LI OTBs awarded federal virus-related loans under PPP program

The U.S. government has awarded Nassau and Suffolk’s off-track betting agencies millions of dollars from the federal Paycheck Protection Program, according to a federal database that listed both OTBs as nonprofits and Nassau OTB as a “female-owned” enterprise.

The U.S. Small Business Administration approved loans of $2 million to $5 million each for the Nassau and Suffolk OTBs, according to an SBA database.

The PPP loan program was created in April with the aim of providing small businesses with cash to make payroll so they can avoid having to furlough or lay off employees because of the coronavirus pandemic. The SBA says it will forgive the loans after reviewing whether the companies have met criteria for retaining the employees.

The Nassau and Suffolk OTBs, which operate horse-racing betting parlors and together employ about 450 people, are public benefit corporations that are supposed to pass along their profits to the counties. Suffolk OTB also operates Jake's 58 Casino Hotel in Islandia, while Nassau OTB generates revenue from its complement of 1,000 video lottery terminals at Aqueduct Racetrack in Queens.

The Coronavirus Aid, Relief, and Economic Security Act, signed into law on March 27, makes eligible for PPP loans small businesses, nonprofit or veterans organizations, and tribal business concerns, as long as they employ up to 500 employees. There are exceptions to the size rule, depending on the industry. Sole proprietors, independent contractors and the self-employed can also qualify for the loans.

A federal Treasury Department guideline makes no mention of local governments, such as counties, cities, towns and villages. It also doesn't explicitly exclude the OTBs. The three other OTBs in the state also were approved for loans.

Matt Coleman, a spokesman for the U.S. Small Business Administration, said in an email that the agency "does not comment on individual borrowers."

The Nassau and Suffolk OTBs for years have carried heavy debt loads and lost significant revenues when they halted operations during the coronavirus pandemic.

Suffolk OTB is run by Phil Nolan, a former Democratic Islip Town supervisor and Suffolk County legislator. It emerged from bankruptcy on June 30, after paying back all its creditors, Suffolk OTB spokesman Jon Schneider said.

The Nassau OTB chairman is Joseph Cairo, who also heads the Nassau County Republican Committee. Nassau OTB has been late in making installments on its annual payments to Nassau County in recent years.

Supporters of the awards to the OTBs, including Rep. Peter King (R-Seaford) and former U.S. Sen. Alfonse D'Amato, said the assistance was justified because the agencies generate revenue and provide jobs.

But critics assailed the relief as further funding for patronage-laden organizations, relics of a dying business.

Cairo defended Nassau OTB's receipt of PPP loan money, saying it is not a public agency in the traditional sense.

"We're a business, and we're based upon our handle," said Cairo, referring to betting and slot machine revenues. "We are not a governmental agency, we have no tax revenue."

Schneider said Suffolk OTB, "as a nonprofit entity … applied for a PPP loan in order to continue to pay benefits to our entire workforce and to support both job retention as well as bringing employees back onto the payroll."

But E.J. McMahon, a senior fellow with the Empire Center, an Albany-based fiscally conservative think tank, said OTB fell into a "gray zone" as a "quasi-governmental" organization. 

"It’s highly questionable for these OTBs to be treated like private small businesses," he said. "They wouldn’t exist if they hadn’t been created, staffed and subsidized by government. There’s no discernible difference between the OTBs and numerous other public-benefit corporations ineligible for PPP loans."

"Basically," McMahon said, "it's bailouts for patronage troughs."

"Why should you bail out an enterprise that couldn’t support itself to begin with? You're a bookie and you're broke, how does that work?" McMahon said. "If you can't make money taking bets on horse races, you don’t deserve a dime in" federal aid.

The New York State Legislature established OTBs in the 1970s as a way to help finance the horse racing industry, provide profits to local governments and crack down on illegal gambling.

Cairo laid out his arguments in a May 9 letter to SBA Administrator Jovita Carranza, writing that OTB was not a "state agency" or a "political subdivision." Cairo said OTB receives no federal, state or local aid, and is not exempt from real property tax payments. The employees receive state pensions.

Cairo wrote that OTB "does not perform a typical government function" and is "more closely akin to private corporations and should be treated as such for purposes of the Paycheck Protection Program."

The OTBs, along with others in the state, won the federal money after reaching out to the SBA and federal representatives. Cairo said D’Amato, whose firm, Park Strategies, is OTB's lobbyist, reached out to Washington on the matter.

King said in an interview that his office reached out to the SBA on the OTBs behalf. King, who was once general counsel for Nassau OTB in the 1970s, said he wasn't personally involved.

"They are big employers," he said. "They do provide revenue to the county and state, so to me it was legitimate, it was important to keep them opening, keep them functioning.”

D’Amato said in a statement: “There is one reason why these OTB’s exist: to generate an additional source of revenue for local government and thereby reduce the tax burden on its residents. At a time when Nassau County government — and Suffolk as well — is facing a deficit of more than half a billion dollars the ability of OTBs to function, keep its employees on payroll, and remain a viable going concern that can contribute to economic recovery through revenue generation makes for a very strong case as to why they should access these programs.”

However, New York State Assemb. Michael Fitzpatrick (R-St. James) said the federal loans are meant for small, private businesses.

"There are a lot of small operations where people have worked extremely hard to make this sacrifice to build their own business," Fitzpatrick said.

"OTB is a government operation, it's not a business," he said. "It was established as a public benefit corporation to help fund government."

In an interview, Cairo said the “female-owned” label likely was a typographical error and that he did not use that label in filing the application.

Patricia Schaubeck, general counsel for Nassau's PPP lender, Dime Community Bank, said the designation was due to a "coding error on our part. It is not a woman-owned agency, and it is a for profit, so we're going to make that correction." Nassau OTB had $15 million banked with Dime as of June 30, a spokesman said.

The SBA's Coleman said, "all information made available in the public data was transferred to the SBA electronically from the PPP-participating lenders. It is information the lender provided the agency, reflective of borrowers who have been approved for PPP loans; it does not indicate disbursement or the final amount disbursed, which are transactions between the lender and borrower."

He added, "The SBA will undertake a review process that will look at, among other issues, the eligibility of borrowers, to determine whether they will be required to repay their loans."

Both county comptrollers in Nassau and Suffolk vowed to make sure the agencies fulfill their financial obligations.

“Obviously, Nassau County government has a compelling interest in making sure that we get the contractually obligated payments due to the county from OTB,” Nassau Comptroller Jack Schnirman said.

Suffolk Comptroller John Kennedy said he planned to review whether Suffolk OTB was using the funds correctly. "If they somehow wound up running off the rails again, I would strongly go ahead and encourage the Treasury recover from them as well.”

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By Scott Eidler

scott.eidler@newsday.com@ScottEidler

Scott Eidler is a deputy editor for the towns department at Newsday. Scott has worked at Newsday since 2012 and previously covered municipal government and education.