11/01/2006 1:00AM

Audit reveals problems with Kentucky fund


LEXINGTON, Ky. - An audit of the Kentucky Thoroughbred Development Fund has uncovered serious problems in the owners' awards program that will likely result in the revamping of the program, Kentucky racing officials said this week.

The audit was conducted earlier this year by the Kentucky Horse Racing Authority. Lisa Underwood, the executive director of the authority, declined on Tuesday to discuss details of the audit, but said the authority is in negotiations with racing officials at Kentucky's tracks to redesign the program.

"For a long, long time people have not been properly watching over the fund," Underwood said. "We decided we needed to resolve the issue now."

Started in 1978, the Kentucky Thoroughbred Development Fund uses money collected from in-state wagers to award bonuses to the owners of Kentucky-bred horses that finish first, second, or third in maiden, allowance, and stakes races in the state. The program is unique in the U.S. because it does not rely on restricted races to award bonuses.

Under the program, 0.75 percent of all ontrack wagers made at the live racetrack and 2 percent of all in-state wagers at intertrack sites are used to fund the bonuses. That money is deposited into the state's general fund. Racetracks pay out the bonuses on a set schedule, and then bill the state for reimbursement.

If the state pays more to racehorse owners than the program raised, then Kentucky taxpayers, in effect, subsidize the awards.

Though Underwood would not confirm that the reimbursements have exceeded the amount raised by the in-state wagers, she acknowledged that the fund was not in balance. Underwood said that part of the problem stemmed from the fact that the formula to pay out the awards was not based on the money raised by ontrack wagering.

"They are two completely different formulas, and it's like apples to oranges," Underwood said. "To be simple, you cannot pay more to the association than the association puts in."

Racing officials at the state's tracks did not return phone calls on Wednesday.

David Switzer, the executive director of the Kentucky Thoroughbred Association - which acts as the registrar for all horses eligible for the KTDF - said that the KTA has not been a party to any of the negotiations to revamp the program. But he said that the KTA was aware that the audit uncovered payments that exceeded the amount of money the program raised.

"The problem is that there has been an overpayment from the fund," Switzer said. "They are trying to find out what happened and where."

Racetracks pay out the awards based on estimates of the amount of in-state handle that will be generated during their live meets. As wagering in Kentucky migrates more and more to account-wagering operations and out-of-state simulcasts, the tracks may have overestimated the revenues that would go to the state, Switzer said.