Funding Ideas & Suggestions for Unwanted Horses

Below are some idea and out-of the-box thoughts on how we might find sources of funds to help the enormous population of unwanted horses.

How much is needed?

     We could actually monetize the scope of the problem. In 2012, 160,000 horses were shipped to slaughter. The American Association of Equine Practitioners estimates that the average cost to maintain a horse for one year is $1,825 (excluding veterinary and blacksmith care). However, horses currently being received by rescue facilities are thinner, sicklier, injured or require care for chronic conditions.  The cost for these horses is much greater as veterinary care can quickly add up (American Veterinary Medicine Association, 2013). As a result, Holcumb and Stulls (2010) suggest the real cost for a horse in a rescue facility is $3,648 per year. In order to provide a general estimate of the costs, we simplified the math by taking an average costs per year as follows:

Cost of Care (Year 1) = ($3,648+$1,825)/2 * 160,000 = $437 million

     Although euthanasia is a viable option for some horses, the number of unwanted horses could continue to grow cumulatively as the population of aging unwanted horses grows each year. Some have estimated that the cost to the government of warehousing these horses to be $530 million by 2016 (Holland, 2006). The impact of ban on slaughter will continue to grow exponentially and will quickly become a billion dollar problem that will ultimately fall on horse owners, nonprofits organizations and the government to sustain. Given that the nonprofits are over capacity, the concern over government spending, and the average annual income for half of the horse population is between $25,000 and $75,000 (American Horse Council, 2005), it is time to look real solutions to the problems associated with unwanted horses.

Accountability from Thoroughbred Racing

Thoroughbred racing is a multi-billion dollar industry (Francis, 2009).   The price tag on buying horses is so high that the normal business model of expenses and revenue hardly applies. With yearlings selling for over $1 million, it’s almost impossible for them to win enough races to balance the purchase price. This leaves owners and trainers racing after purses. Trainers often use performance enhancing drugs to improve racing results and keep horses racing despite injuries. As a result, race horses become faster and racing horses becomes more dangerous. The Jockey Club (2013) reported a 1.9% fatality rate among racehorses in 2012. This does not take into account the horses that were retired from racing due to injury and later slaughtered or euthanized.

Horses retired from racing have limited options. Louise (2012) reports that 70% of all Thoroughbreds born in the U.S. will end up slaughtered.

Jockey Club is a 501c3 and therefore exempt from federal taxes. However, it also maintains several wholly owned for-profit subsidiaries. The organization is dedicated to the improvement of Thoroughbred breeding and racing.The Jockey Club’s registers 25,000 Thoroughbred foals per year for a fee of $225 per foal. Only $25 of this fee goes toward a retirement fund for race horses. Therefore, the Jockey Club recognized $5 million (($225-$25) * 25,000 foals) in registration fees per year to promote an industry that supplies 19% of the horses that are slaughtered each year (Lauren, 2010).

The Jockey Club formed the National Thoroughbred Racing (NRTA) in 1998. The National Thoroughbred Racing Association (NTRA) is a coalition of stakeholders in the racing industry including leading thoroughbred racetracks, owners, breeders, trainers and affiliated horse racing associations. Their stated mission is to “increase the popularity of horse racing and improving economic conditions for industry participants” (National Thoroughbred Racing Association, 2013).

The Jockey Club and the NRTA are two nonprofit organizations whose mission is to serve stakeholders of the horse racing industry. One stakeholder group that is not noted in their mission statements is the horses. Race horses are the quintessential element of the industry, yet they are not considered as stakeholders by these two tax exempt organizations that promote racing. By reviewing their mission statements it would appear that racing professionals are not focused on the welfare of the horses. Perhaps changing their mission statement “increase the popularity of horse racing, improving economic conditions for industry participants, and protect American racehorses” might highlight the importance of the welfare of the horses.

Some racetracks are taking initiatives to protect racehorse and provide support for their long term care. For example, Suffolk Downs in Massachusetts has a no-slaughter policy and will revoke the license of any trainer who sells a horse to slaughter. Also, in New York a task force has recommended a percentage of revenue from video lottery terminals and purse accounts go toward retraining and retirement programs for racehorses in the state. Based on industry statistics, there is an estimated 39% attrition rate for Thoroughbred and Standardbred racehorses in New York each year. The task force recommends that all New York racetracks and Resorts World Casino New York City at Aqueduct give one-half of .05% of commissions to retirement efforts. Based on 2010 commissions and projections at the Aqueduct VLT casino, the percentage could produce more than $3.1 million a year. In addition, the group calls for all racetracks and horsemen in the state of New York to contribute .05% of purses, which would generate another $1.1 million based on 2010 levels. Combined source could bring the total to more than $5 million per year (LaMarra, 2011).

The racing industry is not oblivious to the issue of unwanted horses; nor is the issue isolated to Thoroughbred racing. Although the Thoroughbred industry was described above, the racing industry includes many other organizations including Trotter/Standardbreds, Quarter Horses and Paint Horses. They all have embraced a number of initiatives to combat the issue of retirement and after-racing placement. However, the issue of unwanted horses is clearly growing and will reach a crisis-level given the pending legislation. It is recommended that the all racing organizations revisit their initiatives designed to help the horses that make their industry profitable.

Livestock and Breeding Exemptions

The Professional Auction Service reported that the average price of horses sold through their auctions was up 40% in 2010. Despite the receding economy, the average sale price was $5,396 in 2012. This average was boosted by a record number of horses sold for over $100,000. One horse, Huntin’ for Chocolate, sold for $300,000. Since he is considered a breeding stallion, his new owners were not required to pay any sales tax as revenues generated from horses sold for breeding purposes is tax exempt (Pleasure Horse, 2013).

     Horses are considered livestock. As a result, they receive benefits from the United States Department of Agriculture (USDA) for research, regulation, and disaster relief. As livestock, horses are protected by anti-cruelty laws written to ensure the humane treatment and care for livestock.  States have passed many “Limited Liability Laws”written to provide owners and professionals with protection from lawsuits that may arise if an individual is injured from livestock.   Horse owners also receive many tax exemptions and incentives designed for livestock (American Association of Equine Practitioners, 2013; USDA, 2013). The sale of breeding livestock in the majority of the states is tax exempt (National Sales Tax Study, 2008).

     Many states provide tax exemptions to livestock breeders. Since horses are considered livestock, these exemptions are extended to equine professionals. In most states, the sale of stallions and mares is tax exempt because they may be considered breeding stock. These tax exemptions encourage over-breeding. Given over-breeding is a contributing factor to the overwhelming number of “unwanted horses,” the tax exempt status becomes a de facto subsidy for kill-buyers. If we were to remove the existing tax exemption on breeding stock horses, this would discourage over breeding and ultimately reduce the number of horses shipping to slaughter.

     A state by state review of tax incentives for breeders is necessary. Further, breeders need to be held accountable for the foals they produce. It is recommended that breed registries requires all foals be microchipped. This will create a sense of accountability in the future.

     By applying the basic microeconomic theory of supply and demand, we will see that reducing the number of foals each year will result in higher sales prices for breeders.   The theory demonstrates that prices will vary until settling at an equilibrium point where the quantity demanded by consumers equals the quantity supplied by suppliers at a given price. However, if either supply or demand changes, the price will also change. The theory proves that if demand remains unchanged and supply decreases, a shortage occurs that will result in a higher equilibrium price (Ritter, Silber, Udell, 2000). Assuming demand for horses remains constant, and supply decreases as a result of less breeding, it would be safe to assume that sales prices would increase.

Sales Tax Code Changes

     History has demonstrated that changes in tax codes have a direct correlation to the number of horses slaughtered each year. For example in 1989, the IRS no longer allowed horses to be depreciated. That same year over 339,000 horses were slaughtered in the United States (Lenz, 2008). Is it possible a change in the tax codes could reduce the population of unwanted horses, while at the same time generate revenues to care for those that remain?

     The collection of sales tax relating to revenues generated from the sale of horses is determined by each state.  Most states differentiate tax reporting requirements for an occasional horse sale from those of an equine professional selling horses for profit. For example, in Virginia sales tax on horses doesn’t apply if you are an occasional seller, which is defined as an individual who sells three or less horse per year. If you sell more than three, you are considered a professional and taxes are collected on the sale of each horse. Regardless, since there is no registration requirement for horses, it is difficult for states to enforce and collect taxes.

     One consideration is to impose a tax similar to the “luxury car tax” which would enforce taxes on the sale of all horses over a specific sale price. It is hard to ignore the lost tax revenues from owners like Sheikh Mohammad bin Rashid al Maktoum of Dubai, who has spent over $60 million on American broodmares since 2002. Hundreds of millions of dollars worth of horses go through Kentucky auctions, most without generating a penny in sales tax for the state (Patton, 2010). It is estimated that if Kentucky had collected taxes on the sale of horses between 2004 and 2010, the state would have generated over $220 million in sales tax revenues (Crow, 2010).

     Revenues collected as a result of removing breeding tax exemptions, enforcing sales tax on the sale of all horses and imposing a ‘Luxury Tax” may then be earmarked for specific programs and organizations designed to provide resources for unwanted horses.

Registering horses

Some advocates have suggested a registration fee for horses. This would be similar to a licensing fee associated with a dog. Proceeds from these fees would go toward an equine management fund used to manage the unwanted horse population. There are 9.1 million horses in the United States (American Horse Council, 2005). The cost to register a dog is between $25 and $75 dollars. A licensing fee would be a small fee for horse owners that would provide big revenues for unwanted horses. Horse could be microchipped, electronically registered and renewed annually.