CHICAGO - A change in Iowa's racetrack simulcasting law may decrease by $1 million a year betting tax proceeds used to pay off $40 million of sports facility revenue bonds that financed the construction of the bankrupt Prairie Meadows racetrack.

But a Polk County official said the racetrack and its creditors have agreed in principle to set aside betting proceeds to make bond payments equivalent to the previous level.

As of July 1, the state tax on simulcast betting was reduced to 2% from 6%. The tax collected at Prairie Meadows racetrack ultimately is used to help pay off the track's $4 million in annual debt service.

Though the racetrack is owned by the Racing Association of Central Iowa, Polk County has a lease-purchase agreement with the association to provide the difference between the $4 million annual debt service on the bonds and proceeds from the state wager tax on the racetrack's revenues.

Polk County issued $40 million of sports facility revenue bonds in 1984 to build the racetrack and remarketed the bonds under the lease-purchase agreement in 1987. The county is actively seeking to refinance the debt by exercising a provision in the bond indenture that would allow for an early payment of the bonds.

The proceeds from the 6% state wager tax totaled $1.2 million for the first six months of 1992 but would drop to only $400,000 for the second six months due to the 4% decrease in the tax, assuming betting stays at its current pace, according to Tom Timmons, the racetrack's controller.

With the implementation of the revised simulcast betting law, the racetrack began setting aside 4% of its betting proceeds in an escrow account for debt service, Mr. Timmons said. He added that bankruptcy court will make the decision on how the escrow funds will be used. When the racetrack declared bankruptcy in November 1991, a Polk County District Court judge ordered an automatic stay of the racing association's funds.

However, Polk County Manager James Koolhof said he believes the court will rule that the escrowed funds be applied to debt service.

"The end result on paper will be just as it was before," Mr. Koolhof said.

Mr. Koolhof added that the provision revising the state tax to 2% caught Polk County and Prairie Meadows officials off guard.

The Iowa Legislature passed the revised simulcasting law in May in an effort to help Dubuque and Waterloo greyhound parks. But the law was written to include all tracks in Iowa, including the Prairie Meadows facility.

One of the bill's provision reduced the state tax on simulcast betting to make it economically feasible for Waterloo and Dubuque to simulcast each other's races.

"There were innumerable gaming bills. That provision was a piece of one of them. We never knew it was included in the final bill," Mr. Koolhof said.

Meanwhile, Polk County's plans to call the racetrack bonds and issue general obligation bonds to pay bondholders are on hold, pending a Supreme Court ruling on an appeal filed by anti-gambling activists. Mr. Koolholf said that the case could be heard by the court in September.

The anti-gambling activist's lawsuit claimed that the lease-purchase agreement between the county and the racetrack association violated state law prohibiting a government unit from pledging its taxing powers to pay debt service on revenue bonds issued to benefit a private entity. A Polk County District Court judge ruled against the activists in June 1991.

Mr. Koolhof has said a calamity clause provision in the bond indenture for the sports facility revenue bonds would allow the county to issue the GO bonds. The county would then turn over the proceeds to the racetrack association, which would pay off holders of the revenue bonds.

The first step toward exercising that provision took place Nov. 26, 1991, when the county board of supervisors voted not to provide an operating subsidy of up to $5.5 million for the 1992 racing season. The racetrack association filed for bankruptcy the following day.

If the county succeeds in exercising the calamity clause provision, the outstanding revenue bonds could be redeemed before the Dec. 1., 1997 optional call date.

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