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How Polk County Became Owner of America’s Only ‘racino’ Non-Profit

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With another season of live racing kicking off this month at Prairie Meadows in Altoona, you might be wondering how Polk County became home to the nation’s only nonprofit “racino.”

The county-owned facility has long been a cash cow. With record-breaking bets last year, it generated more than $44 million in charitable grants in central Iowa, according to its annual report.

But the gambling facility has also been a source of several frauds over the years. As live racing has operated in the red, legalized sports gambling has expanded and the IRS has challenged its nonprofit status. Some are also questioning the salaries paid to executives, which, in the case of CEO Gary Palmer, could exceed $1 million with his bonus.

Here’s a look at the evolution of Prairie Meadows.

How did Prairie Meadows come about?

The impetus for Prairie Meadows and other Iowa tracks came in 1983, when then-Gov. Terry Branstad, serving his first term, sponsored a gambling bill in the Legislature that allowed betting on horse and dog racing. Branstad said he was swayed by arguments that the horse industry would help Iowa’s struggling agricultural economy.

“I didn’t really like gambling, but people said it’s a voluntary tax; we’d rather have that than the state involuntarily raising taxes,” Branstad told the Des Moines Register in 2009. “It was originally about the horse industry and what it would mean for agriculture. We were just coming out of the farm crisis.”

The track opened to a sold-out crowd on March 1, 1989.

But long before that first race, former Iowa Cubs owner Ken Grandquist, the track’s original developer, had difficulty securing financing amid questions about whether it could be turned a profit. So the Polk County Board of Supervisors, without holding a nationwide referendum, voted to allow taxpayers to get back the $40 million in bonds issued to build Prairie Meadows.

Thus, the residents of Polk became investors in a gambling operation, and the county became the landlord of the racetrack.

When and why did Prairie Meadows become a casino?

After the first races on the track, betting odds were far below the advisors’ initial expectations. The track started with a cash reserve of $4 million, spent $2.5 million before it was even open, and the rest disappeared within the first few months.

The track remained open for the next two years by borrowing $8.8 million from Polk County, arguing that it was less expensive to remain operational than to close.

Prairie Meadows filed for Chapter 11 bankruptcy on November 27, 1991, and horse racing did not resume until May 17, 1993. To save the racetrack, the Iowa Legislature passed a bill in 1994 to make it the first horse racing track in the world. the nation to install slot machines, which were also allowed at the struggling greyhound tracks in Council Bluffs and Dubuque.

How did that go?

Prairie Meadows unveiled 1,100 slot machines in April 1995 and they proved a huge success, helping the combined racetrack-casino earn $50.4 million that year. Gamblers flocked to Prairie Meadows and by December 1996 it had paid off a total of $89.3 million in debt owed to Polk County.

Prairie Meadows became a full-fledged casino in December 2004 when Iowa Race Tracks were allowed to install table games such as blackjack, craps and roulette.

More: Win or lose, Polk County is in a tough position in battling the Prairie Meadows tax challenge

An expansion of racetrack gambling followed a lawsuit filed in 1998 challenging much higher gambling tax rates imposed on racetrack casinos compared to tax rates imposed on riverboat casinos. The lawsuit reached the U.S. Supreme Court in 2003, when the Supreme Court reversed a ruling in favor of Prairie Meadows and two other racetracks. But the lawsuit ended in early 2004, when the Iowa Supreme Court concluded that the higher tax rates paid by racetrack casinos violated the Iowa Constitution.

In early 2007, Prairie Meadows added the Meadows Events and Conference Center and a steakhouse and buffet, and in 2009 a Register analysis concluded that Prairie Meadows, initially a white elephant, had lost more than $1.1 billion in the years since adding slot machines had brought in. in 1995.

The state and Polk County benefited the most, raking in more than $780 million, while horse racing and charity purses were next. Almost all of that money came from customers who lost money at the casino or on the race track.

In March 2012, Prairie Meadows opened a 168-room hotel.

Why did the Tax Authorities get involved?

In May 2016, the U.S. Internal Revenue Service said it planned to strip Prairie Meadows of its tax-exempt status after an 18-month audit investigation. The IRS audit found that the facility operated more like a business than “solely for social welfare purposes.”

It also found that the operation lacked Polk County oversight, which was a condition of its approval as a casino.

“The only difference between the operation of Prairie Meadows Racetrack and Casino and a for-profit casino is solely that (Prairie Meadows) does not pay taxes,” the IRS report said.

But Prairie Meadows appealed the finding and was allowed to keep its tax-exempt status in an IRS review after agreeing to make some concessions to the IRS.

What has happened since then?

In 2019, the Iowa Legislature passed a law allowing legalized sports betting through casinos, increasing Prairie Meadows’ profits.

More: ‘Fox looks at the chicken coop’: Is Iowa’s sports betting law too weak to prevent abuse?

In 2022, live greyhound racing ended at the state’s only remaining dog track, Iowa Greyhound Park, part of Q Casino in Dubuque, so Prairie Meadows is now the state’s only live pari-mutuel racing venue.

Although Prairie Meadows says it has paid more than $2.2 billion in subsidies and taxes, concerns remain about its oversight.

Last year, Palmer, whose contract expires in 2026, received another big 9% pay increase, bringing his base salary to about $725,000, up from $664,000 in 2023. In good years, his annual bonuses — which have yet to be determined this year — are higher than the $664,000 in 2023. his base salary.

And last year, the head of the Iowa Racing and Gaming Commission, the state’s top gambling regulator, announced he would take a high-level job at the racino. Brian Ohorilko is now senior vice president overseeing racing, human resources and food and beverage.