1,500 Jobs on Line
City: OTB Broke Due to State Fix

By REUVEN BLAU

Deputy Mayor Dan Doctoroff Dec. 4 said that the State Legislature must fundamentally change the city's Off-Track Betting Corporation revenue-sharing formula and switch to a profit-based system in order to save the 1,500 city employees at risk.

The Chief-Leader/Adrienne Haywood-James RACING TO THE BOTTOM?: Off-Track Betting Corporation President Raymond Casey, right, told the City Council Dec. 4 that his staff is working on a plan for winding down operations, barring a bail-out from the State Legislature. 'This isn't a threat - this is a crisis,' said Deputy Mayor Dan Doctoroff.

"We don't believe that simply adjusting the distribution formula will solve it," Mr. Doctoroff testified before the City Council's Finance Committee two days before he announced that he would be leaving city government at the end of the year. "If you are going to have a successful business you have to have predictability. There needs to be a fundamental alignment between OTB and the racing industry."

$358G Hole in June

Mr. Doctoroff's two-hour testimony last week came after Mayor Bloomberg in November warned that he would close OTB if continued economic losses threatened its viability.

According to OTB's monthly cash projections, the largest gambling operation in the country faces a $358,000 gap in June 2008. The city has steadfastly refused to use taxpayer money to cover such a difference.

As a result, OTB officials are currently working on a plan for winding down operations, which could include severance packages, testified OTB President Raymond Casey. The city would also look to redeploy the workers at other municipal agencies, he added. "For me personally, it's a position of last resort," he told the committee, referring to the contingency plan.

'A Crisis, Not a Threat'

In a rare appearance before the Council, Mr. Doctoroff warned that the situation was "dire" and that the Mayor was seriously looking into shutting the 61 betting parlors, barring relief from the State Legislature.

The Chief-Leader/Adrienne Haywood-James SEES ILLEGAL BOOKIES HOVERING: Leonard Allen, the president of OTB Local 2021 of District Council 37, testified that shuttering the city's Off-Track Betting Corporation would hurt the entire state racing industry. 'If OTB goes down, the bookmaker comes back,' he said.

"We have been trying to address this for years," he testified. "The city is essentially at wits' end. This isn't a threat. This is a crisis."

He noted that the city has the ability to cover the expected shortfall, but pointed to continued projected deficits in the next several years and the reluctance to use taxpayers' money to fund OTB. "That situation is not going to change in the next few years," he remarked.

OTB still brings in about $1 billion in bets, or handle, and generates an operating profit of around $130 million each year. But much of that money goes to the racing industry and the state, or to cover worker salaries and benefits. Currently, 40 percent of all OTB revenues go directly to the racing industry, OTB officials said.

Lack Profit Motive

Those payments, however, are driven by gross revenue or betting handle, rather than on OTB's net profits. "So that there is no incentive to the state or the racing industry for OTB to generate a profit," said David I. Weprin, chair of the Finance Committee.

Over the past three years, OTB has desperately tried to reduce its expenses by cutting back on overall employment, reducing some of its leased space, and slashing management by 15 percent. OTB has also launched an on-line gambling site and permitted wagering on thoroughbred racing at night. Those steps, however, have not generated enough funds.

"There are no more tricks in the bag," Mr. Doctoroff said, after a power-point presentation detailing the projected deficits and mandated costs to the state. "We are at a crisis; a crisis that we are not able to fix alone."

Leonard Allen, the president of OTB Local 2021 of District Council 37, argued that the hearing should have been held in Albany. The problem with OTB, he testified, is not that it doesn't earn enough money, but that the state takes more funds out of its operation than is sustainable.

Money Drop-Off

OTB was established in 1971 as a public benefit corporation to provide revenue to the city and to help combat illegal gambling through bookmakers, he noted.

Since its inception, OTB has provided the city with over $1.4 billion in cumulative revenues, and the racing industry with nearly $2 billion, according to the Council. During the 1970s, the city received on average more than $60 million a year. In contrast, over the last 15 years, the city has averaged less than $30 million a year from OTB. The city has not actually received any money from OTB since Fiscal Year 2004.

"Clearly state-mandated payments have subverted OTB's original mission," Mr. Doctoroff testified.

Mayor Bloomberg has indicated that barring a complete overhaul to the entire system, the best alternative is to have OTB's operations absorbed by whomever is given the franchise to operate the state's three largest racetracks - Aqueduct, Belmont and Saratoga - at the end of this month.

Workers at Risk

Such a takeover could jeopardize the jobs of at least some of OTB's 1,500 employees, as well as pension rights and other benefits, since the track operator is virtually certain to be a nongovernmental entity.

The New York Racing Association, which has run the three tracks since 1955, has more than $31 million in pension obligations for its existing workforce. NYRA is seeking a 30-year extension of the franchise under a deal reached a couple of months ago with Governor Spitzer that would rescue it from bankruptcy.

But legislative approval of the agreement has been held up by Senate Majority Leader Joseph L. Bruno, a longtime NYRA supporter who during the past couple of years has become a harsh critic and is also feuding with the Governor.

Mr. Doctoroff said last week that the pending NYRA sale could open the door for the State Legislature to finally change OTB's distribution scheme. "We think that presents a moment in time," he remarked.

Outcome Unclear

Asked if he could predict the outcome in Albany, he paused, and responded, "I don't know. I've been encouraged by the Governor's response. They are looking at the NYRA franchise. I think it's the best time."

Manhattan Councilman Robert Jackson said the unfair distribution formula amounted to Albany "holding up the city without a gun." OTB officials had agreed to the revised formula because of the mistaken belief that it would reap major profits from a portion of the legislation allowing it to take bets on thoroughbred racing at night.

He urged OTB to just withhold the money it owes the state under the current setup. "Let them sue us and then we could settle," asserted Mr. Jackson, who was the lead plaintiff in the Campaign for Fiscal Equity suit, which ultimately required the state to increase its education funding for city schools.

OTB is required to pay the state a set amount of money at the end of every year, Mr. Casey replied. "Those lawsuits would shut OTB down," he added.

Ripple Effect

Mr. Allen and others cautioned that shuttering OTB would hurt the entire racing industry in the state. Approximately 40 percent of all of the wagering on racing in the state is done at OTB centers, he noted.

"If New York City OTB shuts down, the vast majority of those bets will disappear, as will the revenue they provide to support 40,000 jobs," he testified.

Closing OTB would not only adversely affect his 1,400 members, but clerks at Aqueduct, food-service workers at Belmont, and farmhands at more than a thousand farms across upstate New York that are dependent on the revenue stream OTB provides, the union president asserted.

"It is simply appalling that the State Legislature has failed to act to protect these jobs and the future of this industry," he testified.

Says City Bluffing

Brooklyn Councilman Lewis A. Fidler suggested that the city was "bluffing" to force the State Legislature to finally address the problem. He compared the situation to an old video game he used to play called Balance of Power.

"The object of the game was to avoid pushing the button for nuclear war," he told Mr. Doctoroff. "Without being dramatic, that's what you seem to be doing here. I don't think the Legislature responds particularly well to being threatened."

Mr. Doctoroff responded, "I think analogizing this to pressing a button is unfair."

Mr. Fidler, however, noted that the looming possibility of closure has placed OTB's employees in a precarious situation. "I'm questioning the strategy by which it's being approached," he told Mr. Allen after the hearing. "It's like your cutting off our nose to spite our face. I think their approach to it is stamping their feet instead of saying it isn't fair."

Mr. Allen, however, said he believed the threat of closing was real. "People are living on the edge right now," he said, nodding his head up and down in dismay.