and 2005, the CHRB received reports of increasing abuse of bicarbonate mixtures (also known as “milkshakes”). Milkshakes may increase the endurance of horses and are not detected by routine testing techniques. In response, Chapter 179, Statutes of 2005 (AB 52, J. Horton), authorizes CHRB to conduct testing for milkshakes. Chapter 179 also requires CHRB to make the Maddy Lab its “primary drug testing laboratory.” The CHRB decided to move all of its testing-both routine and milkshake-to the Maddy Lab in 2005-06, exceeding the minimum requirements of Chapter 179. Testing expenses in 2005-06 will be an estimated $1.3 million, up 23 percent from the prior fiscal year. (This does not include costs for milkshake testing, for which racing associations pay the Maddy Lab directly.) Because of the Maddy Lab’s higher costs, CHRB has implemented a policy that the Maddy Lab will test routine drug samples on a random basis. This means that only around two-thirds of samples collected according to CHRB rules are being tested.
2006-07 Budget Proposal. The budget proposes $851,000 of new funding from the Racetrack Security Fund so that CHRB can continue to use the Maddy Lab as its sole testing facility and test all or nearly all samples collected. The annual budget act typically requires the transfer of any unencumbered Racetrack Security Fund balances to the General Fund at the end of the fiscal year. The proposed increase in CHRB spending, therefore, will result in a commensurate reduction of General Fund resources.
Other Options Available for Testing. We believe there are several other options that would allow CHRB to meet its legislative mandates and reduce state costs below those proposed. The CHRB could choose any of the following options:
Testing more than 50 percent of samples at the Maddy Lab (making it the primary lab) and resuming use of other laboratories, chosen through competitive bidding, for the rest of samples.
Continuing the practice adopted in 2005-06 of using the Maddy Lab as the only testing facility and testing most of the submitted samples, chosen randomly.
Reducing the number of required samples each race day through regulatory changes.
Requesting legislative authorization to charge racing associations and/or owners for the increased testing costs, similar to the way that milkshake testing is funded under Chapter 179.
Recommend Rejecting Funding Request. The CHRB has not provided evidence that the integrity of California racing would decline if CHRB continues to receive its 2005-06 testing budget in the budget year. California currently tests and spends roughly the same amount on testing (per race) as the national average. Because CHRB has other options to meet its legislative mandates on drug testing, we recommend rejecting the proposal for $851,000 of funding from the Racetrack Security Fund. This recommendation would increase General Fund resources by an equal amount.