[Federal Register Volume 88, Number 58 (Monday, March 27, 2023)]
[Rules and Regulations]
[Pages 18034-18037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06023]


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FEDERAL TRADE COMMISSION

16 CFR Part 1


Procedures for Oversight of the Horseracing Integrity and Safety 
Authority's Annual Budget

AGENCY: Federal Trade Commission.

ACTION: Final rule.

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SUMMARY: The Federal Trade Commission (``Commission'') is issuing rules 
pursuant to the Horseracing Integrity and Safety Act (``Act'') to 
provide procedures for the Commission's oversight of the annual budget 
of the Horseracing Integrity and Safety Authority (``Authority'').

DATES: This rule is effective on March 27, 2023.

FOR FURTHER INFORMATION CONTACT: John H. Seesel (202-326-2702), Office 
of the General Counsel, Federal Trade Commission, 600 Pennsylvania 
Avenue NW, Washington, DC 20580.

SUPPLEMENTARY INFORMATION: The Horseracing Integrity & Safety Act,\1\ 
enacted on December 27, 2020, and amended on December 29, 2022, directs 
the Federal Trade Commission to oversee the activities of a private, 
self-regulatory organization called the Horseracing Integrity and 
Safety Authority.
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    \1\ 15 U.S.C. 3051 through 3060.
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    The Act, in subsection 15 U.S.C. 3052(f), sets forth certain 
requirements for the Authority's budget. On the revenue side, as for 
initial funding, the Authority is to obtain loans,\2\ and generally it 
``may borrow funds toward the funding of its operations.'' \3\ After 
the program effective date of July 1, 2022, the Authority performs an 
annual calculation of the ``amount required'' from each State in which 
covered horseracing takes place, which estimates the amount required 
from each State ``to fund the State's proportionate share of the 
horseracing anti-doping and medication control program and the 
racetrack safety program for the next calendar year'' and ``to 
liquidate the State's proportionate share of any loan or funding 
shortfall.'' \4\ The amount required by each State is calculated under 
the Assessment Methodology rule \5\ and must be ``based on,'' among

[[Page 18035]]

other things, ``the annual budget of the Authority for the following 
calendar year.'' \6\
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    \2\ See 15 U.S.C. 3052(f)(1)(A).
    \3\ Id. 3052(f)(1)(B).
    \4\ Id. 3052(f)(1)(C)(i).
    \5\ The Assessment Methodology proposed rule was published in 
the Federal Register and approved by the Commission after a period 
of public comment. See Fed. Trade Comm'n, Notice of HISA Assessment 
Methodology Proposed Rule, 87 FR 9349 (Feb. 28, 2022), https://www.federalregister.gov/documents/2022/02/18/2022-03717/hisa-assessment-methodology-rule (containing the text of the Assessment 
Methodology proposed rule as submitted by the Authority); Fed. Trade 
Comm'n, Order Approving the Assessment Methodology Rule Proposed by 
the Horseracing Integrity & Safety Auth., at 1 (Apr. 1, 2022), 
available at https://www.ftc.gov/system/files/ftc_gov/pdf/Order%20re%20HISA%20Assessment%20Methodology.pdf. The Authority 
later submitted a proposed rule modification to Assessment 
Methodology, which was also published in the Federal Register and 
approved by the Commission after a period of public comment. See 
Fed. Trade Comm'n, Notice of HISA Assessment Methodology Proposed 
Rule Modification, 87 FR 67915 (Nov. 10, 2022), https://www.federalregister.gov/documents/2022/11/10/2022-24609/hisa-assessment-methodology-rule-modification; Fed. Trade Comm'n, Order 
Approving the Assessment Methodology Rule Modification Proposed by 
the Horseracing Integrity & Safety Auth., at 1 (Jan. 9, 2023), 
available at https://www.ftc.gov/system/files/ftc_gov/pdf/order_re_hisa_assessment_methodology_modification_not_signed_002_0.pdf.
    \6\ 15 U.S.C. 3052(f)(1)(C)(ii)(I)(aa).
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    On the expenditure side of the budget, the Act provides that the 
``initial budget'' requires approval by a two-thirds supermajority of 
the Authority's Board of Directors, as does any ``subsequent budget 
that exceeds the budget of the preceding calendar year by more than 5 
percent.'' \7\ The Act has two more relevant provisions: ``A proposed 
increase in the amount required under this subparagraph''--in other 
words, the Authority's budget--``shall be reported to the Commission.'' 
\8\ And: ``The Commission shall publish in the Federal Register such a 
proposed increase and provide an opportunity for public comment.'' \9\
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    \7\ Id. 3052(f)(1)(C)(iii)(I), (II). Implicitly, subsequent 
budgets that do not exceed by more than 5 percent the budget of the 
preceding calendar year require only a simple majority of the 
Authority's Board of Directors.
    \8\ Id. 3052(f)(1)(C)(iv)(I).
    \9\ Id. 3052(f)(1)(C)(iv)(II).
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    The Act does not specify whether the Authority's proposed budget 
takes effect upon the closing of the public-comment period or whether 
the Commission is to consider the public comments and then decide 
whether to approve or disapprove the Authority's proposed budget. On 
the one hand, the Authority's budget is not listed among the eleven 
enumerated items in 15 U.S.C. 3053(a) that ``shall not take effect 
unless . . . approved by the Commission.'' \10\ On the other hand, what 
the Authority submits (in the event of an increase in the amount 
required) is a ``proposed increase,'' which implies that a Commission 
decision to approve or disapprove the proposal will follow.\11\ 
Although the Act does not identify criteria by which the Commission 
should evaluate the Authority's proposed budget, in December 2022 
Congress conferred on the Commission the power to issue rules ``as the 
Commission finds necessary or appropriate to ensure the fair 
administration of the Authority . . . or otherwise in furtherance of 
the purposes of this Act.'' \12\
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    \10\ Id. 3053(b)(2).
    \11\ Id. 3052(f)(1)(C)(iv)(I), (II) (emphasis added).
    \12\ Consolidated Appropriations Act, 2023, H.R. 2617, 117th 
Cong., Division O, Title VII (2022) (to be codified at 15 U.S.C. 
3053(e)).
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    The Commission hereby exercises this newly granted rulemaking 
authority to clarify the Commission's role in approving and overseeing 
the Authority's budget, as well as the public's role in providing 
comment, and to set forth clear requirements as to the Authority's 
budget. Specifically, the Commission adds a new subpart U to part 1 of 
its Rules of Practice, to provide procedures for the Commission's 
oversight of the Authority's budget.\13\
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    \13\ In addition, the Commission intends in the near future to 
engage in further rulemaking prescribing oversight of non-budgetary 
aspects of the Authority's operations.
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I. Section 1.150--Authority's Proposed Budget Submissions

    Section 1.150 provides for the Authority's proposed annual budget 
to use the calendar year as its fiscal year and to be submitted to the 
Commission by September 1 of the preceding year. The submission of the 
proposed budget is required regardless of whether the Authority's 
budget contains a ``proposed increase in the amount required'' as 
compared to the previous year.\14\ The Commission believes that its 
oversight of the Authority's budget is best performed consistently 
rather than only when the amount required increases. In short, annual 
rather than less-frequent budget oversight is a baseline requirement 
``to ensure the fair administration of the Authority.'' \15\ The 
Authority's submission must contain: an indication of the vote of its 
Board of Directors; sufficient revenue and expenditure information, 
broken out by line item, as would be required for members of the Board 
of Directors to exercise their fiduciary duty of care; and a comparison 
of the current year's actual revenues and expenditures with those that 
were approved. The submission should address the Commission's budget 
approval decision criteria: that the proposed budget serves the goals 
of the Horseracing Integrity and Safety Act in a prudent and cost-
effective manner, utilizing commercially reasonable terms with all 
outside vendors, and that its anticipated revenues are sufficient to 
meet its anticipated expenditures. If the Commission determines that 
the proposed budget as submitted satisfies the requirements, the 
Commission will publish the proposed budget in the Federal Register for 
14 days of public comment.
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    \14\ 15 U.S.C. 3052(f)(1)(C)(iv).
    \15\ Id. 3053(e).
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    In addition, and notwithstanding the September 1 deadline for 
submission of the Authority's next year's budget to the Commission, 
Sec.  1.150 requires the Authority to post its anticipated budget for 
the following year as early as is practicable in the preceding year. 
The Authority's posting of its planned next year's budget shall include 
an invitation to the public to submit comments to the Authority 
concerning any aspect of the planned annual budget. The Authority is 
required to post those public comments as they arrive on its website 
and to review the comments in order to ascertain whether to revise the 
budget in any manner. Further, Sec.  1.150 requires the Authority to 
promptly provide the public comments that it receives to the 
Commission, together with an assessment of such public comments that 
the Authority believes would assist the Commission's evaluation of the 
planned budget.

II. Section 1.151--Commission Decision on Authority's Proposed Budget

    Section 1.151 provides that the Authority's proposed budget takes 
effect only if approved by the Commission. This provision mirrors 
others in the Act that require proposals made by the Authority, such as 
for rules and rule modifications, to receive Commission approval before 
they take effect. For ease of administration and to account for the 
time the Commission may take to render a decision on the proposed 
budget, the Authority is permitted to conditionally collect fees, and 
State racing commissions (and covered persons in States that do not 
elect to remit fees) are permitted to pay, based on the annual budget 
as approved by the Authority's Board of Directors.
    The criteria by which the Commission will decide whether to approve 
or disapprove the Authority's proposed budget are in Sec.  1.151(c), 
which provides that the Commission will approve the proposed budget if 
the Commission determines, on balance, the proposed budget serves the 
goals of the Act in a prudent and cost-effective manner, utilizing 
commercially reasonable terms with all outside vendors, and anticipated 
revenues are sufficient to meet its anticipated expenditures. With 
respect to revenues and expenditures, the Commission may also modify 
any line item. The Commission will publish the Authority's proposed 
budget in the Federal Register for 14 days of public

[[Page 18036]]

comment. Public comments are welcomed as to both whether the submission 
satisfies the Commission's decisional criteria and whether the 
Commission should modify any line items.

III. Section 1.152--Deviation From Approved Budget

    Section 1.152 sets forth what happens in circumstances in which 
actual revenues or expenditures deviate from those approved in the 
annual budget. When the Authority determines that, for a given 
expenditure's line item, the actual expenditure is likely to exceed the 
approved expenditure by more than 10 percent, it must immediately 
notify the Commission. Such a notice must indicate whether the 
Authority proposes to repurpose money from the line item of another 
expenditure to make up the difference for the expenditure whose likely 
actual amount will exceed the approved amount. So, too, when the 
Authority determines that its overall expenditures will exceed its 
approved expenditures, it must immediately notify the Commission. Such 
a notice must indicate the means by which the Authority intends to make 
up the difference, such as obtaining loans. For both overall-
expenditure and line-item deviations, the Commission retains the right 
to disapprove the proposed repurposing or means of making up the 
difference, which it must do within seven business days of receiving 
the Authority's notice. If the Commission takes no action, the 
Authority's proposal takes effect as an amendment to its budget.
    Because these rules relate solely to agency procedure and practice, 
publication for notice and comment is not required under the 
Administrative Procedure Act. 5 U.S.C. 553(b).\16\
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    \16\ For this reason, the requirements of the Regulatory 
Flexibility Act, 5 U.S.C. 601(2), 604(a), are also inapplicable. 
Likewise, the amendments do not modify any FTC collections of 
information within the meaning of the Paperwork Reduction Act, 44 
U.S.C. 3501 through 3521.
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List of Subjects in 16 CFR Part 1

    Administrative practice and procedure.

    For the reasons set forth in the preamble, the Federal Trade 
Commission amends title 16, chapter I, subchapter A of the Code of 
Federal Regulations as follows:

PART 1--GENERAL PROCEDURES

0
1. The authority citation for part 1 continues to read as follows:

    Authority:  15 U.S.C. 46; 15 U.S.C. 57a; 5 U.S.C. 552; 5 U.S.C. 
601 note.


0
2. Add subpart U to read as follows:

Subpart U--Procedures for Oversight of the Horseracing Integrity 
and Safety Authority's Annual Budget

Sec.
1.150 Authority's proposed budget submissions.
1.151 Commission's decision on Authority's proposed budget.
1.152 Deviation from approved budget.


Sec.  1.150  Authority's proposed budget submissions.

    (a) Mandatory annual submission. The Authority must submit a 
proposed annual budget to the Commission every year, irrespective of 
whether there is a ``proposed increase in the amount required'' under 
15 U.S.C. 3052(f)(1)(C)(iv). The submission of the proposed budget for 
the following year must be made by September 1 of the current year, 
following the procedures set forth in Sec.  1.143. The Authority's 
annual budget will use the calendar year as its fiscal year.
    (b) Public comments. In addition to submitting its planned budget 
to the Commission by September 1 of the preceding year, the Authority 
shall post such planned budget on its own website as early as is 
practicable, with an invitation to the public to submit comments to the 
Authority on any aspect of the planned next year's budget. The 
Authority shall post such comments on its website upon their arrival 
and shall review them to ascertain whether to revise the budget in any 
manner. In addition, the Authority shall promptly forward to the 
Commission:
    (1) Any such public comments that it receives; and
    (2) An assessment of such public comments that it believes would 
assist the Commission's evaluation of the Authority's planned budget.
    (c) Contents of submission--(1) Indication of Board vote. The 
Authority's proposed budget must be approved by a majority of its Board 
of Directors (or, in the case of its initial budget or a budget that 
exceeds the preceding year's budget by 5 percent or more, a two-thirds 
supermajority) and must state the Board vote on the motion to approve 
the budget.
    (2) Revenue information. The proposed budget must identify both the 
estimated amount required from each State racing commission as 
calculated under 15 U.S.C. 3052(f) and all other sources of Authority 
revenue as well as any loans proposed to be obtained by the Authority.
    (3) Expenditure information. The proposed budget must identify 
expenditures separately for:
    (i) The racetrack safety program;
    (ii) The anti-doping and medication control program;
    (iii) All other programmatic expenditures other than for racetrack 
safety and anti-doping and medication control, such as the 
administration of the Authority or its technological needs;
    (iv) Repayment of any loans; and
    (v) Any funding shortfall incurred.
    (4) Line items. For both revenue and expenditure information, the 
Authority's proposed budget must provide sufficient information, by 
line item, as would be required for members of the Authority's Board of 
Directors to exercise their fiduciary duty of care. For example, the 
proposed budget's expenditure information for anti-doping and 
medication control might include separate line items for in-house 
salaries, the costs of testing of laboratory samples, the costs of 
arbitrators, and all the costs associated with contracting with an 
anti-doping and medication control enforcement agency. The proposed 
budget must include a narrative component that provides a brief 
explanation of each line item's utility in carrying out the purposes of 
the Horseracing Integrity and Safety Act.
    (5) Comparison of approved budget to actual revenues and 
expenditures. The proposed budget must provide a comparison showing, 
for each approved line item, the actual revenues and expenditures for 
the current year along with a narrative component explaining why any 
line item is anticipated to deviate by 10 percent or more during the 
current year.
    (d) Approval and publication of submission. The Commission will 
publish the Authority's proposed budget in the Federal Register if the 
Commission determines that the proposed budget contains sufficient 
information for the members of the Board of Directors of the Authority 
to exercise their fiduciary duty of care and meets the requirements of 
this subpart. Members of the public will then have 14 days in which to 
file comments on the proposed budget.


Sec.  1.151  Commission's decision on Authority's proposed budget.

    (a) Commission approval required. The Authority's proposed budget 
takes effect only if approved by the Commission. The Commission will 
approve or disapprove the proposed budget after considering the public 
comments filed and the Commission's internal review per the submission 
requirements in Sec.  1.150. The

[[Page 18037]]

Commission will vote on the Authority's proposed budget no later than 
November 1.
    (b) Conditional collection of fees allowed. The notice required to 
be sent to State racing commissions estimating the amount required from 
each State for the subsequent year must state that the amount required 
is based on the proposed annual budget, as approved by the Board of 
Directors, which takes effect only if approved by the Commission. The 
State racing commissions (or covered persons in States that do not 
elect to remit fees) may nevertheless elect to remit fees, and the 
Authority may conditionally collect them, even before the Commission 
approves the proposed budget. If the Commission makes any modifications 
to line items under paragraph (d) of this section that have the net 
effect of reducing the budget, the Authority must refund any State 
racing commission or covered person that has conditionally paid by the 
proportionate amount owed within 30 days. If the Commission makes any 
modifications to line items under paragraph (d) of this section that 
have the net effect of increasing the budget, the Authority may obtain 
loans to make up the difference or may account for the difference as a 
funding shortfall incurred in the subsequent year's proposed budget.
    (c) Decisional criteria. The Commission will approve the proposed 
budget if the Commission determines that, on balance, the proposed 
budget serves the goals of the Horseracing Integrity and Safety Act in 
a prudent and cost-effective manner, utilizing commercially reasonable 
terms with all outside vendors, and that its anticipated revenues are 
sufficient to meet its anticipated expenditures.
    (d) Modification of line items. In its decision on the proposed 
budget, the Commission may modify the amount of any line item.
    (e) Public comments. Public comments on the Authority's proposed 
budget should provide commenters' views as to the decisional criteria 
and whether any line items should be modified.


Sec.  1.152  Deviation from approved budget.

    (a) When notice to the Commission is required. The Authority may 
deviate from the approved budget's expenditure information in a year as 
to any line item by up to 10 percent in a year. If the Authority 
determines that it is likely to expend more than the approved 
expenditure of any line item by 10 percent or more, or if it will 
exceed its approved total expenditure by any amount, it must notify the 
Commission immediately upon such a determination.
    (b) Line-item deviations of more than 10 percent. If the Authority 
determines that it is likely to expend more than the approved 
expenditure of any line item by 10 percent or more, its notice to the 
Commission must indicate whether it intends to repurpose funds from one 
or more different line items to cover the increased expenditure. The 
Commission retains the discretion to disapprove such a proposed 
repurposing. The Commission must issue any decision to disapprove a 
proposed repurposing within 7 business days of receiving notice of the 
Authority's proposal to repurpose funds from another line item. If the 
Commission takes no action, the Authority's proposal takes effect as an 
amendment to its approved budget.
    (c) Total expenditure deviation. If the Authority determines that 
it is likely to expend more than the total approved expenditure, its 
notice to the Commission must indicate by what means it proposes to 
cover the difference. The Commission retains the discretion to 
disapprove the proposed means of covering the difference. The 
Commission must issue any decision to disapprove a proposed means of 
covering the difference within 7 business days of receiving notice of 
the Authority's proposal to cover the difference. If the Commission 
takes no action, the Authority's proposal takes effect as an amendment 
to its approved budget.

    By direction of the Commission, Commissioner Wilson not 
participating.
April J. Tabor,
Secretary.
[FR Doc. 2023-06023 Filed 3-24-23; 8:45 am]
BILLING CODE 6750-01-P