Problems with capital planning remain for the New York Racing Association (NYRA) years after a reorganization that was intended to strengthen its finances and operations. Auditors found that NYRA failed to adequately prioritize important capital projects and formally estimate project costs funded by Video Lottery Terminal (VLT) revenue, according to an audit released today by State Comptroller Thomas P. DiNapoli.

“Sound business practices include both long-term and short-term capital project planning, but my auditors discovered that NYRA’s planning was weak,” DiNapoli said. “An organization that has recently emerged from bankruptcy protection needs to do a much better job of minding its finances and seeing to its most pressing capital needs.” 

NYRA is a not-for-profit corporation that operates New York State’s three major thoroughbred racetracks at Aqueduct, Belmont and Saratoga. In September 2008, NYRA entered into a bankruptcy settlement agreement that conveyed all rights, titles, and interests in the racetrack properties to New York State in return for a financial assistance package. As part of this package, the state forgave nearly all of NYRA’s debt obligations (totaling $54.1 million) to the state and provided NYRA with funds to pay off $80 million in non-state debt and $25 million in cash.

In October 2011, Resorts World New York City Casino, operated by Genting New York, opened adjacent to Aqueduct Racetrack. According to NYRA’s Franchise Agreement with New York State, some of the revenue from this facility is directed to NYRA for enhanced purses, operational support and capital expenditures. Under state law, a percentage of VLT revenue from the casino goes to fund education.

For the period January 1, 2012 through June 30, 2014, NYRA received about $259 million in revenue from the casino, including $74 million for its capital program. During the audit period, NYRA spent $36.3 million on capital projects.

DiNapoli’s auditors found NYRA lacked adequate documentation to support its annual capital plans. The annual plans lacked pertinent details, such as the resources needed to complete projects and the support for estimated costs. Further, NYRA did not have any “long-term” plans providing an overall vision for the organization or to explain how the projects listed on the annual plans related to those long-term goals. 

Auditors examined a sample of 25 projects totaling $7 million, finding not all of the projects were listed on any of the annual plans and each of the annual plans listed projects that were not done during the audit period. According to NYRA officials, certain projects were not undertaken due to delays in obtaining the required building permits. 

NYRA spent a total of $7.4 million ($3.8 million in 2012 and $3.6 million in 2013) on 198 capital projects that were not part of the annual plans for these years. There was no evidence that these projects were formally approved by NYRA’s Board of Trustees. 

Auditors identified another 114 projects (valued at $13 million) on NYRA’s approved annual plans for 2012 and 2013 that were not initiated anytime during the audit period. 

The findings are similar to those of an audit released in June 2007, prior to NYRA’s reorganization under bankruptcy court protection.

DiNapoli’s auditors also found NYRA’s food and beverage agreement with Genting required Genting to construct a new simulcast center and sports bar, known as Longshots, at Aqueduct Racetrack. Genting agreed to finance up to $5 million of the facility’s construction costs, and NYRA would finance project costs above that amount. 

According to the contractor’s application for payment, initial project costs approximated $7.1 million. However, after 35 change orders totaling $2.3 million (adding about 32 percent to the project’s cost), Longshots’ total cost was $9.4 million. Thus, NYRA’s total financial obligation for Longshots could be about $4.4 million. It is probable that many of the costs NYRA is now facing could have been avoided with better planning.

DiNapoli recommended NYRA:

• Develop multi-year capital plans that outline how available capital program monies will be used to promote NYRA’s long-term capital program goals and operational goals;
• Develop annual capital plans that detail project needs and justifications, timeframes for completion, and estimates of costs, as well as an explanation of how each project relates to NYRA’s long-term capital plans and operational goals;
• Develop and implement a formal project management system to effectively monitor the status of projects; and 
• Minimize the extent to which VLT capital revenues are used for non-capital (operating) purposes.

NYRA officials agreed with the audit’s conclusions regarding controls in place over VLT funds. However, they generally disagreed with conclusions regarding deficiencies in NYRA’s long-term and short-term capital planning efforts. The report,  New York Racing Association: Capital Program Revenue and Expenses, which includes NYRA’s response, can be found at: http://www.osc.state.ny.us/audits/allaudits/093016/14s54.pdf