'Schizophrenic' State Planning

Editor's note: The Michigan Economic Development Corporation has been no stranger to controversy during this year, with perhaps the most exceptional case being its attempt to give a special tax deal to a company run by a convicted felon. This week, MichCapCon.com will be reviewing another MEDC project that has become mired in controversy.

In 2008, the newly built Pinnacle Race Course in Huron Township was eligible for more than $48 million in tax incentives over 30 years. The MEDC trumpeted this project as "the beginning of a world-class commercial and industrial complex and transportation hub that will mark the entry of western Wayne County into the global economy."

But today, county officials say the track has liens on it and has unpaid property taxes for 2009 and 2010. One horse racing organization says it has given more than $1 million to keep it operating.

Using a Freedom of Information Act request, MichCapCon.com has acquired more than 500 pages of documents that show a rare inside look at the policy and politics of how a state-subsidized economic development deal doesn't pan out as expected.

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Ronald Reagan once famously quipped that government economic experts have a simple motto: "If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." When it comes to horse racing, Michigan government's economic experts appear able to implement more than one of these seemingly contradictory plans at a time.

The state of Michigan and Wayne County showered millions upon millions of tax dollars on the Pinnacle Race Course in Huron Township in 2008. The track was seen as the start of a tourist attraction that would draw fans from surrounding states and Canada, create thousands of jobs and generate millions in state revenue.

Yet state legislators and state government roadblocks were damaging the very project they were pumping millions of dollars of incentives into, leading to what one expert called a "schizophrenic behavior."

Gary Tinkle, executive director of the Michigan Horsemen's Benevolent & Protective Association, said his organization has given Pinnacle Race Course more than $1 million to keep it operating. He says the system is unfair as the track competes for the gambling dollar with the state's lottery.

Yet, the state regulates the horse racing industry.

"If you can't increase your product to compete with your competitor, you are going to go out of business," Tinkle said, accusing the state of a "systematic dismantling" of the horse racing industry. "All we ask for is the opportunity to compete fairly for the gaming dollar."

Pinnacle Race Course has fallen short of its ambitions. Instead of hundreds of jobs, the track may be employing as few as 30 employees.  Track officials won't say how many jobs the track employs, but Huron Township Supervisor Elke Doom said she's visited the track numerous times and estimates there may be only about 30 full time jobs present.

As reported yesterday, the track is "late in paying property taxes to Huron Township, has reportedly had its water and electricity temporarily turned off for non-payment, and Wayne County officials say the property has liens against it."

The Michigan Economic Development Corporation approved the track for up to $48 million in tax incentives over 30 years. Wayne County had an agreement with Post-It Stables, which owns Pinnacle Race Course, for the county to do financing and construction of "at least" $20 million for public infrastructure improvements on the property.

But while one faction of government tried to prop up the industry, other bureaucracy was stifling it.

The state of Michigan had reduced its own staff the past two years that regulates the industry due to budget cuts. That means tracks have to pay for regulatory employees, such as veterinarians, out of their own pockets. That has led to a reduction in the number of live racing dates. Horse racing experts say a healthy track could race five times a week. Instead, Pinnacle held live races only on the weekend this year.

"The reduction of race dates had a negative impact on the racing industry," said Carl Herstein, an attorney who represents Post It Stables, Inc.

State legislators have repeatedly sat on legislation that would have allowed race tracks to have slot machines on-site, and have refused to allow online betting on races. People placing bets have to come to the track instead of the comfort of their own home.

Two different versions of a "racino" bill were passed by the state House and Senate in 2004 that would have allowed slot machines at race tracks. But the bills died because legislators couldn't agree on who would get the money, said Jack McHugh, the Mackinac Center for Public Policy's senior legislative analyst.

"The state is schizophrenic about gambling," McHugh said. "On one point lawmakers love gambling because it means loot for the state. On the other side it turns out to who gets the loot and the whole moral issue on gambling comes into play."