1 2 CITY COUNCIL 3 CITY OF NEW YORK 4 -------------------------------x 5 THE TRANSCRIPT OF THE MINUTES 6 of the 7 COMMITTEE ON FINANCE 8 -------------------------------x 9 10 April 9, 2008 Start: 10:22 a.m. 11 Recess: 12:34 p.m. 12 City Hall Council Chambers 13 New York, New York 14 B E F O R E: 15 DAVID WEPRIN 16 Chairperson, 17 COUNCIL MEMBERS: Joel Rivera 18 Diana Reyna Maria Baez 19 Gale Brewer 20 21 22 23 24 LEGAL-EASE COURT REPORTING SERVICES, INC. 17 Battery Place - Suite 1308 25 New York, New York 10004 (800) 756-3410 2 1 2 A P P E A R A N C E S 3 COUNCIL MEMBERS: 4 5 Leroy Comrie Bill DeBlasio 6 Lewis Fidler James Gennaro 7 Eric Gioia Robert Jackson 8 Oliver Koppell Helen Sears 9 Peter Vallone, Jr. Albert Vann 10 David Yassky Vincent Gentile 11 Vincent Ignizio James Oddo 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 2 A P P E A R A N C E S (CONTINUED) 3 William C. Thompson, Jr. 4 New York Comptroller 5 Marcia Van Wagner Deputy Comptroller 6 Office of the New York Comptroller 7 Raymond V. Casey President 8 NYC Off-Track Betting Corporation 9 Marc H. Rosenbaum Chief of Staff and Counsel 10 NYC Off-Track Betting Corporation 11 Bob Gary CFO 12 NYC Off-Track Betting Corporation 13 Leonard Allen President, Local 2021 14 District Council 37, AFSCME 15 16 17 18 19 20 21 22 23 24 25 4 1 COMMITTEE ON FINANCE 2 CHAIRPERSON WEPRIN: Good morning, and 3 welcome to today's Finance Committee hearing. My 4 name is David Weprin and I chair the Finance 5 Committee. We're joined by a number of my colleagues 6 and we'll be joined by more as the morning 7 progresses. We have Council Member Diana Reyna from 8 Brooklyn and Queens, Council Member Albert Vann from 9 Brooklyn, and Council Member Lew Fidler from 10 Brooklyn. 11 Today we will conduct a hearing on 12 Resolution No. 1235. This resolution calls upon the 13 State to amend the State law to enforce certain 14 State-imposed financial mandates on OTB in an effort 15 to stave off closing OTB and protect the jobs of the 16 organization's approximately 1,500 employees. 17 We're also joined by Council Member 18 Helen Sears from Queens. 19 New York City OTB is the largest 20 legal gambling operation in the country, yet 21 according to OTB's financial statements, OTB will 22 run out of unrestricted cash by June of this year. 23 As a result, on February 19th, 2008, 24 the Board of OTB unanimously voted to close 25 business. 5 1 COMMITTEE ON FINANCE 2 According to the OTB closing plan, 3 operations would cease on June 15th and layoffs 4 would be effective the next day. Notices of job cuts 5 would go out some time around April 17th, whereupon 6 1,466 employees would lose their jobs. 7 Today we will be hearing from OTB 8 President Raymond Casey, regarding some of the 9 details contained in the closing plan, how this plan 10 would affect OTB and its employees, and any state 11 actions which have taken place since the Committee's 12 last oversight hearing on OTB, which took place just 13 a little over three months ago. 14 As I mentioned at that hearing, OTB 15 still brings in about $1 billion in annual gross 16 revenue and generates an annual operating profit of 17 around $130 million. 18 However State Legislative mandates 19 require OTB to make substantial contributions to 20 both the racing industry and the State. 21 Since 2001, the State has increased 22 these amounts so that currently 40 percent of all 23 OTB revenues go directly to the racing industry. 24 It is important to note that these 25 payments are driven by handle, in other words, gross 6 1 COMMITTEE ON FINANCE 2 revenue, and are not based on OTB's net profits. So 3 that currently there is no incentive to the State or 4 the racing industry for OTB to generate a profit. 5 In the last three years, OTB has 6 desperately tried to contain operating cost by 7 cutting back on overall employment, reducing some of 8 its leased space and cutting management by 15 9 percent. 10 In fact, just last year the Boston 11 Consulting Group was hired to provide a 12 comprehensive assessment of OTB's business model and 13 operations. 14 The Boston Consulting Group made 15 several recommendations and suggestions for OTB's 16 survival, including first and foremost a change to 17 the State's regulatory scheme. 18 Although, the State Legislature has 19 supported other areas of the horse racing industry, 20 in February, for example, the Legislature extended 21 the New York Racing Association's exclusive 22 Thoroughbred franchise to run aqueduct, Belmont Park 23 and Saratoga for an additional 25 years. It has 24 failed, however, to address OTB's predicament. 25 For years the City has lobbied the 7 1 COMMITTEE ON FINANCE 2 State, but to no avail, to change the current 3 revenue-sharing model. And just last month, instead 4 of decreasing these payments, the Senate's 2008/2009 5 proposed budget included a provision which would 6 allow OTB to defer payments for a short period of 7 time. 8 While I am pleased to see that the 9 Legislature is finally paying some attention to OTB, 10 I am appalled to see that Albany refuses to provide 11 additional support. 12 It seems that every interest in horse 13 racing is getting Albany's attention, except for 14 OTB. Even though it pays out $60 million to the 15 State, and acts as a subsidy for NYRA. 16 By simply ignoring the City's desire 17 to rework the revenue distribution formula, the 18 State Legislature has effectively forced the City to 19 shut down New York City OTB's operations. 20 As I have mentioned numerous times in 21 the past, I am especially concerned about the future 22 of OTB's 1,466 employees, some of whom are in the 23 Committee Room today, that work for OTB and could 24 lose their jobs in the coming months. 25 I hope that the City and State will 8 1 COMMITTEE ON FINANCE 2 begin to explore legislative options which would 3 allow New York City OTB to become financially 4 solvent. 5 Changing the State's revenue sharing 6 model to minimize some of the financial burden on 7 OTB would be an important first step. 8 We have been joined by Council Member 9 Oliver Koppell from the Bronx, our Minority Leader 10 Councilman Jim Oddo from Staten Island and Brooklyn 11 and Council Member Robert Jackson from Manhattan. 12 We will now hear from the Comptroller 13 of the City of New York, William C. Thompson, Jr. 14 COMPTROLLER THOMPSON: Good morning, 15 everyone. 16 CHAIRPERSON WEPRIN: Good morning. 17 COMPTROLLER THOMPSON: Good morning. 18 Mr. Chairman, distinguished members of the Council's 19 Finance Committee and other members of the Council, 20 good morning. 21 Before I begin, let me first thank 22 Raymond Casey, the head of OTB, for accommodating my 23 schedule and letting me kind of jump ahead of him 24 and testify. Let me thank you also for that. 25 And I'd also like to acknowledge, 9 1 COMMITTEE ON FINANCE 2 we're going to mention the report that we had done a 3 couple of years ago, let me acknowledge the 4 President of the Employees Local 2021 Leonard Allen, 5 who was the first one to get us involved in that and 6 brought this to our attention. 7 Also with me today is the Deputy 8 Comptroller for Budget, Marsha Van Wagner. 9 Let me thank you for this opportunity 10 to testify and express my support of Resolution No. 11 1235, calling upon the New York State Legislature to 12 reduce the excessive financial mandates they have 13 imposed on off-track betting corporations. 14 For years the New York State 15 Legislature's actions have drawn OTB's revenues away 16 from the City and other local budgets while 17 increasing payments to the racing industry. 18 As a result, New York City is not 19 getting its fair share of OTB's revenue. These 20 developments defeat OTB's original purpose. When it 21 was created 38 years ago, it was designed to benefit 22 both the City and State, as well as help the racing 23 industry. 24 New York City gets payments from its 25 share of a five percent surcharge on all winning 10 1 COMMITTEE ON FINANCE 2 bets placed at OTB parlors. It also receives all the 3 revenues left over after OTB pays off its operating 4 costs. Its statutory distributions to the State, 5 racing industry and race tracks, whatever residual 6 revenues remain after these entities are paid goes 7 to New York City. 8 Unfortunately, the revenues due to us 9 have plummeted in recent years as payments at OTB 10 makes to the racing industry have soared. Two years 11 ago, my office issued a report that documented the 12 deteriorating financial condition of OTB. We found 13 that between Fiscal Years '97 and 2001, the City 14 received an average of $11 million in residual 15 revenues from OTB. 16 That number fell to just $1 million 17 in Fiscal Year 2002. New York City didn't even 18 receive residual revenues in Fiscal Years '03 and 19 through Fiscal Years 2005 to '07. 20 In Fiscal Years 2004, revenues were 21 minimal. Looking forward, OTB's financial plan for 22 Fiscal Year 2008 to 2012, which was submitted in 23 January projects operating losses beginning at $16.8 24 million in Fiscal Year '08, increasing to $29.2 25 million by Fiscal Year 2012. 11 1 COMMITTEE ON FINANCE 2 So, where are the dollars that were 3 once due to the City now going? They're going to the 4 racing industry. In 2003, the State Legislature 5 amended the Racing and Wagering Law and imposed new 6 fees that OTB is obligated to pay to race tracks and 7 horse breeders. 8 Many of these fees are excessive and 9 unnecessary. For example, one of these new 10 provisions is a hold-harmless fee, which requires 11 that OTB give some of the money it makes during 12 nighttime races to harness tracks. 13 But at least in one case it's been 14 wasted money. OTB was paying Yonkers Raceway, even 15 though the track has been closed for renovation. 16 I know we can all think of better 17 ways to spend that kind of money instead of paying 18 off a closed racetrack. 19 Another new provision implemented in 20 2003 is a regulatory fee of .39 percent of all gross 21 wagers. This fee which was increased to .5 percent 22 in 2005 was created when OTB was granted permission 23 to simulcast its nighttime races. The result of new 24 fees like these is that OTB's statutory 25 distributions to the industry were growing at a far 12 1 COMMITTEE ON FINANCE 2 faster pace than its revenues. 3 In Fiscal Year '95 to Fiscal Year 4 2007, operating revenues grew 25.5 percent while 5 statutory distributions grew 35.3 percent. The City 6 is bearing the burden of this irrational trend. 7 In Fiscal Year '95 the total 8 surcharges going to the City were 24 percent of 9 statutory distributions. In Fiscal Year 2007, that 10 number has dropped to 14 percent. 11 During this same period, payments to 12 the racing industry increased from 55 percent of 13 statutory distribution to 71 percent. 14 So, as New York City is cutting its 15 budget and OTB is forced to operate under such bleak 16 circumstances, the State and racing industry are 17 making millions more by earning a greater share of 18 the economic pie than they were years ago. 19 Remarkably, these inequities have 20 increased in an environment where OTB is facing 21 increasing competition from the State lottery and 22 from casinos on Upstate Indian Reservations. 23 The current financial structure of 24 OTB is unsustainable and unacceptable. 25 As the Mayor has correctly concluded, 13 1 COMMITTEE ON FINANCE 2 there may be no other alternative than to shut down 3 OTB if current conditions remain. 4 During these uncertain economic 5 times, New York City cannot continue to pick up the 6 slack while others profit. It's time the State takes 7 action. 8 Current conditions impact the quality 9 of City services we provide for our communities and 10 threaten the jobs of the nearly 1,500 New Yorkers 11 who work at OTB parlors throughout the City. That's 12 why I support this resolution calling upon the State 13 Legislature to reduce the excessive financial 14 mandates they have imposed on off-track betting 15 corporations. 16 A long overdue reordering of the 17 State's priorities is urgently needed. New York City 18 has been shortchanged for far too long and it's time 19 the State address these unfair practices, 20 acknowledges that the current financial structure 21 does not work and takes the proper steps to give the 22 City our fair share. 23 Again, I appreciate the opportunity 24 to testify this morning, and again, to the head of 25 OTB, thank you for allowing me to lead off this 14 1 COMMITTEE ON FINANCE 2 morning. 3 CHAIRPERSON WEPRIN: Thank you, 4 Comptroller Thompson. 5 I'm sure you're aware that I have a 6 resolution in this body that I hope will be voted on 7 shortly, Resolution 1235, which would change the 8 formula to instead of the payouts being based on 9 gross revenue to be based on net revenue which would 10 allow New York City to keep some of their revenue 11 prior -- you know, after paying out all expenses. 12 Is that something that you support? 13 COMPTROLLER THOMPSON: Yes, it is. 14 I think right now the practice of 15 leaving New York City to be last in line to receive 16 revenues makes no sense. 17 CHAIRPERSON WEPRIN: You know, another 18 fear I have is if OTB was in fact to continue the 19 shutdown process and basically be put out of 20 business, one is New York City OTB itself is 21 profitable and is to a certain extent subsidizing 22 the racing industry, so it will actually get lost to 23 the State. But one of the goals behind OTB when it 24 was first established in 1970 was to basically 25 eliminate or reduce significantly the role of 15 1 COMMITTEE ON FINANCE 2 illegal bookies and illegal gambling as it's tied to 3 the racing industry. 4 Obviously, whether OTB exists or not, 5 I think it's a reality that they will be gambling on 6 horses and of course, you know, with organized crime 7 and illegal bookie operations, there is no revenue 8 at all to the City and State and obviously it 9 creates a very undesirable climate in our City. 10 Is that something that you fear as 11 well? And what are your feelings on that? 12 COMPTROLLER THOMPSON: Well, obviously 13 if OTB closes, you know, we would obviously be 14 concerned of where those individuals would go to 15 place bets, and would that drive the people to the 16 illegal side, you know, to be able to help organized 17 crime. 18 At the same point, I don't know 19 what's just about, it's a question in the long run, 20 a question of fairness. That the State, 21 unfortunately, you almost feel like you're into a 22 loan shark who continues to take a larger and larger 23 amount and charge an absorbitant amount and leaving 24 the City to cover a deficit where there is none. 25 It's almost imaginary deficit on the end on this. 16 1 COMMITTEE ON FINANCE 2 So, one would have to be concerned about, you know, 3 where those betters would go. At the same point, we 4 have to continue to be concerned that the State and 5 the racing industry continue to take an unfair cut, 6 what goes into OTB. 7 So, I share your concern. At the same 8 point I would like to applaud you for putting this 9 resolution forward. This is just an unfair 10 situation. 11 CHAIRPERSON WEPRIN: Thank you, 12 Comptroller. 13 There have been also some other 14 proposals of OTB potentially being taken over, at 15 one point I guess there was a question of whether 16 the State might consider it or a private entity. 17 That doesn't look like it's materializing at this 18 point. 19 What would be the status of the 20 pension benefits in the New York City pension system 21 which you have a major say in for those almost 1,500 22 OTB employees; one, if they were allowed to be 23 eliminated by the end of June; and, two, if for some 24 reason there was some kind of viable takeover 25 proposal at the last minute, how would that affect 17 1 COMMITTEE ON FINANCE 2 the pension? 3 COMPTROLLER THOMPSON: Well, I don't 4 know that it would have any substantial impact on 5 the system. 6 At the same point, it isn't the 7 pension concerns, which are the 1,500 members out of 8 over 640,000 active and retired members. But what it 9 means for those 1,500 individuals who are at risk, 10 who have to worry about are they going to have a job 11 or not. I think that's the biggest thing. 12 Particularly, as we are looking at tough economic 13 times, there aren't a lot of jobs out there right 14 now, and 1,500 people who are at risk of being 15 unemployed because the State refuses to make an 16 equitable adjustment is almost unconscionable. 17 So, I don't know that it has an 18 impact on our pension fund. It does have an impact 19 on the 1,500 people, who rely on OTB for employment 20 and providing service to those who place bets. 21 CHAIRPERSON WEPRIN: Have you had any 22 conversations with anyone in Albany over the New 23 York City OTB situation? 24 COMPTROLLER THOMPSON: We have not 25 recently, no. I mean, the only thing that we have -- 18 1 COMMITTEE ON FINANCE 2 no, we have not had any direct communications or 3 conversations with them about this. 4 CHAIRPERSON WEPRIN: Assuming there is 5 no change on the State's part, do you believe that 6 the City of New York should not be in a position to 7 subsidize New York City's OTB's operations if the 8 formula is not changed and they're actually paying 9 out in expenses more than they're able to keep? 10 COMPTROLLER THOMPSON: I happen to 11 agree with the Mayor in this case. I don't think 12 that New York City, particularly given the fact that 13 we are tightening our belts and making cuts down 14 here due to a shrinking economy, we can't expect to 15 use dollars or divert dollars from other places to 16 subsidize it isn't subsidizing OTB. Let's make it 17 clear, we're subsidizing the State of New York. 18 We're subsidizing the racing industry. It isn't 19 subsidizing OTB, it's taking City money and 20 basically sending it to the racing industry and the 21 State of New York. That's what we'd be doing. That 22 we can't afford to do. 23 CHAIRPERSON WEPRIN: Thank you. We've 24 been joined by Council Member Vincent Ignizio from 25 Staten Island in the front, and Council Member Peter 19 1 COMMITTEE ON FINANCE 2 Vallone, Jr., behind me. And I believe Council 3 Member Vallone had a question. 4 COUNCIL MEMBER VALLONE: No. 5 CHAIRPERSON WEPRIN: Council Member 6 Jackson has a question. 7 COUNCIL MEMBER JACKSON: Thank you, 8 Mr. Chair. 9 And Comptroller Thompson, let me 10 thank you for coming in on behalf of the people of 11 New York City expressing your views on this 12 extremely important issue. Obviously, you see the 13 green here representing Local DC 37, concerning the 14 future of all of the members of this particular 15 local. They have approximately 1,400 employees that 16 may be out of a job as of June of this year. And 17 obviously, they may be concerned about that, and if 18 I was in their situation, I will be concerned also, 19 jumping up and down, asking what is going to happen 20 to us? And who is going to stand up for us? So, I'm 21 happy that you're here testifying as far as the 22 impact that this would have on these employees, and 23 I'm happy that you're here standing up for these 24 employees. 25 But let me just tell you, I have 20 1 COMMITTEE ON FINANCE 2 attended press conference after press conference 3 with David Weprin on this particular matter, and I 4 am very, very upset - upset that it seems to me that 5 we, in New York City, are being ripped off. 6 Literally ripped off. They're tearing money out of 7 our pockets, and giving it to the racing industry. 8 And I'm visualizing that you have a 9 pigpen literally with pigs in there eating, eating 10 away, and they're eating at our corn on the cob. And 11 you know one thing? It's time to let those pigs out 12 of the pen and let them go and find it somewhere 13 else. And I'm very serious about that. Because, you 14 know, when you look at this, it's not like the 15 revenues have dropped and people are stopped 16 betting. It's a billion dollars a year. And 17 obviously, you know, New York City, as you said in 18 your testimony, the purpose of it was in order to 19 provide some revenue for New York City, New York 20 State and the racing industry. But it seems as 21 though as years have gone along, it's like you allow 22 the giraffe to stick his head in the tent at night 23 to sleep, and when you wake up, he's going to push 24 you or kick you out of the tent and he's all in 25 there by himself, and this is totally unacceptable. 21 1 COMMITTEE ON FINANCE 2 So, I want to know from you as the 3 Comptroller, what would be the impact on New York 4 City, if, in fact, all of the OTB parlors closed 5 down and 1,500, 1,600, both unionized and management 6 employees, were out of work, what impact would that 7 have on New York City? 8 COMPTROLLER THOMPSON: All right, 9 well, I can't quantify it directly right now. It 10 wouldn't mean, obviously, a loss of revenue to New 11 York City, because there is no revenue to New York 12 City. What it would mean is the jobs, take the 13 salaries of those 1,500 people, total them up, 14 that's what we would lose to begin with. And I know 15 that, you know, people have talked about buy-outs, 16 as well as trying to help place individuals in other 17 agencies. Let's just look at it as the salaries that 18 go to those 1,500 people, which we would no longer 19 receive taxes from, which we wouldn't receive the 20 economic support in our communities from, as they do 21 things, as they buy things and purchase things, and 22 then think of it as the unemployment that we'd have 23 to pay to 1,500, the health benefits that we'd have 24 to, in fact, pick up in this by the City of New York 25 and Medicaid and other places, that's the way we 22 1 COMMITTEE ON FINANCE 2 have to look at it. 3 As I said, I can't give you a number 4 right off the top of my head. We can take the 5 salaries there now and be able to sit down and say 6 that's a loss for New York City. Those taxed that 7 are being paid, the loss of esteem that the members 8 who were working before would all of a sudden lose, 9 and what it means to their families and their 10 neighbors. 11 So, it's hard to quantify that. I can 12 give you a dollar amount, I can't tell you the 13 actual impact because it's a human impact and one 14 that we can't measure. 15 COUNCIL MEMBER JACKSON: Now, you're 16 the Comptroller of the City of New York, it is my 17 understanding that the State Legislature and the 18 Governor would have to act in order to save this 19 situation. If you were the Governor, or if you were 20 in charge, what would you do in order to save these 21 employees? 22 COMPTROLLER THOMPSON: I would work 23 out something that is more equitable for this City 24 of New York. The City of New York, even if it wasn't 25 to allow us to walk away with a huge surplus or a 23 1 COMMITTEE ON FINANCE 2 huge benefit because of it, at the same point, you 3 would want to work something out that's fairer and 4 more equitable, that allows OTB not to operate at a 5 deficit then, that would enforce the City of New 6 York to have to subsidize OTB to keep it open. 7 That's what I would do, work out something that's a 8 little more equitable, and I know that if it was 9 left to me, we wouldn't be paying places like 10 Yonkers Raceway a million dollars to stay closed. In 11 fact, we'd work out something a lot better. 12 CHAIRPERSON WEPRIN: Okay, let me 13 interrupt for a second. We have some students in the 14 balcony from IS 61 in Staten Island. 15 COUNCIL MEMBER JACKSON: Hey. 16 CHAIRPERSON WEPRIN: We welcome you to 17 City Hall, and we're having a hearing now on 18 oversight on the New York City Off Track Betting 19 Corporation, and we're currently hearing from the 20 Comptroller of the City of New York, William 21 Thompson. 22 COUNCIL MEMBER JACKSON: And, finally, 23 I believe you responded when Chairman Weprin asked 24 you whether or not you had communicated directly to 25 Albany to anyone concerning this particular matter, 24 1 COMMITTEE ON FINANCE 2 I believe your response is you have not? 3 COMPTROLLER THOMPSON: We have not. 4 COUNCIL MEMBER JACKSON: Well, I'm 5 asking you on behalf of the 1,500 members that you 6 communicate directly with Albany, with the Governor, 7 because the Governor would probably take your phone 8 call faster than he would take mine, and Shelly 9 Silver, the Speaker would probably take your phone 10 call faster than mine, and also the Majority Leader 11 Joe Bruno would probably take your phone call faster 12 than mine, and ask them to please work out 13 something. But not only that, but maybe make a 14 suggestion how it could be worked out. 15 COMPTROLLER THOMPSON: I will reach 16 out to all of them. At the same point, I'm not sure 17 they would take my call. Everybody knows, you better 18 take Bob Jackson's call or you're in trouble, okay? 19 COUNCIL MEMBER JACKSON: Thank you, 20 Mr. Comptroller. 21 Thank you, Mr. Chair. 22 CHAIRPERSON WEPRIN: Thank you, 23 Council member. 24 Council Member Sears. 25 We've also been joined by Council 25 1 COMMITTEE ON FINANCE 2 Member Gale Brewer from Manhattan, and Council 3 Member Bill DeBlasio from Brooklyn. 4 Council Member Sears. 5 COUNCIL MEMBER SEARS: Thank you, Mr. 6 Chair, and good morning. 7 COMPTROLLER THOMPSON: Good morning. 8 COUNCIL MEMBER SEARS: I think most of 9 what I was going to raise has been answered, but 10 this hasn't just erupted, so I may be very naive 11 about this, but there has been enormous resistance 12 from the State to do what everybody has been asking, 13 and what the proposals are. So, can we base this on 14 pure greed by the State, and would rather see what 15 is happening to this in the City of New York proceed 16 and go ahead? I'm very confused on why this 17 overwhelming obnoxious resistance on the part of the 18 State to do what is fair and what is equitable. That 19 is totally against what government is about. This is 20 unfair. It's unequal. It's rather nauseating because 21 they would rather see something literally go down 22 the tubes and rather than address a very critical 23 issue in the City of New York. 24 COMPTROLLER THOMPSON: Well, while 25 this is an unfair situation, this isn't the only. I 26 1 COMMITTEE ON FINANCE 2 mean, we could run down a long list of inequities, 3 or inequitable treatment by the State of New York 4 City. 5 You know, we can simply look at 6 things like mass transit, and look at the percentage 7 of riders that are carried in New York City Transit 8 on a daily basis, at least as far in the region, 9 which is over 90 percent, and look at the amount of 10 capital funds we would receive. And we can go on and 11 on and on and on and on. 12 New York City, and in New York State, 13 when you're looking at Medicaid, around the rest of 14 the country it's a 50/50 split between the State and 15 the federal government. Not in New York. 16 And if you look at some payments of 17 people who are attempting to adjust in the budget, 18 as we look at other payments, where we pick up 50 19 percent and the State picks up 50 percent, the 20 federal government picks up -- well, we pick up 25 21 percent each and the feds pick up 50 percent, all of 22 a sudden there was an attempt this year to have us 23 pick up 52 percent and the state pick up 48 percent. 24 The inequities, it isn't a question of let's just 25 look at this situation. It is in looking at the 27 1 COMMITTEE ON FINANCE 2 State, compared to the City, and understanding first 3 that we are the economic engine that drives the 4 State and look at the way that we are treated and 5 the amount that we receive in regard to the amount 6 that we send to Albany and how we are shortchanged 7 there. 8 So, this is another example, and 9 perhaps a bad example on their part, or you know, of 10 another unfair situation, but it's a long list and 11 one that continues to grow. 12 COUNCIL MEMBER SEARS: That's why I 13 ask that question, and perhaps we have to redirect 14 our energies and not pick out one particular issue, 15 one particular category of employment, but to 16 address the entire issue, and I think the Council 17 should march up to Albany, all of us, Mr. Chair, in 18 its entirety to really advocate. 19 The Council has a powerful voice. I 20 think there are times, and I say it openly, that we 21 are very hesitant to speak as a solid group. We're 22 very hesitant to issue subpoenas when we have the 23 power to do so. 24 Unless this voice that is a powerful 25 body begins to use what we actually can impose, and 28 1 COMMITTEE ON FINANCE 2 I would say to all my colleagues that I think we 3 would have to address the issue of how New York City 4 gets treated in its entirety and I think we should 5 all be going up to Albany. It's rather late at this 6 point, but it's never too late to have the voices 7 heard, and I think, Mr. Comptroller, that we really 8 have to redirect our energies and look at the City 9 in its entirety in order to be more effective. 10 That's all. 11 CHAIRPERSON WEPRIN: Thank you, 12 Council Member. 13 Council Member Fidler. 14 COUNCIL MEMBER FIDLER: Good morning, 15 Comptroller Thompson. 16 I want to start off by saying I 17 support this resolution 1,000 percent, but I have a 18 slightly different recollection of the testimony we 19 had from Deputy Mayor Dan Doctoroff, and I've been 20 scouring the record to try and find out why. 21 The former Deputy Mayor came before 22 this Committee and suggested that when you look at 23 the totality of the revenues and the cash flow from 24 OTB, that notwithstanding the operating losses, the 25 City of New York would still benefit to the tune of 29 1 COMMITTEE ON FINANCE 2 about $10 million in the upcoming Fiscal Year and 3 that profit would then disappear in the year 4 following that. 5 He may have been contemplating the 6 taxed received from paying the employees, and 7 whatnot; does that jive with your understanding? 8 COMPTROLLER THOMPSON: No. We continue 9 to look at this as a situation where the City share 10 continuous -- where we're on a declining scale and 11 the City is going to have to put money into OTB to 12 keep it open. 13 So, no, we do not see this as -- I 14 don't see it the same way. 15 COUNCIL MEMBER FIDLER: Again, I want 16 to be clear. There is no question that we're being 17 ripped off on this formula, and something has got to 18 change. My dialogue with the former Deputy Mayor was 19 as to when do we push the button and tell the State 20 of New York that we are going to take these 1,400 21 employees, put them out of business, close how ever 22 many locations OTB has and throw a glut of space 23 onto our retail market. That's pretty draconian. I 24 think it has an enormous impact, particularly if 25 you're one of the 1,400 employees. 30 1 COMMITTEE ON FINANCE 2 When you look at the entire totality 3 of the circumstance, and analyze whether or not the 4 revenue generated by taxes and the economy of having 5 OTB operating fully; is it conceivable to you that 6 OTB benefits the City of New York financially to 7 some small degree going forward past this fiscal 8 year? 9 COMPTROLLER THOMPSON: I understand 10 you're looking at the net, at the final bottom line. 11 I don't know that given the increase that the City 12 is going to have to contribute that it would even 13 offset the taxes being paid on the rent that's being 14 paid by those who currently work for the Off Track 15 Betting Corporation. I just don't know that. And if 16 there is a balance there, it's close. 17 So, we just haven't done the let's 18 take the taxes amount, the total amount of salaries 19 being paid to individuals, what that would provide 20 in taxes to just the City of New York, and then to 21 see whether it would offset the amount the City is 22 going to have to pay. 23 But understand something, given where 24 we are all at, and the fact that -- and you are 25 involved in the budget discussions down here and 31 1 COMMITTEE ON FINANCE 2 realize that we're marching to a tighter and tighter 3 budget as we see revenue shrinking in New York City, 4 what we wind up having to do, and we are all making 5 cuts, what we would have to do is make reduction in 6 other places to be able to redirect additional 7 dollars to basically underwrite OTB. That's what 8 we'd have to do. 9 COUNCIL MEMBER FIDLER: There is no 10 question, it's an offensive notion that the State 11 has saddled us with a formula that would make the 12 only bookie operation in the world lose money, and 13 there is just no -- you know, obviously the 14 operation of OTB doesn't lose money until you saddle 15 us with those regulations. 16 So, there is no question, I'm not 17 trying to play gotcha with you, and I'm going to 18 look at the record and come back to you. 19 I mean, the Deputy Mayor and I had a 20 lengthy dialogue because to me, I felt that the City 21 of New York, as correct as they are in their 22 position as to this misapplied formula, okay, this 23 unformula, was playing chicken with the lives of 24 1,400 people who work in the City of New York every 25 day, and then some, because there are other 32 1 COMMITTEE ON FINANCE 2 implications to all the operations that go on in our 3 neighborhoods, the stores that are next to them. I 4 mean, I think of the OTB parlor on Avenue U that 5 probably, there are two local luncheonettes that 6 probably live and die on the existence of that OTB. 7 So, the idea of saying, hey, we're 8 going to shut this down now when we might still be 9 actually net profitable in the bottom line of the 10 City of New York, that's something I don't want to 11 do until it's absolutely positively necessary. 12 And while I know the union, in fact, 13 supports the Mayor's, you know, call to close OTB if 14 they don't change the formula, and I think that's a 15 very brave and courageous position for them to take, 16 I'm just a little concerned that Albany will do what 17 Albany frequently does, which is turn its back on 18 fairness to the City of New York, and then we'll 19 wind up having to push the button and terminate 20 1,400 people before we need to do that. And I'm 21 going to ask you to take a look at that. 22 I'm going to look back at the record 23 to see why my recollection of the numbers are 24 different than of those in the briefing paper today. 25 COMPTROLLER THOMPSON: And I 33 1 COMMITTEE ON FINANCE 2 understand your concern, Councilman. The only thing 3 is, even if we anticipate continuing, and the City 4 then underwriting or subsidizing OTB, it's an 5 increasing amount over a period of years, so we may 6 be looking at 16.8 for the next fiscal year, but 7 that grows to almost $30 million in Fiscal Year 8 2012, and ask the City to subsidize that, to 9 subsidize OTB at the same point while the revenue is 10 there, and it's just that others, you know, continue 11 to rip us off, is just, you know, is unconscionable. 12 And that is we're being asked to basically, you're 13 taking money out of the City of New York and using 14 it, or out of our budget, to subsidize the racing 15 industry and the State of New York. 16 COUNCIL MEMBER FIDLER: I agree with 17 that completely. It's just my recollection that the 18 Deputy Mayor said we had one more year where we 19 would be fiscally in the black, and, you know, to me 20 it seemed a bit cutting off one's nose to spite 21 one's face. 22 So, thank you. 23 COMPTROLLER THOMPSON: Thank you, 24 Councilman. 25 CHAIRPERSON WEPRIN: Thank you. 34 1 COMMITTEE ON FINANCE 2 We've been joined by Council Member 3 Leroy Comrie of Queens, and Councilman Jim Gennaro 4 of Queens. 5 The next questioner is Council Member 6 Koppell. 7 COUNCIL MEMBER KOPPELL: Thank you, 8 Mr. Chairman. 9 I'd like to follow-up on Lew Fidler's 10 questions. I'm still not clear even after looking at 11 your numbers, Comptroller, and the briefing paper. 12 Taking your numbers, which I think 13 are pretty straightforward, you say on the first 14 page of your statement that we get payments from our 15 share, that is the City's share of five percent 16 surcharge on all winning bets, and if I read the 17 briefing paper correctly that's essentially the 18 revenue that the City picks up outside of what might 19 be left after OTB operations. So, how much was that? 20 How much was that in the last year? The last fiscal 21 year? 22 Maybe better than that, because we're 23 looking at this Fiscal Year 2008, I guess, what is 24 that projected to be for Fiscal Year 2008? 25 DEPUTY COMMISSIONER VAN WAGNER: Okay, 35 1 COMMITTEE ON FINANCE 2 we don't have the projections for Fiscal 2008, but 3 we do have the surcharge revenues in 2007 were $19 4 million, but there were no residual payments. So, 5 it's two separate streams of income. 6 COUNCIL MEMBER KOPPELL: So, there 7 were $19 million in surcharge payments and the 8 operating loss for Fiscal 2008 is projected at 16.8 9 million; is that correct? 10 DEPUTY COMMISSIONER VAN WAGNER: 11 That's correct. 12 COUNCIL MEMBER KOPPELL: So, if we 13 assume, I assume that's before the 19 million? 14 DEPUTY COMMISSIONER VAN WAGNER: 15 That's after the 19 million. 16 COUNCIL MEMBER KOPPELL: You're saying 17 to me that the $16.8 million operating loss takes 18 into account the $19 million of revenue that the 19 City gets? 20 Are you sure of that? 21 DEPUTY COMMISSIONER VAN WAGNER: Yes, 22 the 16 million is like at the bottom of the line. 23 It's after the 19 million is paid out. 24 COUNCIL MEMBER KOPPELL: Well, it's a 25 funny way of putting it, though, frankly. And I 36 1 COMMITTEE ON FINANCE 2 would like to make sure that that is so. Because if 3 it's not so, then my colleague Councilman Fidler's 4 comments are well taken. 5 COMPTROLLER THOMPSON: It is a net 6 number. 7 COUNCIL MEMBER KOPPELL: It is a net 8 number? 9 COMPTROLLER THOMPSON: The loss is a 10 net number. 11 COUNCIL MEMBER KOPPELL: Now, are the 12 formulas applied to the City different? I believe 13 there are other OTBs in the State, if I remember 14 correctly. I am not a great expert on this, but I 15 think there is a capital district OTB and other ones 16 as well. Is the formula that we are saddled with the 17 same as for these other OTBs? Do you know? 18 DEPUTY COMPTROLLER VAN WAGNER: Yes, I 19 believe it's the same formula. 20 COUNCIL MEMBER KOPPELL: And do they 21 also lose money? 22 DEPUTY COMPTROLLER VAN WAGNER: No. I 23 think we are in the worst shape, although most of 24 the other ones are not in very good shape. 25 COUNCIL MEMBER KOPPELL: Well, why is 37 1 COMMITTEE ON FINANCE 2 it that we lose money, or more money than the 3 others, do you know? Have you done any analysis of 4 that? 5 DEPUTY COMPTROLLER WAGNER: We have 6 more expensive operating, more expensive leases 7 here, more expensive, you know, variety of other 8 costs are just higher in New York City than they are 9 in, you know, Upstate New York. 10 COUNCIL MEMBER KOPPELL: I'm not being 11 critical of New York City OTB and its operations, 12 because I don't have any knowledge to know whether 13 they're efficient or not efficient, but have you 14 done any analysis to see whether they are operating 15 as efficiently as they could? 16 COMPTROLLER THOMPSON: The one thing 17 that over a period of years, OTB has continued to 18 operate more efficiently. They have created 19 efficiency. They have tightened their belt. They 20 have done things to try and make more and to operate 21 at a profit, and just over a period of time the 22 formulas and the distributions work against them. 23 COUNCIL MEMBER KOPPELL: So, I assume 24 your people or you have looked at the salary 25 structure and other details with respect to the 38 1 COMMITTEE ON FINANCE 2 operations, and do you find them to be appropriate? 3 COMPTROLLER THOMPSON: Yes, we do. And 4 as a matter of fact, the one thing we did not bring, 5 and it is perhaps two years old, but we had done a 6 report that took a look at OTB, I mean the funny 7 thing is it started -- I was at an event and used 8 the old line that OTB was the only bookie that lost 9 money, and Lenny Allen came over to me afterwards 10 and said there are reasons why. We began to take a 11 look and did a report two years ago that highlighted 12 the problems. And though they have worked to greater 13 efficiencies at OTB, their salary structure is not 14 out of whack with other places or at least within 15 the City of New York. It really is the distributions 16 or what occurs in those formulas. 17 COUNCIL MEMBER KOPPELL: Well, I 18 appreciate your support in the resolution. I am a 19 co-sponsor of the resolution, and I want to second 20 what I believe Robert Jackson suggested in that you 21 contact the leaders in Albany yourself, because as 22 the Comptroller I think you have considerable 23 credibility. 24 COMPTROLLER THOMPSON: We will do 25 that. 39 1 COMMITTEE ON FINANCE 2 COUNCIL MEMBER KOPPELL: Thank you. 3 CHAIRPERSON WEPRIN: Thank you. 4 We have been joined by some more 5 colleagues. We have our majority leader from the 6 Bronx, Council Member Joel Rivera, we have Council 7 Member Vincent Gentile from Brooklyn, and Council 8 Member Eric Gioia from Queens. 9 The next questioner is Council Member 10 Oddo. 11 COUNCIL MEMBER ODDO: Thank you, Mr. 12 Chairman. 13 Let me just say that when Robert 14 Jackson calls me, irrespective of who is on the 15 phone with me, I hang up and I take Robert Jackson's 16 call. 17 Welcome, Mr. Comptroller. Let me just 18 say at the outset that your comments about the 19 inequitable treatment of the State of this City, 20 particularly vis-a-vis mass transit, is something 21 that resonates with Council Member Ignizio and I who 22 represents that now. Take that mistreatment to the 23 endth degree and you know how people on Staten 24 Island feel when it comes to mass transit. Maybe one 25 day you'll be in a position where you could help us 40 1 COMMITTEE ON FINANCE 2 with that long-standing problem. 3 I guess my question is for the 4 Chairman, as well as the Comptroller, and that is, 5 if you kind of follow the money trail, ultimately it 6 leads to who is running racing in New York State. 7 And I think there have been some very 8 curious decisions made in the last two years as to 9 who runs and who is in charge of racing in New York 10 State. I actually, I probably shouldn't admit this 11 on camera, but I was kind of weaned on a racing form 12 as a kid when we spent time in Lake George and 13 Saratoga Racetrack, and I've spent time at maybe an 14 OTB parlor or two during my day. So, I'm a fan of 15 racing, and I've been following this sort of as a 16 hobby, and it's interesting Governor Pataki and the 17 Pataki Administration tapped one entity to run it, 18 Governor Spitzer came in, sort of threw that 19 decision out and there was this RFP or some sort of 20 formula and to do a pun on betting, if you were to 21 bet on a NYRA in the beginning, they would have been 22 the sort of nag in the race. And somehow at the end, 23 NYRA, who is about as well run as the MTA, ends up 24 being the pony that we're going to ride, and, 25 frankly, they haven't done a good job. As a fan of 41 1 COMMITTEE ON FINANCE 2 horse racing, I'm not a big fan of NYRA. But we 3 re-upped NYRA, so when you look at how much money is 4 siphoned out of OTB, to go in part, I was just 5 reading the briefing papers to see exactly how much, 6 and I guess that's my question, isn't that part of 7 the problem here? The people who are running racing 8 in New York State haven't done a good job. So, when 9 they're looking for resources, where do they go? 10 They go to OTB and they take money essentially out 11 of the pockets of New Yorkers. 12 So, I guess my question is, is there 13 a role for the City Council in reviewing and maybe 14 after the fact now, but talking about publicly the 15 selection process, the fact that there was Empire 16 and Excelsior and Capital Play who all had pretty 17 innovative packages and recommendations and ideas 18 about changing racing in New York State, and low and 19 behold we go back to the entity that is essentially 20 racing New York State into the ground. 21 So, I guess it's a rant, but there is 22 a question in there somewhere. Shouldn't we be 23 talking also about the end of the money trail? And 24 who runs racing in New York State? 25 COMPTROLLER THOMPSON: That could be 42 1 COMMITTEE ON FINANCE 2 part of the discussion, and I must agree with you in 3 one who would kind of follow that in a little bit of 4 a distance, no one thought that NYRA was going to 5 wind up continuing to run things. And that was the 6 organization that had run racing into bankruptcy in 7 the State of New York, and to have them brought back 8 is astonishing. 9 I don't know if there is anything 10 that can be done there, other than just sitting back 11 and raising voices and going, curious decision. But, 12 no, I found it to be one that was astonishing. 13 COUNCIL MEMBER ODDO: I don't know if 14 the new Governor, if it's in -- I think it's a fait 15 accompli, I don't know if it can be changed at this 16 point, but I certainly think that we're going to be 17 talking about this issue that we have to at least 18 sort of educate the public that there were some very 19 curious decisions made about who is the entity that 20 should be running racing in New York State. 21 And I think, if you think about it, 22 if they're bad and they've done a bad job, and 23 they're hemorrhaging, of course they're going to 24 come to an entity that they see as a cash cow, and 25 it is OTB, it impacts the employees, and ultimately 43 1 COMMITTEE ON FINANCE 2 it impacts our constituents. And, you know, again, 3 I'm a little jaded as a horse racing fan, and a fan 4 of the sport. It's sad to see what they've done to 5 it, but as an elected official, I know the 6 implications for my constituents, many of whom are 7 employees, who are now facing losing their job, and 8 my constituents as taxpayers. Ultimately you have to 9 find the end user here, and the end user is NYRA, 10 and they consume our tax dollars, and they haven't 11 done a very good job of it. 12 CHAIRPERSON WEPRIN: Thank you, 13 Council member. 14 Council Member Vallone. 15 COUNCIL MEMBER JACKSON: Go get 'em, 16 Peter. 17 COUNCIL MEMBER VALLONE: I will, 18 Robert. 19 I'm going to assume that your call to 20 throw the pigs out of the pig pen is support for my 21 secession bill? 22 COUNCIL MEMBER JACKSON: Without a 23 doubt. 24 COUNCIL MEMBER VALLONE: You know, as 25 I said, we can continue to have these therapy 44 1 COMMITTEE ON FINANCE 2 sessions where we vent our anger, but nothing 3 changes, or we can actually move seriously towards 4 secession. 5 You know, it's tougher in the 6 abstract to prove that the State, the harm that the 7 State inflicts on the City, when we have to make 8 cuts or raise taxes because of the State, the people 9 may think, oh, that's just politicians pointing 10 fingers and squabbling, but when OTB workers that we 11 see here in the room are going to lose their jobs 12 because of Albany's refusal to be fair, well, then I 13 think the State's naked greed is obvious, and no one 14 can argue that. 15 I think maybe we should use our OTB 16 workers as our own Boston tea party and finally, 17 finally we can rise up and seek fairness and seek 18 justice for New York State. Not that I advocate 19 throwing you guys into the sea or anything. Don't 20 worry, we like you. We're all on your side here 21 today. But, you know, I think this clearly shows 22 what we've been saying all along, many of us here at 23 the Council, the inequities. 24 And Mr. Comptroller, by the way, I 25 started my secession push back after a Comptroller's 45 1 COMMITTEE ON FINANCE 2 report that showed that the E 9-1-1 surcharge that 3 was supposed to be used to give us, to improve our 4 9-1-1 systems here and give us a back-up system, 5 which we still don't have, was being stolen from us 6 since 1991. So, just continue, please to document 7 these inequities so we can use them. We appreciate 8 your support for this. Thank you for coming down 9 today, and I know other people need to speak, so 10 thank you. 11 CHAIRPERSON WEPRIN: Thank you, 12 Council Member. 13 Council Member Ignizio. 14 COUNCIL MEMBER IGNIZIO: Thank you 15 very much. I know we're not doing much to swayed the 16 Italian American racing love by me, Oddo, and then 17 Vallone speaking at the same time, but my uncle, 18 too, and my grandfather, funded enough to the OTB to 19 keep them in business here in New York City, and I'm 20 shocked to learn of the deficit situation here. 21 You know, the one point I wanted to 22 make to you, Comptroller, and to anyone listening at 23 home, is that this is a very unified New York City 24 issue. Republicans, democrats, conservatives, 25 liberals, every one here in this body is looking up 46 1 COMMITTEE ON FINANCE 2 to New York State and saying we know you're 3 pick-pocketing from our constituents. 4 Not only is New York the engine of 5 the State, I was up in the State, for those of you 6 who do not know, for some time, but the money from 7 OTB is coming in large measure from New York City 8 gamblers and those who are placing bets upon horses 9 and whatnot. 10 So, the fact that we are even in 11 deficit spending is unconscionable to me. You know, 12 I don't have a solution. I'm putting my lot, in 13 terms of people who are smarter than I am, what to 14 do towards the end, and I appreciate your leadership 15 and that of this Committee, but let's the State know 16 that New York City is extremely serious about the 17 situation that we've been put under where the tax 18 dollars from our constituents are getting sent to 19 Albany, never coming back, and not only that, you're 20 taking more money out of our pockets. It's 21 unconscionable, it must stop, and I applaud the 22 efforts of your office and this Committee for doing 23 so. 24 Thank you. 25 CHAIRPERSON WEPRIN: Thank you. 47 1 COMMITTEE ON FINANCE 2 Comptroller, thank you for coming. 3 COMPTROLLER THOMPSON: Mr. Chairman, 4 it's always a pleasure to be here. Thank you. And 5 I'd like to thank all the members. 6 CHAIRPERSON WEPRIN: The next witness, 7 and we appreciate him being around and allowing the 8 Comptroller to go first, is the President of the New 9 York City OTB, Raymond Casey. 10 Mr. Casey is joined by Mark 11 Rosenbaum, who is the Counsel to New York City OTB. 12 MR. CASEY: Mr. Chairman, thank you 13 for the invitation today and to all of the members. 14 I would also like to, before I start my remarks, 15 thank you all for the support and the support of 16 things that you have already said in this hearing. 17 I would also like to introduce Marc 18 Rosenbaum, who is my Chief of Staff and Counsel. 19 Also in the room is my CFO, Bob Gary, who has 20 recently joined OTB in the last year. Formerly he 21 was the CFO at the Tennis Association, so he's been 22 around entertainment sports for a long time. 23 I think if you look, Mr. Koppell, at 24 most of the staff at OTB, you will not find typical 25 long-term government employees, most of the senior 48 1 COMMITTEE ON FINANCE 2 managers at OTB come out of the private sector. Bob 3 has worked in race tracks, as well as in sports 4 organizations. My Chief Operating Officer actually 5 headed up the regulation for the State and has run a 6 race track in the past, and what you'll find is many 7 of the executives at OTB are professionals in both 8 in horse racing and in regulatory issues. 9 My most recent invitation to appear 10 before the Committee on Finance to testify 11 concerning the current circumstances of New York 12 City Off-Track Betting Corporation, regrettably 13 represents an occasion on which I can only say that 14 no information I can offer today is any different 15 than what I have constantly presented to this 16 Committee and other legislative bodies over the past 17 three years. 18 OTB is at and somewhat beyond its 19 crossroads. Notwithstanding my calls for 20 restructuring of the State-imposed statutory 21 distribution of revenue, it is effectively no 22 different than my prior appearances before this 23 Committee. 24 The only variation is that I can tell 25 you now with certainty, and with profound 49 1 COMMITTEE ON FINANCE 2 disappointment, is that steps to close down OTB has 3 already begun. As you know, on February 19th, 2008, 4 the Board of Directors of the New York City 5 Off-Track Betting Corporation adopted a resolution 6 that I presented to them and they, by unanimous 7 vote, directed that that closure plan be 8 implemented. 9 A copy of the closure plan, together 10 with a certified copy of the Board resolution and a 11 letter of explanation of the circumstances prompting 12 that adoption of the closure plan by my Board, was 13 transmitted to the New York State Racing and 14 Wagering Board on March 10th, 30 days ago today. 15 The closure plan calls for the 16 complete close down of the Corporation's wagering 17 activities as of June 15th and the laying off of 18 nearly all of our employees on or about June 16th, 19 just a little more than two months from now. To be 20 followed by a six- to eight-week period in which an 21 orderly wind-down of the Corporation's remaining 22 activities, and the clearing out of all physical 23 facilities will take place. In other words, a 24 deconstruction of all the branches and a 25 surrendering of the OTB locations to landlords. 50 1 COMMITTEE ON FINANCE 2 To date, while there has been much 3 talk about the need for legislative action to fix 4 New York City OTB, the talk has not produced any 5 concrete legislative action in Albany. Without such 6 concrete change in the law, which would provide the 7 structure for sustainable OTB operations, the 8 unthinkable will take place. After nearly four 9 decades of operation, there no longer will be a New 10 York City OTB. That is, that there will no longer be 11 a way to wager legally in person on horse racing 12 within the City of New York, other than at Aqueduct. 13 There will be the loss, as you have 14 heard today, of New York City employment for nearly 15 1,500 employees. Fourteen-hundred of those that are 16 represented by unions, and approximately 100 17 management employees throughout the City, many of 18 whom served the Corporation in this City for 19 decades. In addition, financial support which New 20 York City OTB provides to the racing industry in the 21 Empire State will cease immediately. And this will 22 have significant negative impacts upon all the race 23 tracks, breeding funds and other industry 24 participants who are beneficiaries of New York City 25 OTB's activities. 51 1 COMMITTEE ON FINANCE 2 These negative economic impacts will 3 be felt throughout the entire economy of the State 4 of New York. And I don't have to tell you how badly 5 that economy is already suffering. Why should this 6 be so, you rightfully may ask? I have a very simple 7 answer: no business, even the best run one, with the 8 most sophisticated management, the most experienced 9 directors and employees, collectively possessing all 10 of the industry wisdom and knowledge there is, can 11 continue to operate when it is forced to distribute, 12 not just all of its profits to its stakeholders, but 13 more than all of its profits. 14 The central flaw in the racing law is 15 that the statutory payments are gauged as 16 percentages of gross handle, or gross retail sales 17 to set this into a retail context. But these are 18 mandated payments off the top line revenue, and do 19 not make any accommodation or adjustment for the 20 operating costs associated with the generating of 21 that very income. 22 The State not only regulates the 23 price but they also control where the revenue goes. 24 Over the years, the statutory payment mandates have 25 not diminished but rather have increased, indeed at 52 1 COMMITTEE ON FINANCE 2 an alarming rate in the past decade. 3 These actions were a direct hit to 4 our net profits and shifted those monies from the 5 City to the State and to racing entities. 6 Each year, since 2003, legislative 7 impositions just by themselves increase the 8 mandatory statutory payments for New York City OTB 9 operations in a combined amount of six- to 10 seven-million dollars annually. And while these are 11 not the only causes of our current financial crisis, 12 certainly they have been accelerants of our 13 impending closure. 14 Notwithstanding that the legislature 15 has been occupied with many issues this year, they 16 have addressed other gaming and racing issues 17 already. 18 For example, the Thoroughbred racing 19 franchise has been awarded and Albany has enhanced 20 vendor fees, marking allowances, and the capital 21 investment funding for race tracks operating VLTs. 22 Council Member Oddo made a comment 23 about the racing franchise but what he failed to 24 mention, and maybe he's not aware of it. But there 25 was a change in the law that actually directed 53 1 COMMITTEE ON FINANCE 2 another 130 million dollars away from education 3 funds to harness tracks and Thoroughbred tracks to 4 support their operations. 5 Those monies will go to support 6 marketing fees and vendor fees for the operators of 7 those casinos throughout New York State. The theory, 8 and you've heard me testify before and I do like to 9 give both sides of every issue, the theory was that 10 by giving them more marketing fees and more money to 11 operate, some of the smaller tracks could break 12 even, but some of the larger tracks could produce 13 more revenue theoretically down the road. 14 So, fundamentally, I mean what 15 happened on that bill is you take $130 million and 16 we made a bet that all of those entities will 17 operate efficiently, market properly and then 18 education will end up with more money in the end. 19 And it sort of happened really I 20 think without a lot of people realizing that the 21 government was making yet another bet. 22 I know that this Committee is 23 profoundly aware of the circumstances I have just 24 outlined, and I am confident that the Committee, 25 were it within their legislative authority to 54 1 COMMITTEE ON FINANCE 2 directly effect a change of these onerous 3 distribution requirements would do so immediately. 4 But this subject is purely a matter of State law and 5 a solution, if there is to be a solution, must come 6 from Albany. 7 What is most frustrating to me, and I 8 would expect to the City Council Finance Committee 9 members, as well, is that as aware of the issues as 10 the State may be, and as willing to address the 11 problem as the State declares itself to be, there 12 appears to be no consensus on how to accomplish the 13 necessary changes to fix the distribution scheme. 14 The bottom line reality is that given 15 the mode and manner of the structural organization 16 of payments under the Racing Law, what we are 17 confronting, at least in the short term is the 18 classical illustration of a zero sum game. 19 What I mean is that in order for New 20 York City OTB to be able to retain the necessary 21 portion of its revenue that would allow it to break 22 even and perhaps even reinvest in its 23 infrastructure, God forbid, some other industry 24 participant necessarily must receive a lesser share 25 of the wagering revenue pie - a pie of nearly $138 55 1 COMMITTEE ON FINANCE 2 million last year, which by the way, was $9 million 3 more than OTB's profit. 4 Council Member Fidler had a question 5 about Dan Doctoroff's testimony and I'll try to 6 address it at the conclusion of my remarks. 7 Until now, and even maybe going 8 forward, no individual constituency in the racing 9 industry has been willing to accept even a slightly 10 lesser amount in order for New York City OTB to keep 11 operating. 12 Perhaps those constituencies will 13 change their minds when our doors are actually 14 closed. But it will be too late. 15 Thank you for offering me this 16 opportunity to present the reality of the situation, 17 even if it is unpleasant news. And I would be 18 pleased to answer any questions. 19 I would also note that on Friday a 20 critical step will occur in the close-down plan 21 where our 60-day notices, unfortunately to many of 22 the employees in this room, will have to get put in 23 the mail. So this is not an issue that there will be 24 a lot of time to debate. Sixty days is when we 25 close, but the process has already started. 56 1 COMMITTEE ON FINANCE 2 Thank you. 3 CHAIRPERSON WEPRIN: Thank you, 4 President Casey. And as you know, we share your 5 concern and we had hoped that there would be a 6 better solution and we're still hoping that Albany 7 will come to the rescue. 8 But obviously they're distracted with 9 their budget situation and other issues, and 10 hopefully after this week we can kind of bring this 11 to a head and I'm hoping that our resolution here in 12 the Council that I'm the prime sponsor of will be 13 voted on in the next couple of weeks, and hopefully 14 we'll be able to get some momentum going to really 15 put a little pressure on Albany. 16 COUNCIL MEMBER KOPPELL: Mr. Chairman? 17 CHAIRPERSON WEPRIN: Yes. 18 COUNCIL MEMBER KOPPELL: Mr. Casey 19 indicated he was going to address Mr. Fidler's issue 20 with Mr. Doctoroff and then he didn't do it. 21 MR. CASEY: I will answer that 22 question right now. I didn't know whether or not I 23 should address that first or not, but I would be 24 more than happy to do that. 25 I believe I know what the confusion 57 1 COMMITTEE ON FINANCE 2 is about, and let me just sort of take it apart in a 3 couple of small pieces. 4 Our fiscal year ends at the end of 5 June, and what our management team has been doing 6 for the last three or four years is when we came to 7 the conclusion that we were artificially subsidizing 8 the racing industry, what we started to do was 9 something that Bob Jackson had once suggested, and 10 that was to actually pull back money from the racing 11 industry. 12 Now, we sort of exercise what I would 13 sort of describe to some degree of some self-help in 14 doing that, and although we're not allowed to 15 permanently deprive those entities of that money, 16 what we are allowed to do is change the timing of 17 the payments. And, so, that is something that we did 18 do. 19 What that did was created and has 20 created some liabilities within OTB. So, as of June 21 17th, looking at it from a cash basis, that's when 22 we go cash negative. 23 What Dan Doctoroff I believe was 24 referring to, and I, too, would need to actually go 25 back to the testimony, was that what we have been 58 1 COMMITTEE ON FINANCE 2 doing by decreasing the amount of money that we paid 3 to the racing industry and incurring liability, is 4 we have continued to pay the surcharge to the City 5 of New York as a cash basis. So, that as of this 6 year the City will receive from OTB it's -- there 7 were two numbers thrown around, it was $16 million 8 and another number that is $20 million, that 9 represents the surcharge. So, it's the total 10 surcharge that the City gets from OTB's operations. 11 That money, because it is the City's money, not 12 OTB's money, has been transmitted to the City. And 13 so what OTB has done is absorbed that liability. 14 We've been able to sustain that 15 liability for some period of time, but as of June we 16 run out of cash to operate. So, there is a 17 difference between the accrual based and the 18 cash-based accounting. So, June is when we run out 19 of cash. 20 If we were to have the City give back 21 that $20 million to OTB, a couple of things would be 22 occurring: (a) I would point out that in fact, the 23 line that the Comptroller was talking about would be 24 crossed, because New York City would be giving back 25 to OTB its money, the City's money, to support the 59 1 COMMITTEE ON FINANCE 2 racing industry, and not necessarily be supporting 3 OTB. 4 Secondly, I can point out that given 5 how much money that we're required to pay over the 6 next fiscal year, all of that money, if 7 hypothetically it was given back to OTB, would be 8 completely exhausted. 9 And as things stand right now, if we 10 were to close down today, we don't have the cash to 11 pay everybody their current annual leave. If we were 12 to operate for another year, and then not have a 13 solution, there wouldn't be a dime to pay to the 14 employers on their terminal leave, monies that 15 they've spent 30 years earning. 16 So, for a lot of reasons I fully 17 support the position that was adopted by my board, 18 and I see no other choice but to close down when we 19 go cash negative in June. 20 CHAIRPERSON WEPRIN: Mr. Casey, you 21 brought up that you might not have the revenue to 22 pay annual leave, how does OTB propose to cover 23 certain benefits that we believe these employees 24 deserve, you know, such as accrued sick and vacation 25 time, as well as annual leave, as well as health 60 1 COMMITTEE ON FINANCE 2 insurance benefits? 3 MR. CASEY: It's a very complicated 4 question, and more complicated answer, because there 5 really isn't a firm answer that I can give you 6 because we have a plan and the plan is based on 7 projections, and projections can change. But if we 8 follow the closure plan that was adopted by our 9 Board of Directors, and I believe everybody in this 10 body has already seen, and we close down in June, we 11 will have insufficient funds, we believe, to cover 12 all of the annual leave balances. 13 So, what we've already started to try 14 to do is to talk to some of our labor unions and to 15 kind of come up with some equitable way to, by 16 applying some equity, get the employees the most 17 amount of money that we can. 18 We do not know what percentage of 100 19 percent that that will in fact be, but if we're 20 forced to close in the end of June, what I can tell 21 you is, there is no way within the currency is 22 expected to have at that time, that we be able to 23 pay that out 100 percent. I will have to ask my CFO, 24 but I believe the current leave balances approach 25 almost $10 million for the employees, and there are 61 1 COMMITTEE ON FINANCE 2 1,500 of them. I guess you only have to do the math 3 and you start to realize that that's I guess on 4 average a couple hundred owls of annual leave, and 5 some which I guess would amount to, doing fast math, 6 $6,000. 7 You know, I had an employee the other 8 day come in and tell me that he expected his 9 terminal leave to be $40,000. So, I had to break the 10 news to him that there wasn't going to be $40,000, 11 if the money was coming directly from New York City 12 OTB. 13 CHAIRPERSON WEPRIN: Okay, and how 14 will this affect pension benefits? 15 MR. CASEY: I think the Comptroller 16 addressed the pension question. He's probably more 17 qualified to address that issue. But I can tell you 18 that every pension bill that OTB has been given to 19 date, unlike entities like NYRA and some others who 20 sort of bled into the pension costs, it was our 21 position that we thought it was appropriate to 22 always pay the pensions and the medical benefits to 23 the employees, as long as we were in operation. So 24 that within our particular financial plan, when we 25 closed down, all of the payments to the pensions 62 1 COMMITTEE ON FINANCE 2 will be made. And as you know, the accounting on 3 pension systems are almost current, so we believe 4 most of those monies will be paid to the pension, 5 and that everybody who has a vested pension will get 6 that pension. 7 You know, some of the other benefits 8 are, quite frankly, we don't have a firm answer on 9 yet. As one example was the terminal leave I just 10 spoke about. 11 CHAIRPERSON WEPRIN: Have you had any 12 further conversations, Mr. Casey, with any of the 13 chairs or staff of the legislative committees in 14 Albany, either Assemblyman Pretlau's (phonetic) 15 Committee, or Senator Larkin's Committee? And if so, 16 what is the status of those conversations and any 17 potential legislation that might occur? 18 MR. CASEY: Well, I can't go into the 19 details of every conversation, but I can tell you 20 that generally the conversations on the Senate side, 21 led to the Senate putting in a deferment that you 22 mentioned earlier and your prepared remarks that 23 deferred some payments to, you know, in essence, 24 from I guess the Senate's perspective, buy some time 25 after the budget to try to solve the issue. They've 63 1 COMMITTEE ON FINANCE 2 said that they intended to solve the issue. 3 On the Assembly side we have had some 4 conversations with them and they have also indicated 5 that they wish to try to solve the issue before June 6 15th, and you know, quite frankly, there has been a 7 lot of changes, as you know, in the Governor's 8 Office. I have not had an opportunity to have a 9 conversation with the Governor or Senior staff, but 10 I have had conversations with some of his staff from 11 the prior administration, and it's also their 12 intention to find, you know, some kind of a 13 solution. And, you know, it's one of these 14 situations where it takes, you know, at least three 15 to tango up there, and all are indicating they want 16 to help but I have not found a consensus on sort of 17 how to do that. 18 And so we're forced with by Albany 19 and by a lack of action, to have to go forward with 20 the plan, as unpleasant it is, quite frankly, for me 21 and all my staff. 22 CHAIRPERSON WEPRIN: Okay. Do you 23 support the resolution that is pending in the City 24 Council, 1235? 25 MR. CASEY: Yes, I do. I do support 64 1 COMMITTEE ON FINANCE 2 the resolution. 3 And I would go on to say, to me it's 4 a no-brainer that an organization would absolutely 5 -- you have to fix the scheme in some way, and I 6 think the most direct way is to be able to have OTB 7 on some level with appropriate oversight if people 8 found that necessary, to operate on the net. 9 I think that that particular solution 10 or a modification of that solution invests all of 11 the stakeholders in a reasonable business model. 12 CHAIRPERSON WEPRIN: Thank you. 13 Council Member Jackson? 14 COUNCIL MEMBER JACKSON: Thank you, 15 Mr. Chair. 16 Mr. Casey, let me just say to you 17 that based on everything that I know, that you have 18 been doing a good job as a leader to try to save OTB 19 in working with the unions and others in order to 20 try to stave off, you know, the death of OTB in New 21 York City. 22 But, you know, you mentioned in your 23 statements about the suggestions that I made as far 24 as, you know, not paying the obligations, if you 25 can, to the racing people and what have you, I mean 65 1 COMMITTEE ON FINANCE 2 if, in fact, you have the money within your account 3 and you have to give it out to them, don't give them 4 a dime. Not a dime. As I said before, let them sue 5 you. 6 And, in fact, I guess if I was you, I 7 would keep the money right now and force them to sue 8 you and so hopefully we won't be there and something 9 will be worked out, that will force them to go 10 crying and oinking - oink oink oink oink oink - to 11 the State Legislators and the Governor for help to 12 get the money. Because they're starving. Because 13 they're so used to eating on a continuous basis. So, 14 let them oink to the Governor and the Majority 15 Leader and the Speaker, let them go oink to them as 16 far as the fact that OTB is not giving the, the 17 money, if you have that authority not to give it to 18 them. 19 If I was you, don't give them a dime, 20 and save the money, because the average employee 21 that is working for OTB doesn't earn the amount of 22 money that the racing and wagering people earn. I'm 23 absolutely sure about that. And they're going to 24 need every single dime if, in fact, they are let go 25 just to survive to pay their rent and to pay their 66 1 COMMITTEE ON FINANCE 2 car note, if they have a car, to pay -- if their 3 kids are not attending public school but parochial 4 school or any other school, to pay their tuition, 5 they're going to need every single dime to survive, 6 and especially in this economic time. 7 So, I say to you, if you have the 8 authority, and I know that you are the CEO, and 9 there is a Board, but if there is a Board meeting 10 that's public, I'll come to the Board and plead with 11 them, don't pay them a dime. Let them sue you and 12 save the money for the employees; do you have that 13 authority? 14 MR. CASEY: We have a board meeting 15 tomorrow. You're more than welcome to come. 16 COUNCIL MEMBER JACKSON: Do you have 17 that authority to hold back money? 18 MR. ROSENBAUM: I would have to speak 19 on behalf of my client here at the moment. I would 20 rather he didn't answer this question. Much as we 21 might support exactly what you're saying, it's not 22 only in the civil realm. 23 COUNCIL MEMBER JACKSON: No, I 24 understand that. It may be in the legal realm also. 25 But I don't care. Sometimes people have to sue each 67 1 COMMITTEE ON FINANCE 2 other, and sometimes you have to make a decision, 3 and I want you to stand up, like I'm standing up 4 now, just like I stood up and filed a lawsuit on 5 behalf of the 1.1 million school children, and 6 eventually, 14 years later, we won. Stand up for the 7 1,500 employees. Let them, if in fact it closes, let 8 them stand up and applaud you for taking the actions 9 you have taken in order to protect their rights, if, 10 in fact. If not, and things are worked out, and 11 everything is going to be fine. But, you know, they 12 need someone to stand up for them and right now, 13 right now I don't see any action as far as 14 legislators standing up for them up in Albany. So, I 15 say that to you. 16 MR. CASEY: Council member, I will do, 17 and I will continue to do, everything that I legally 18 can do to stand up for the employees. I have done 19 that to date. I have done that for three years. I 20 have testified before this body. I have talked to 21 people on the record, off the record. I have met 22 with my employees myself. I have helped find them 23 housing. I do a lot of things for my employers. I 24 will continue to do it. I will probably do it well 25 after OTB closes down. 68 1 COMMITTEE ON FINANCE 2 And, so, I always stand up for my 3 employees, but I will tell you that at some point 4 you have to sort of draw the line, and all of my 5 actions will stay within the letter of the law. 6 COUNCIL MEMBER JACKSON: I truly 7 understand that. The letter of the law says that you 8 have to make payments. So, sometimes, you know, even 9 though your Counsel may advise you that you have to 10 stay within the letter of the law, sometimes you 11 have to say, you know, I'm not making that payment. 12 I'm not making that car note or to the bank, and let 13 them then call you up and say where is the payment? 14 You've got to pay on time. Well, I don't have it to 15 pay right now. I have other priorities. And that's 16 what you have to tell them, I have other priorities 17 and you're not the priority right now. 18 Then let them go crying to whoever, 19 or let them tell their attorneys to sue them, 20 because you know if, in fact, they have to file 21 litigation against you, you know that takes time. 22 MR. CASEY: Mm-hmm. 23 COUNCIL MEMBER JACKSON: Okay? So, you 24 know, sometimes, you know, you have to stand up. And 25 I'm just saying, I appreciate everything you're 69 1 COMMITTEE ON FINANCE 2 doing, and even though I am not -- 3 MR. CASEY: Council Member, there is 4 litigation already. We have sued the State. I have 5 sued the Racing and Wagering Board, that litigation 6 is active. There is a lawsuit currently active with 7 NYRA. Just about everybody in the industry that can 8 be sued, every option that's possible to legally 9 including law suits try to solve this issue, over 10 the last five years we have engaged. I mean, but 11 fundamentally, you know, James Oddo partly had it 12 right, I mean you look at the numbers. There's 13 almost $60 million going to NYRA. We looked at some 14 numbers earlier today, I talked about since 2003 at 15 six- or seven-million dollars. Over the last 20 16 years, 20 years ago, compared to today, we're paying 17 the racing industry $25 million more than we were 20 18 years ago. So, this has been a slow erosion of the 19 monies that were directed to the City and the State 20 to go over to the racing industry. 21 Within the last ten years there's 22 been a correction and monies were derived from the 23 City to the State, but fundamentally, over the last 24 20 years, the loser, the net economic loser has been 25 the City of New York. And the employees that 70 1 COMMITTEE ON FINANCE 2 generate this revenue year after year after year, 3 they go to OTB, some of them work 12 hours a day. 4 This is not like a glamorous job like in Las Vegas. 5 I mean, they're working in facilities that we try to 6 maintain as best we can, but we don't have the money 7 to reinvest in those facilities. 8 I remember four years ago when I 9 spent more money than people wanted me to to paint 10 them and everybody was happy. So, you know, to some 11 degree they work very, very hard for their money, 12 and they deserve every penny that they've earned. 13 And I know that they'd be willing to work for the 14 City of New York and OTB for the next 20 years, if 15 somebody would give them a reasonable model that the 16 City and the Board and I could support. And we're 17 not asking to be rich, we're just asking to be 18 allowed to keep the money that we earn. 19 COUNCIL MEMBER JACKSON: Well, you 20 know, I think that you had mentioned, and I 21 appreciate the fact that, and I agree that the work 22 environment needs to be -- they were applauding you 23 just for painting the place, and as you said, when 24 you're running at a deficit to make infrastructure 25 changes, air conditioner, all others, it's very 71 1 COMMITTEE ON FINANCE 2 difficult because you have to deal with the first 3 things, and that's paying the employees. 4 But you indicated that you are 5 providing, meaning OTB is providing the City of New 6 York its share right up front, so that there is a 7 possibility that down the road that you may ask the 8 City to give back the money that you are paying it. 9 I say to you that as a legislator, if 10 I can be helpful in that to make sure if in fact 11 that's a formula to help keep OTB alive, that I will 12 be in favor of asking the Mayor and the Speaker and 13 the City Council to make that happen. 14 MR. CASEY: Thank you. 15 ACTING CHAIRPERSON JACKSON: And let 16 me turn to the next speaker, who is Gale Brewer of 17 Manhattan. 18 COUNCIL MEMBER BREWER: Thank you, 19 Robert. Also, everything is quiet on the western 20 front. 21 MR. CASEY: Yes, it is. 22 COUNCIL MEMBER BREWER: I think you 23 and Lenny will understand that. It's a private joke. 24 MR. CASEY: It's a private joke for 25 the whole West Side. 72 1 COMMITTEE ON FINANCE 2 COUNCIL MEMBER BREWER: Yes. 3 The length -- I am not as familiar 4 with this issue. I learned what I learned from the 5 previous discussion up there. But the length of 6 NYRA's term is how long? How long under this recent? 7 MR. CASEY: Twenty-five years. They 8 gave it to NYRA for -- I think none of us will be 9 here when NYRA still has the franchise, based on 10 this decision. 11 COUNCIL MEMBER BREWER: Okay. 12 Wow. 13 Second question is -- that's 14 horrendous. 15 MR. CASEY: I know I won't. 16 COUNCIL MEMBER BREWER: Second 17 question is when you, first of all, hopefully, first 18 of all, you have been awesome and I know that Lenny 19 has also in terms of your effort. 20 MR. CASEY: Thank you. 21 COUNCIL MEMBER BREWER: So, I think 22 whatever we say is, it's like you've done it, you've 23 tried it. The only hope now is the slightly 24 different personalities. Perhaps different modes in 25 Albany, you never know, and when there is a crisis, 73 1 COMMITTEE ON FINANCE 2 sometimes people rise to the occasion. So, I hope 3 that's true. 4 MR. CASEY: I'll keep fighting til I'm 5 dead. 6 COUNCIL MEMBER BREWER: I know you 7 will. I know you will. 8 But when you talk about, this is my 9 lack of knowledge, when there is no consensus, 10 because you have to deal with the race tracks, the 11 breeding funds, the horsemen's purses, and the 12 State, are those all the folks who play the zero sum 13 game so that nobody wants to take less so that the 14 City can get the fair share? 15 MR. CASEY: The short answer to your 16 question is yes. 17 COUNCIL MEMBER BREWER: And each one 18 of those is somewhat intractable and, I guess, has 19 their friends in Albany, basically what we're up 20 against. 21 MR. CASEY: That might be an 22 appropriate characterization. 23 COUNCIL MEMBER BREWER: Okay. 24 And that was true 20 years ago? 25 That's what I'm trying to understand. What has 74 1 COMMITTEE ON FINANCE 2 changed in the last 20 years that has made this more 3 intractable? 4 MR. CASEY: Those entities over the 5 last 20 years have gotten more and more money from 6 OTB, as the racing industry's handball (sic) and its 7 finances have suffered, a greater and a greater 8 share of the revenue that comes from the ones who 9 distribute the product, the OTBs, has increased. 10 So, you know, when OTB first started 11 the first couple of years, I think it was almost 75 12 percent of the net revenues went to the City of New 13 York. It happened in the seventies. Within about 14 five to six years, the breakdown in revenue between 15 government and the racing industry was basically a 16 50/50 equitable split. 17 And I would propose that, you know, 18 maybe the City had the better of the argument in the 19 early seventies, but that a 50/50 equitable split 20 between government and the racing industry, is 21 probably an appropriate one. 22 And fundamentally, if you operate it 23 on the net, as an example, you wouldn't need an 24 approach of 50/50 split, but you would at least get 25 closer to that than you are today. 75 1 COMMITTEE ON FINANCE 2 COUNCIL MEMBER BREWER: And the other 3 question I have is, the formula by which the 4 sharing, in quotes, goes on, is that also a 25-year 5 formula? How does -- 6 MR. CASEY: Yes. The formula is not 7 like a X plus Y equals. It's fundamentally a book 8 that is probably a few hundred pages thick. My 9 counsel walks around with a copy of it all the time. 10 When you look at the totality of this book of laws, 11 and there's probably 57 separate kinds of payments 12 that we're required to make off the top, when you 13 add up those 57 types of payments that we're 14 required to make to all the constituencies, that's 15 the formula. So, you can either go back and try to 16 tweak each one of those individual payments, or you 17 can just have a straightforward reasonable business 18 model that the public and everybody else can 19 understand. 20 Part of the problem in Albany is that 21 they've created a set of laws that I think some 22 people don't understand themselves. 23 COUNCIL MEMBER BREWER: I'm sure. 24 MR. CASEY: And, so, that's 25 fundamentally what makes it complicated. 76 1 COMMITTEE ON FINANCE 2 I can tell you that regular 3 businesses survive because it's straightforward. You 4 have cost, you have profit. If there was a 5 reasonable net model and all of the stakeholders no 6 matter who they were, would be held to the same pro 7 rate effect of the revenues. If revenues went up, 8 everybody would benefit from that. If revenues went 9 down, there will be a pro rata sharing of that loss. 10 And I can't predict or have a crystal ball what 11 direction the industry will go in, but if we had a 12 rational way of looking at it, where when it did 13 better people made money, and when it did worse, 14 everyone shared the pain, it would be a much more 15 stable industry and we probably wouldn't be sitting 16 here today. 17 COUNCIL MEMBER BREWER: Okay. 18 So, in order to rectify the situation 19 in the ideal world, whatever Senate, Assembly, 20 Governor, would come up with that was appropriate to 21 what you just said, could be either complimentary or 22 would take the place of some of the regs in -- 23 MR. CASEY: Yes, they have two ways of 24 doing it. They either could make this kind of 25 structural change. And as you know, although I, my 77 1 COMMITTEE ON FINANCE 2 Board, the Mayor have all spoken on these issues, 3 you know, a band-aid I don't think is going to work 4 for everybody. I don't think that this Council or 5 any of us should accept, you know, something like 6 that. 7 Some say it's really too complicated. 8 But, you know, they'll either change a number of 9 those 50 some odd items, or they'll make a 10 structural type of change. 11 COUNCIL MEMBER BREWER: And the 12 structural type of change can be done by Executive 13 Order, or does that also get voted on by the 14 Legislature? 15 MR. CASEY: It has to be voted on by 16 the Legislature. It's all driven by the law. 17 My counsel actually found the book, 18 so this is the formula. 19 COUNCIL MEMBER BREWER: Okay, thank 20 you very much. 21 Thank you, Mr. Casey. 22 CHAIRPERSON WEPRIN: Thank you, 23 Council Member. 24 Mr. Casey, in December you testified 25 that if OTB closes, OTB together with the 78 1 COMMITTEE ON FINANCE 2 Administration would look into trying to redeploy 3 OTB employees to other City agencies; have you had 4 any discussions along those lines? 5 MR. CASEY: As you know, the City -- 6 what's complicated is this is the City's own fiscal 7 issues and the hiring fees that I believe is still 8 in place. So, I've made a request of the 9 Administration, and the Administration is still 10 looking at that issue. They have I believe an 11 intention to try to help, but they have their own 12 fiscal issues. So, we do not have a final plan for 13 redeployment into the City workforce at this point. 14 But I do know the City is actively looking at it. 15 CHAIRPERSON WEPRIN: Okay, thank you. 16 And I believe you stated earlier in response to 17 Council Member Jackson, that there is an OTB Board 18 meeting tomorrow; is that correct? 19 MR. CASEY: Yes, there is. 20 CHAIRPERSON WEPRIN: Can you give us 21 an update on what you're going to say regarding the 22 situation with the employees? And is there anything 23 on that agenda that we should be aware that? 24 MR. CASEY: You know, what we've been 25 doing for the last six or eight months to the 79 1 COMMITTEE ON FINANCE 2 chagrin of much of my staff is, like any other kind 3 of organic business, we've almost sort of stopped 4 operating, so many of the items or contracts that we 5 suspended awhile ago have been stripped out of that 6 agenda. So, the agenda I believe includes an 7 extension of telephone contracts so that we have 8 phone service at least until June. But other than 9 that it's going to update the Board on what's going 10 to happen with the filings. And I guess the critical 11 dates are that our 60-day notice will be going out 12 probably Friday, possibly Monday. It's required to 13 be in the hands of employees by the 17th, and then, 14 it's actually even hard for me to say this because 15 it's so disturbing, but the layoff notices will 16 probably need to go out on or about May 2nd. 17 So, we'll go over with the Board some 18 of the critical dates for the shutting down of the 19 operation, there are also some issues that will 20 relate to landlords and our leaseholds, and those 21 are the types of issues that will be reviewed, I 22 expect, with the Board tomorrow. 23 CHAIRPERSON WEPRIN: Thank you. I 24 believe Council Member Fidler has a question or two. 25 COUNCIL MEMBER FIDLER: Yes, thank 80 1 COMMITTEE ON FINANCE 2 you, Mr. Chairman. Not sharing Councilman Jackson's 3 physique, I'm not comfortable standing up and 4 oinking, but I do want to indicate that I agree 5 whole-heartedly with his sentiment. And as an 6 attorney I understand the Caveat, and I would urge 7 that if you can find a colorable legal basis for 8 holding back on some, or all of those payments, that 9 you ought to do that. 10 I think that would certainly ratchet 11 up the pressure to make the deal that we need to 12 have made. 13 MR. CASEY: Currently the industry 14 deficit is, I think slightly exceeds $30 million 15 that I've held back already. 16 COUNCIL MEMBER FIDLER: Good for you. 17 However, my recollection of Deputy 18 Mayor's testimony differs from your answer. And I 19 appreciate the fact that you attempted to fill in 20 the gap, but I think Council Member Koppell 21 unfortunately has left, was right, that the five 22 percent surcharge was not a matter of cash flow. And 23 that, in fact, what was clear to me, and if it 24 wasn't correct, Deputy Mayor chose not to correct me 25 when we had this dialogue at the last hearing, is 81 1 COMMITTEE ON FINANCE 2 that in fact the budget of the City of New York 3 would have to be cut, and my recollection was 4 somewhere between eight and ten-million dollars on 5 the revenue side in the fiscal year if we were to 6 close OTB in June. 7 Now, and I remember suggesting that 8 that was to cut off our nose to spite our face, and, 9 you know, quite frankly, that's my recollection in 10 this testimony, I think the Comptroller may have 11 been misled, in terms of those numbers. 12 I know there is a difference in 13 bottom line books and cash flow, and I understand 14 what is going on here, Mr. Casey, and I want to say 15 that I appreciate your efforts tremendously and 16 those of Mr. Allen, and dare I even say it, Mayor 17 Bloomberg. But it's very, very difficult -- 18 MR. CASEY: He's on the right side of 19 this issue. 20 COUNCIL MEMBER FIDLER: Yes, he is. 21 MR. CASEY: He's fighting very hard 22 for everybody. 23 COUNCIL MEMBER FIDLER: And after the 24 last couple of weeks those words don't come out of 25 my throat very easily, but he is on the right side 82 1 COMMITTEE ON FINANCE 2 of this issue, but it is very, very difficult to 3 raise and bluff at a Poker game when everyone at the 4 table can see your cards. And you know, I'm 5 perfectly okay with proceeding along these lines, 6 but I would ask you prefer a number of reasons, the 7 first of which is, again, the 1,400 people whose 8 livelihood is at stake, the businesses that are so 9 dependent upon the OTB parlor next door, remaining 10 open, the impact that will have on commercial strips 11 in the outer boroughs in particular. The fact that 12 there will be liabilities that will live on past the 13 revenue stream, I'm not sure that the value of your 14 leases will exceed your liabilities, once you close. 15 I don't know that. I mean, for all of those reasons, 16 I would hope that for whatever reason, if this does 17 not work, this play does not work, and they say go 18 ahead and close down, that you look at every 19 possible alternative to doing that before that 20 happens. 21 You know, it is commendable that you 22 and the labor force that works for your agency are 23 so together and united in making this move, but the 24 fact of the matter is, I'm not looking for 1,400 25 martyrs, and I think that we need to, we should not 83 1 COMMITTEE ON FINANCE 2 be subsidizing OTB, but my distinct recollection, 3 and I am pretty sure that I am correct, is that we 4 have one more year, if absolutely necessary, where 5 we can play this game and keep those 1,400 people 6 working, keep those OTB parlors open for the sake of 7 our neighboring merchants, and before we push the 8 button, I just beg you that if that should come 9 necessary, if they turn a deaf ear to us, that you 10 look at all those other options. 11 MR. CASEY: We will certainly continue 12 to look at every option, Council member. 13 CHAIRPERSON WEPRIN: Thank you, 14 Council Member. 15 Council Member Sears. 16 COUNCIL MEMBER SEARS: Thank you, Mr. 17 Chair. I'm just going to, maybe I can combine two 18 questions into one and they're very brief. Has the 19 sale of OTB ever come up in any discussion? 20 MR. CASEY: As you probably know, the 21 former administration actually had an RFP process 22 for the sale of OTB. That was aborted some time 23 before or after the attacks of 9/11. The sale of OTB 24 is not something that we're currently contemplating, 25 however, I will tell you that all of the entities 84 1 COMMITTEE ON FINANCE 2 that are currently vying for the VLT franchise have 3 -- well, not all of them, but many of them have 4 contacted us and talked to us about some ideas 5 they'd had if they had a way to survive and work 6 together going forward. So, clearly some of those 7 ideas have been talked about by some of the outside 8 entities, but there has been no substantive 9 conversation with anybody in Albany about those 10 issues. That's the best I can tell you. 11 I have a view of it. I think that 12 every option in the longrun has to get looked at. 13 You know, I think the most important 14 thing is the revenue to the City and the jobs of the 15 people, not necessarily in that order. And that I 16 would, for one, would never take any issue off the 17 table. 18 But quite frankly, given this kind of 19 economic model, I think we're just -- I don't think 20 it's a reality. I don't think it's practical. 21 COUNCIL MEMBER SEARS: Okay. There was 22 some talk of merging Nassau County? 23 MR. CASEY: I have not had a 24 conversation with merging with Nassau County. 25 COUNCIL MEMBER SEARS: Is that 85 1 COMMITTEE ON FINANCE 2 something that's doable? Or is it something that is 3 just whistling in the wind? 4 MR. CASEY: One of the things my 5 counsel is mentioning to me is that, let's see if I 6 can put it into different words, if you take a group 7 of organizations that have a bad formula and put 8 them together, maybe you buy yourself a little bit 9 of time, but you don't really fix anything. 10 COUNCIL MEMBER SEARS: We find that 11 out on the Council, so I understand exactly where 12 you're going. 13 MR. CASEY: I don't like to say I have 14 a crystal ball, but every option that ever could be 15 looked at requires the distribution formula to be 16 changed. 17 The Chairman made reference to the 18 Boston Consulting Group, and asked the Comptroller 19 about an audit. What I can tell you is the Boston 20 Consulting Group worked for almost seven months 21 looking for OTB. They looked at our efficiencies. 22 They had an outside entity come in. I 23 remember they hired them they said, well, what would 24 you like us to do? And I said, I just want you to 25 look at it clean and come up with the best 86 1 COMMITTEE ON FINANCE 2 conclusions you can. And at the end of the day they 3 felt that we were running an efficient operation. 4 They had a lot of suggestions for 5 different ways that we could change the operation. 6 But at the core of every change is the distribution 7 model must change. 8 One additional remark you mentioned, 9 Nassau County, and I think the Deputy Mayor made a 10 reference to Nassau County in his last testimony, we 11 looked also at the finances of Nassau County just as 12 an example, and over the last, I think it's six or 13 seven years, there's been a 50 percent reduction in 14 the revenue that Nassau County OTB used to give to 15 Nassau County and now gives to Nassau County. 16 As far as how we compare to other 17 OTBs, our expenses, for example, as a percentage of 18 handle, is about in the middle of the group. But it 19 is much more expensive to operate in New York City 20 than it is in some of the outer boroughs. We have 21 rents that exceed, you know, $60, $70 a foot, and 22 some of the other branches in some of the outer 23 boroughs are paying $7 a square foot. 24 So, frankly, it is more expensive to 25 operate in the City than it is in other places, but 87 1 COMMITTEE ON FINANCE 2 this formula is negatively affecting OTB's and local 3 government in the entire New York State. So, it's 4 affecting them in Nassau, it's affecting them in 5 Suffolk and in Westin and in Buffalo and in Albany, 6 and I think over the last four or five years, two or 7 three of the OTBs have gone negative. One of them 8 went completely negative a couple of years ago, but 9 purchased a harness track that then was given slot 10 machines and now it's positive. Suffolk OTB is 11 basically in the same position that we're in, I 12 think some of the debt of a big facility in Nassau 13 County was shifted over to the county and they're 14 sort of buying off of the county sort of debt 15 service and they've lowered some of their costs. So 16 sometimes the numbers, you can't really do an apples 17 to apples comparison. 18 That all being said, what you should 19 know is that I spent the better part of last year 20 meeting with all of the OTBs, trying to come up with 21 things that we could do together, to try to drive 22 greater efficiencies into the system. And being in 23 business I can tell you you never say never. Every 24 time staff comes to me and says, and I think the 25 Council member even mentioned the management cut of 88 1 COMMITTEE ON FINANCE 2 15 percent, don't think that if six months doesn't 3 go by and I say, and I go, okay, well is somebody 4 not doing something they're supposed to do, and can 5 we make that number better? I think you always have 6 to strive to make your organization more efficient, 7 you always have to look at new ways to generate 8 revenue and to cut costs, and I look forward to 9 being able to work with some of the OTBs to try to 10 kind of cut costs going forward, but we're never 11 going to -- you can't let that blur, okay? Or 12 distract you from the fact that the distribution 13 model has to change. All those things are tinkering 14 on the edges, and it's avoiding the main issue, and 15 the main issue is you have to attack the formula and 16 at the end of the day, you know, people are not 17 going to be happy about it. And maybe that's hard in 18 Albany to do that, but it has to get done. It takes 19 leadership to get that done. It has to get done. 20 COUNCIL MEMBER SEARS: I couldn't 21 agree with you more on that, and it seems like 22 almost everything that's being done is just 23 coloring, because when that foundation, which is 24 that formula, the monies are distributed, is 25 actually just a windmill, and that's why I had said 89 1 COMMITTEE ON FINANCE 2 earlier that I think we need to have something that 3 is going to deal with that very thing and not have 4 it colored by other things that enter into that. So, 5 that is a position we have to take. 6 Thank you, Mr. Chair. 7 MR. CASEY: Thank you very much. 8 CHAIRPERSON WEPRIN: Thank you, 9 Council member. 10 Council Member Reyna. 11 COUNCIL MEMBER REYNA: Thank you, Mr. 12 Chair. I just wanted to ask, in your testimony you 13 had mentioned the talks has not produced any 14 concrete legislative action. The talks have occurred 15 with whom? 16 MR. CASEY: Generally the way the 17 racing laws are structured in Albany is there is a 18 committee on racing and wagering in each of the 19 houses of government. 20 So, for example, Senator Bill Larkin 21 is the Chairman of the Racing Committee in the 22 Senate, and Gary Pretlow (phonetic) from Mount 23 Vernon is the Chairman of the Racing Committee in 24 the Assembly, and the Governor's Office, there 25 really isn't I guess a Department that handles 90 1 COMMITTEE ON FINANCE 2 racing and gaming issues, but there are a number of 3 staff people who have worked on those issues 4 generally in the past. One of them is the current 5 Chief of Operations, Paul Francis, Richard Rifkind 6 is a Special Counsel, he was for the former 7 Governor. I believe he's still there. He worked on 8 some racing issues, and a person who took a 9 leadership role I think was Patrick Foy, and he was 10 the Chairman of the Economic Development 11 Corporation, and he worked I believe at the last 12 Governor's Office, but he has indicated he is not 13 staying on in this current administration, but he 14 also has handled gaming issues. So, there is a bit 15 of transition in the Governor's Office right now, as 16 you probably are aware. 17 COUNCIL MEMBER REYNA: But not with 18 the Assembly and Senate Houses, the current chairs 19 have been the chairs for the Committee who deals 20 with this particular legislative action. 21 MR. CASEY: Senator Larkin has been 22 the Chair for I think at least 15 or 20 years, and 23 Gary Pretlow has been in that position for four or 24 five years. 25 COUNCIL MEMBER REYNA: And after, and 91 1 COMMITTEE ON FINANCE 2 I'm quoting you in your testimony, after nearly four 3 decades of operation there will no longer be a New 4 York City OTB, would you say that this is due to the 5 inactions of Senator Bill Larkin and Assemblyman 6 Gary Pretlow and the Governor's Office staff? 7 MR. CASEY: Actually, to the contrary. 8 I think it's a result of fundamentally their 9 actions, not their inaction. 10 So, the actions of the Legislature 11 have changes a series of laws that have worked to 12 our disadvantage. However, as I've also pointed out, 13 those laws are very complicated. You have a racing 14 industry. You have extraordinary, extraordinary 15 lobbying on racing issues. 16 Traditionally racing laws are the 17 last thing that get changed in a legislative 18 session, and they usually happen after all the 19 citizens of the State of New York go to sleep for 20 the night, and they find out about how the law 21 changed the next day. 22 You know, I don't think I have to 23 convince anybody that that's not the way to run a 24 government, but fundamentally, you know, racing has 25 a lot of special interests on all sides of the 92 1 COMMITTEE ON FINANCE 2 issue. 3 COUNCIL MEMBER REYNA: So -- 4 MR. CASEY: And if you will just let 5 me finish the thought, Senator Larkin and Gary 6 Pretlow I believe have tried very hard to find an 7 equitable way to solve this issue, but there are a 8 lot of interests that they're trying to balance, and 9 I think that what ends up happening is, nobody ever 10 wants to take anything away from anyone, and as a 11 result of that, they have not been able to find a 12 solution. 13 COUNCIL MEMBER REYNA: And obviously, 14 no one wants to take away money from anyone. 15 MR. CASEY: Right. 16 COUNCIL MEMBER REYNA: Because this at 17 the end of the day is about money. 18 The action that did take place, who 19 was responsible for it? 20 MR. CASEY: Each of the laws that were 21 changed requires action of the Senate, the Assembly 22 and the Governor's Office. 23 COUNCIL MEMBER REYNA: Correct. 24 MR. CASEY: And also -- 25 COUNCIL MEMBER REYNA: Correct. But 93 1 COMMITTEE ON FINANCE 2 who introduced it? 3 MR. CASEY: Bills are introduced. 4 COUNCIL MEMBER REYNA: But who 5 introduced the formula change? 6 MR. CASEY: The formula is a series of 7 laws that exist in this book. 8 COUNCIL MEMBER REYNA: Mm-hmm. 9 MR. CASEY: So, there have been things 10 that are introduced by on the Senate, on the 11 Assembly, there have been things that have been 12 introduced by OTB. I will give you an example -- 13 COUNCIL MEMBER REYNA: So the 14 combination, I just want to understand. 15 MR. CASEY: It's a combination. 16 COUNCIL MEMBER REYNA: A combination 17 of all these changes. 18 MR. CASEY: Correct. 19 COUNCIL MEMBER REYNA: Has contributed 20 to a loss. 21 MR. CASEY: Correct. 22 COUNCIL MEMBER REYNA: That's directly 23 impacting the system under which we run our New York 24 City OTB. 25 MR. CASEY: Correct. It's a 94 1 COMMITTEE ON FINANCE 2 culmination of all of those laws taken together 3 impacts OTB. 4 COUNCIL MEMBER REYNA: And so now in 5 order to correct that action, there would need to be 6 a law-by-law review? Or can you just take one 7 legislative action to correct many different laws to 8 have accumulated to contribute to this problem? 9 MR. ROSENBAUM: In fact we have a bill 10 pending. It's been pending for the last two years, 11 which in a very simplified form says that your 12 quarterly payments that OTB has to make, should your 13 quarterly payment one quarter exceed the net revenue 14 for that quarter, then you start off the next 15 corridor with a credit, so that it would all even 16 out by the end of the year, and OTB would never have 17 to pay more money than it netted. That's one thing 18 that we have pending. It has not passed as far as I 19 know, either of the houses. 20 But that would take care of a whole 21 panoply of separate laws that have had a negative 22 affect on us. 23 MR. CASEY: There have been laws 24 introduced - laws - there have been bills introduced 25 by the City, New York City legislative office, and 95 1 COMMITTEE ON FINANCE 2 by OTB over the last few years, a multitude of 3 different ways to change the formulas. None of them 4 have been adopted. 5 You know, I didn't get, in my last 6 testimony I got into more details and I didn't want 7 to go back over that ground today, but just in 8 summary I can tell you that in 2003, among the laws 9 that got changed is the State added, for example, 10 and this one came directly from the Governor's 11 Office, they decided to add a regulatory fee, so the 12 State was already getting a revenue stream directly 13 because they got a Pari-Mutuel tax, and it was 14 always assumed that that tax went towards deferring 15 the regulation of the industry. 16 Well, they adopted a policy change in 17 that particular year to put on a separate regulatory 18 fee that disproportionately hit New York City OTB 19 rather than the race tracks. 20 That was a dollar-for-dollar of shift 21 of $5 million that was our profit. 22 So, that wasn't money that was up 23 here at the top. It was $5 million of profit that 24 ran right to the bottom line and then came to New 25 York City. That $5 million was literally shifted 96 1 COMMITTEE ON FINANCE 2 from the City to the State when that law got passed. 3 That was put in by the Governor's Office. Then there 4 was a hold harmless adjustment or amendment that got 5 made to that law. That law cost us -- in the past, 6 that's the one that the Comptroller referred to, 7 where we were required to pay harness tracks when 8 they were closed, that one cost us annually $4 9 million. Now since that race track is open, annually 10 that will probably cost us $3 million. But just 11 those two items, one came, it looks, we think 12 because you never really know sometimes in Albany 13 where the change came from, because you just sort of 14 wake up and there it is. We think it came from 15 special interest that related to the harness tracks, 16 and so that appeared that morning and so did this 17 regulatory fee. 18 Just those two items alone hit our 19 books by $8 million that year. 20 So, you know, you never know where 21 the hit is going to come from, but fundamentally -- 22 COUNCIL MEMBER REYNA: Is there no 23 fiscal impact? 24 MR. CASEY: Yes, there is a fiscal 25 impact, but we take -- some of the laws get stuck 97 1 COMMITTEE ON FINANCE 2 into the budget, and as a practical matter, a 3 legislator looks at the budget, and if he has a 4 chance to read the entire budget -- I mean, this is 5 ground I know you've all heard and many other times. 6 I mean, when a legislator looks at a budget and they 7 don't have time to read it, maybe they don't even 8 know that that change is in there and they know that 9 they don't want to be responsible for not passing a 10 budget so it gets passed and there's a rule change 11 in there that affects racing or affects some other 12 particular interest. 13 So, I'm very loathe to say to you 14 it's X legislator's fault whether they're the 15 Chairman or they're not. What I'm telling you -- I 16 don't use the word "Albany" by accident, because I 17 think that everybody bears some responsibility. And 18 I will also tell you that I believe that as many 19 things that I've done to try, I bear some 20 responsibility. 21 You know some of the laws that we've 22 suggested, and we've suggested changes, and those 23 changes get manipulated, and they get distorted and 24 at the end of the day we get hurt? Well, you know, I 25 participated in that process. Did I do the best job 98 1 COMMITTEE ON FINANCE 2 I could? Yes, I did. Did I expect that result? No, I 3 didn't. But, you know, you can't stop trying to grow 4 a business. 5 So, I don't think that the blame game 6 so-to-speak is necessary, and I don't think that it 7 moves the ball. It fundamentally is going to take 8 the Legislature, the Assembly, the Senate, and the 9 Governor to agree on a change and that change has to 10 be implemented. 11 Everything that the City of New York 12 can do by itself, everything that OTB's board and I 13 can do by ourselves over the last four years we have 14 done. I'm always open to other things. 15 COUNCIL MEMBER REYNA: I appreciate 16 that comment. I must tell you that my frustration 17 comes from the fact that everything that goes up to 18 Albany goes into a black hole. Nothing gets, comes 19 out. And if it comes out, it's not as if there was 20 transparency. And, so, therefore, right now we're 21 going to see in two months from your testimony 1,500 22 people unemployed, therefore, who do we have to 23 light a fire under whose feet in order to get them 24 to understand this inaction to take action is what's 25 causing 1,500 people to become unemployed. 99 1 COMMITTEE ON FINANCE 2 And, so, right now we're in 3 agreement. The Legislature has to do something about 4 this, and we have very little time, time is against 5 us. 6 And, so, if talks up until this 7 moment have not resonated enough importance. I can't 8 imagine that in two months anything else can happen. 9 Therefore the actions from the State 10 even being here. At the State level from the 11 Governor's Office who can represent the State 12 Legislature to be here to say that our resolution is 13 going to actually be read and dealt with, that the 14 problems that you have already communicated to 15 Albany have not been dealt with and that we need to 16 do so in a timely fashion within the next 60 days. I 17 have no confidence that it will happen. And it seems 18 to me that you're telling us you have no confidence 19 that it will happen. Which is why you had to move 20 forward with a plan to shut down. 21 MR. CASEY: I wouldn't say I have no 22 confidence. 23 COUNCIL MEMBER REYNA: Okay. 24 MR. CASEY: What I would say is that 25 it's my responsibility to act prudently. And to act 100 1 COMMITTEE ON FINANCE 2 prudently we need to plan for this to not happen. 3 COUNCIL MEMBER REYNA: But it takes 4 two people or two bodies to plan? 5 MR. CASEY: That's correct. 6 COUNCIL MEMBER REYNA: And one of the 7 bodies are absent. 8 MR. CASEY: I'm not sure I follow the 9 two-body solution, but in Albany it's going to take 10 three bodies. It's going to take the Governor -- 11 COUNCIL MEMBER REYNA: No, no. I'm 12 talking about you are the body representing the New 13 York City OTB requesting something. 14 MR. CASEY: That's correct. 15 COUNCIL MEMBER REYNA: The State is 16 the next body that will, in conjunction with you, 17 correct the action that's necessary to fix these 18 problems, to at least allow the opportunity to have 19 a fair chance in continuing to do business in the 20 City of New York, like the rest of the regions are 21 being granted opportunities. 22 MR. CASEY: Mm-hmm. Mm-hmm. 23 COUNCIL MEMBER REYNA: Obviously it's 24 more expensive, like you said, to do business here, 25 but it's also unfair to state that we're going to 101 1 COMMITTEE ON FINANCE 2 impose certain penalties that contribute more of a 3 loss to New York City than anywhere else. 4 MR. CASEY: I agree with most of what 5 you said. I absolutely do. 6 But I will tell you that I have to 7 plan for nothing to happen, but don't think that I 8 don't have hope that we can get something 9 accomplished. I'm hoping that this resolution gets 10 people's attention. I know that the Mayor's Office 11 is pushing hard, there's a Legislative Affairs 12 Office up there that I know is fully engaged on this 13 issue, has been in the past. That office and the 14 Mayor's Office has suggested bills, it's been on a 15 high-priority list with the Mayor's Office, it 16 continues to be. 17 I'm hopeful that we can get a change, 18 but I can't not plan for there not being a change. 19 COUNCIL MEMBER REYNA: And we also 20 expected a vote in Albany on Monday, for other 21 matters for the City of New York and that did not 22 merit a vote. Therefore, at the very least, Mr. 23 Chair, a vote was necessary. No action is, to my 24 definition, you know, a body that doesn't do their 25 job. 102 1 COMMITTEE ON FINANCE 2 And, so, at this moment, once again 3 the State is not doing their job. In not listening, 4 or at least, at the very least, considering the 5 lives of 1,500 people. 6 Thank you. 7 CHAIRPERSON WEPRIN: Thank you. 8 I believe Council Member Sears had a 9 question. 10 COUNCIL MEMBER SEARS: Just one 11 question. I'm sorry because I have to leave to go to 12 another meeting. 13 The question is that when the State 14 mandated hospitals to close, federal government came 15 in and gave several billion dollars. Closing 16 anything is very expensive. 17 So, my question to you is, in 18 planning, if the inevitable happened, what is the 19 cost for closing the OTBs? Who actually pays that 20 cost? 21 MR. CASEY: Well, OTB is an 22 independent entity, and we would use all of the 23 assets we had to try to make the employees as whole 24 as we could, but there would be a lot of other costs 25 associated. I mentioned, the $30 million that we owe 103 1 COMMITTEE ON FINANCE 2 the racing industry, I'm sure the racing industry 3 will seek that $30 million upon our liquidation. 4 There are landlords that hold -- I believe our lease 5 liability exceeds $100 million for the lease holds, 6 you know, clearly we have already started a plan, 7 there is some mitigation for those particular lease 8 holds. You know, many of our leases are below 9 market, and so as a result we think that we'll be 10 able to minimize some of the costs associated with 11 that, but time is money and the longer it takes, the 12 more it's going to cost. 13 All I can tell you is, is that, for 14 sure is that New York City OTB, if it were a private 15 organization would have filed bankruptcy. We are not 16 a private organization. We are a government 17 organization. We are prohibited from filing 18 bankruptcy. And, so as a result we can operate 19 until, up until we have the cash to operate, and 20 then we have to close, and we will take all the 21 assets that we have at that particular time, and 22 then try to allocate them as equitably as we can. 23 COUNCIL MEMBER SEARS: Amazing. 24 I think certainly it should be on 25 record that the State would rather see you spend 104 1 COMMITTEE ON FINANCE 2 unbelievable dollars to close than it would cost 3 them to keep you open. 4 MR. CASEY: Yes. 5 COUNCIL MEMBER SEARS: That is not -- 6 an absurd, ridiculous situation that they should be 7 embarrassed. Truly embarrassed. And I think we need 8 to do that. 9 MR. CASEY: I think you're right. I 10 mean, the impact is going to be felt in a lot of 11 places. 12 CHAIRPERSON WEPRIN: I'll start with 13 my brother. 14 COUNCIL MEMBER SEARS: We can all 15 start with somebody we know up there. 16 MR. CASEY: There was an article I got 17 e-mailed on my way here today that appeared in an 18 Upstate newspaper called The Saratogan, I think 19 everybody knows where Saratoga is. And it was their 20 Comptroller who was noting for the record that if we 21 closed, Saratoga would lose a million dollars. There 22 was, some of you may be aware of a development that 23 Empire resorts is trying to do up in Sullivan 24 County, of moving one of the VLT parlors. I read 25 that article with great interest because that's 105 1 COMMITTEE ON FINANCE 2 Monticello Raceway and we gave them $4 million last 3 year. 4 So, you know, you'd really be shocked 5 if you went into and you started to see where all of 6 this money that we generate goes. I mean, that's a 7 million dollars. 8 I mean, quite frankly, I knew we gave 9 some money to Saratoga but until the Comptroller 10 said he was going to lose $800,000, even I didn't 11 realize we gave them a million dollars. 12 COUNCIL MEMBER SEARS: You would be 13 surprised at the Domino effect, because where all 14 the OTB sites are, there are small businesses all 15 around them. 16 MR. CASEY: Yes, absolutely. 17 COUNCIL MEMBER SEARS: People eat, 18 they've got fastfood, there's all kinds of 19 businesses, all of them will be affected. So, I just 20 find it ludicrous and I think we really have to, 21 besides this resolution, I happen to agree with my 22 colleague Diana Reyna, and I think you have all done 23 a wonderful, amazing job. 24 MR. CASEY: I appreciate it. 25 COUNCIL MEMBER SEARS: And you do. But 106 1 COMMITTEE ON FINANCE 2 the fact is, they would rather see, seriously, the 3 money spent outrageously in closing that it would 4 cost the State to keep you alive and functioning and 5 in a fair way. That is ludicrous. 6 And I think, Mr. Chair, you know 7 what? The bottom line is always the bottom line of 8 dollars, and the bottom line for closing, is it's 9 going to cost them more to do that than it is to 10 stay open and have the State do a fair and equitable 11 formula. That's the bottom line, and that is 12 outrageous. And I think we have to use all the clout 13 we can. It's outrageous. 14 MR. CASEY: You know, there is an open 15 question about all the cards coming down. If we were 16 to close and the 55 or 56 million dollars that we 17 give to NYRA alone stopped, I don't know that NYRA 18 can survive that. 19 So, they may have wasted $105 20 million, they gave them last week or last month or 21 whatever it was, they gave them $100 million. 22 CHAIRPERSON WEPRIN: Thank you, Mr. 23 Casey. I appreciate, and I know the Committee 24 appreciates you coming down to testify on a number 25 of occasions over the last couple of years and 107 1 COMMITTEE ON FINANCE 2 hopefully we'll be working very closely together 3 with you on this issue dealing with Albany over the 4 next couple of weeks and couple of months. 5 If you have any information, if you 6 can share that with us as the process is evolving 7 because it is changing on a daily, hourly basis, you 8 if you could stay in touch with me or this 9 Committee, I would appreciate it. 10 MR. CASEY: Absolutely. 11 Thank you for the time today. 12 CHAIRPERSON WEPRIN: Thank you. 13 MR. CASEY: Thank you to everybody. 14 CHAIRPERSON WEPRIN: And for the 15 record, Council Member James Oddo asked to be added 16 as a co-sponsor to Resolution 1235. 17 The next witness is someone else who 18 has appeared before this Committee on a number of 19 occasions and has worked very closely with me and 20 Council Member Jackson and this entire Committee on 21 trying to safe the almost 1,500 employees of OTB, 22 and that's Leonard Allen, who is President of Local 23 2021, representing the hard-working men and women 24 employed by OTB. 25 MR. ALLEN: Good morning. I'm being 108 1 COMMITTEE ON FINANCE 2 joined here by the Treasurer of Local 2021, Mr. 3 Edmund Gusi (phonetic). I'd like to begin by 4 thanking Chairman Weprin, and my thanks, as well, to 5 Speaker Quinn, members of the Finance Committee, and 6 the Finance Division staff for allowing me the 7 opportunity to present my views on the future of New 8 York City Off-Track Betting. 9 My name is Leonard Allen. I am the 10 President of Local 2021, District Council 37, 11 AFSCME, representing 1,400 hard-working employees of 12 OTB. 13 I'd be remiss if I didn't mention 14 Councilman Fidler by name. Thank you, sir. 15 I came here today with a strong sense 16 of urgency, concern and fear. As many of you know, 17 my members are facing impending layoff. At this 18 time on Tuesday, April the 15th, six days from now, 19 the OTB Corporation will be sending out, in 20 accordance with their management plan for closure of 21 New York City OTB, layoff notices to my members and 22 other workers of the Corporation, which will begin 23 the process for June 15th, 2008 shutdown. 24 I am here to ask that you assist the 25 workers of New York City OTB and help us bring 109 1 COMMITTEE ON FINANCE 2 attention to the injustice that's about to befall 3 them. 4 As you know, the resolution to this 5 problem lies with the State Legislature. However, 6 the leadership that has been exhibited through you, 7 Chairman Weprin, Council Member DeBlasio, and 8 Council Member Jackson and many other members of the 9 Council, has been very helpful in our efforts to 10 turn the situation around. 11 The Council's Resolution No. 1235 12 will go a long way toward shining a light on the 13 unfairness and lopsided situation that New York City 14 Off Track Betting finds itself in. 15 The bottom line is a long-term fix is 16 needed immediately. No gimmicks, or short-term 17 band-aids will do. My members and retirees' lives, 18 livelihood and that of their families are at stake. 19 In addition, many of my retirees 20 health care insurance is in jeopardy should OTB 21 close. 22 As you may know, New York City OTB is 23 the backbone for the entire racing industry in the 24 State. 25 Approximately 40 percent of all 110 1 COMMITTEE ON FINANCE 2 wagering on racing in New York State is done by New 3 York City Off Track Betting. 4 If New York City Off Track Betting 5 shuts down, the vast majority of those bets will 6 disappear, as will the revenue they provide to 7 support those related jobs around the State. In 8 short, if we go out of business and my members lose 9 their jobs, they will be quickly followed by the 10 clerks at aqueduct, food service workers at Belmont, 11 and farm hands in more than 1,000 farms across New 12 York that are dependent on the revenue stream that 13 OTB provides. 14 I urge the Council to join with us 15 and ask your colleagues and the State Legislators to 16 correct this inequitable formula before it's too 17 late. 18 We stand prepared to work with the 19 Legislature, Governor Paterson, Mayor Bloomberg, the 20 City Council and other stakeholders to fix this 21 problem to benefit all the racing entities in the 22 State and tens of thousands of jobs they support. 23 Again, I thank you for your time, and 24 I would like to once again thank Speaker Quinn, 25 Chairman Weprin and the Council for calling 111 1 COMMITTEE ON FINANCE 2 attention to this important issue. 3 CHAIRPERSON WEPRIN: Thank you, Mr. 4 Allen. And I want to thank you for working so 5 closely with me and this Committee on numerous 6 occasions, on numerous press conferences and rallies 7 and meetings to try to resolve this. 8 And it's pretty incredible to think 9 that for the first time in a long time we're all 10 kind of on the same page, the City Council, the 11 Administration, the Union, and we all at the same 12 time are very frustrated at the situation. But, you 13 know, hopefully we'll be able to resolve this and, 14 you know, we look forward to communicating with you 15 over the next couple of weeks to see if we can kind 16 of turn the heat up and we're hoping to pass this 17 resolution at the next Stated meeting with is a week 18 from today, I think, a week from today. So, if we 19 can do that, and hopefully we can kind of turn the 20 heat up a little bit and Albany will hopefully have 21 a budget by then, congestion pricing will be a long, 22 distant memory, and we can move on in dealing with 23 this very important issue, which not only affects 24 New York City and New York City employees, but, you 25 know, the hard-working men and women I referred to 112 1 COMMITTEE ON FINANCE 2 earlier, but all the ancillary businesses, as 3 Council Member Fidler mentioned, not to mention the 4 State, who would be hurt significantly if New York 5 City OTB were to close. 6 Council Member Fidler. 7 COUNCIL MEMBER FIDLER: Yes, thank 8 you, Mr. Chairman. 9 It's really a statement, Mr. Allen. I 10 made the comment earlier that I think your stand on 11 behalf of your union brothers is courageous in this 12 particular case. And I also made the Poker analogy, 13 which frankly I think in this analogy, your 14 employees are the chips that were shoved to the 15 middle of the table. 16 MR. ALLEN: Yes. 17 COUNCIL MEMBER FIDLER: I do, however, 18 you know lack a great deal of faith that Albany will 19 do the right thing. I mean, I would hope so. I would 20 hope they realize that if we push the button here 21 that they get hurt almost as badly as we do. 22 But I think we also know that there 23 is some wiggle room, and I trust that before we 24 allow them to fully close the doors of OTB, should 25 Albany turn a deaf ear, that you come back to this 113 1 COMMITTEE ON FINANCE 2 Council and ask us to find a way to use that wiggle 3 room to keep your 1,400 brothers employed, to keep 4 those OTB parlors open. I think we have understated 5 the economic consequences not just to your employees 6 but this entire City of closing this operation down. 7 I mean, you know, everyone thinks 8 locally. I think about the OTB parlor in the corner 9 of East 29th Street and Avenue U, and I think in the 10 two pizza places and the two delis, that probably 11 survived on the OTB traffic, particularly on the 12 weekends, you know, what happens to Avenue U, what 13 happens to the people running those businesses? What 14 happens when those stores go vacant? 15 I think we will be making a huge 16 miscalculation, if we were to allow this to go down 17 this way without fighting to the last gasp, which I 18 am not convinced has to be this June. 19 Now, that may not be the appropriate 20 message to Albany that, you know, to think that they 21 have more time. And I apologize for that, but I 22 think Albany knows, I think they know that when Dan 23 Doctoroff comes here and says there is $10 million 24 of revenue stream left for another fiscal year, that 25 that is not a secret. 114 1 COMMITTEE ON FINANCE 2 So, I hope you'll come back here, and 3 I know, I have every confidence from everything I've 4 heard from all of my colleagues here today, that you 5 will have the backing of this Council to try and 6 find that wiggle room, so that your employees remain 7 employees moving forward. 8 MR. ALLEN: I thank you for that, 9 Councilman. And I would have to say that I'm very 10 pleased to say that on this particular issue, that 11 it seems that we do have the backing of the City 12 Council, which I consider to be the conscience of 13 this City. And anything that can be done on the 14 Council level to help my members keep their jobs I'm 15 personally grateful. 16 CHAIRPERSON WEPRIN: Thank you, 17 Council member. 18 Council Member Jackson, do you have 19 any questions? 20 COUNCIL MEMBER JACKSON: Well, first, 21 Mr. Allen, let me just thank you. As a leader you 22 have clearly focused your efforts in trying to save 23 the jobs of all of the employees that are being 24 impacted, not only the employees that you represent 25 but employees that are un-represented that are in 115 1 COMMITTEE ON FINANCE 2 management. 3 MR. ALLEN: Thank you. 4 COUNCIL MEMBER JACKSON: I can only 5 say to you, as I said earlier, anything that I can 6 do as a member of the City Council and this Finance 7 Committee and as a sponsor of this resolution, 8 anything that I can do to be helpful, please let me 9 know. 10 I will be reaching out to obviously 11 my State Assemblyman Danny Farrell, Chairman of the 12 Ways and Means Committee, and to Bill Perkins, the 13 State Senator, Eric Schneiderman, the people that I 14 know up in Albany, if they're not aware of this, to 15 make sure they're aware, hopefully that they will 16 stay focused on this. Also to the Co-chair, the 17 Chair of the New York State Black, Puerto Rican, 18 Latino and Asian Caucus, Townes, from Brooklyn. He's 19 the Chair, and obviously, I think that if you look 20 at the employees in New York City, the majority of 21 them are people of color, and obviously, that should 22 be a concern to them, and especially since the 23 majority of the employees live in New York City and 24 the majority of the members of the State's Black, 25 Puerto Rican, Latino and Asian Caucus are from New 116 1 COMMITTEE ON FINANCE 2 York City. So, I will be reaching out to them, 3 making sure that they're aware of this particular 4 matter, in order so that they will refocus to 5 hopefully save OTB. 6 MR. ALLEN: Councilman, I thank you so 7 much. And I have to say to you publicly, you've been 8 a very strong voice in our plight and we thank you 9 for that. 10 I think it's appropriate for this 11 Council to know, I've met with just about everybody 12 at the State level and everybody I met with showed a 13 willingness to help us with this problem, whether it 14 was the Speaker, whether it was the Majority Leader, 15 whether it was the Assembly Chair of Racing or 16 Senator Larkin in the Senate, all of them show a 17 willingness and they're fully aware of our time 18 line. 19 I know that there's been some things 20 that have distracted them, as far as the 21 Governorship changing hands, and like you mentioned, 22 congestion pricing, the State budget, but I would 23 hope now that they would see a sense of urgency 24 since we are a week away from getting a pink slip. 25 So, again, I thank this Committee and 117 1 COMMITTEE ON FINANCE 2 the City Council for everything you've done in 3 behalf of the workers that I represent. 4 CHAIRPERSON WEPRIN: Thank you very 5 much. And I'd just like to state for the record that 6 my office got a call earlier in the day from Council 7 Member Mike McMahon saying that he was a little 8 under the weather, he was in bed today, but he 9 should be okay but he was not able to attend the 10 hearing today. 11 Seeing no further questions, and 12 having no further witnesses, this Finance Committee 13 hearing is now adjourned. 14 (Hearing concluded at 12:34 p.m.) 15 16 17 18 19 20 21 22 23 24 25 118 1 2 CERTIFICATION 3 4 5 STATE OF NEW YORK ) 6 COUNTY OF NEW YORK ) 7 8 9 I, JOAN GARCIA, do hereby certify 10 that the foregoing is a true and accurate transcript 11 of the within proceeding. 12 I further certify that I am not 13 related to any of the parties to this action by 14 blood or marriage, and that I am in no way 15 interested in the outcome of this matter. 16 IN WITNESS WHEREOF, I have hereunto 17 set my hand this 9th day of April 2008. 18 19 20 21 22 23 24 --------------------- 25 JOAN GARCIA 119 1 2 C E R T I F I C A T I O N 3 4 5 6 7 8 9 I, JOAN GARCIA, do hereby certify the 10 aforesaid to be a true and accurate copy of the 11 transcription of the audio tapes of this hearing. 12 13 14 15 16 17 18 19 20 21 22 23 24 ----------------------- JOAN GARCIA 25