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PHOENIX — The head of the state Department of Racing says extensive tax breaks given to horse- and dog-track owners have left his agency without sufficient funds to properly regulate the industry and ensure people who place bets aren't being cheated.

Racing Director Geoffrey Gonsher said the Legislature reduced taxes in the 1990s after intense lobbying by track owners who contended their businesses would be hurt by expanding tribal gaming. As a result, tax revenues declined from $2.9 million in the late 1990s to slightly more than half a million dollars now.

Yet the total "handle" of money being wagered has remained constant, even in the face of the increased competition.

Auditor General Debra Davenport said the decline in tax dollars is because lawmakers agreed not to tax off-track betting. At the same time, the live "handle" has dropped from nearly all wagering in 1998 to less than a third — with that other two-thirds now tax exempt.

Gonsher said the result is Arizona is one of only a few states where the industry does not pay for its own regulation.

Jack LaSota, who lobbies on behalf of Tucson Greyhound Park, said his client "would love to be finally well off" enough to provide more tax money to the state. But LaSota said the dog-racing facility is barely scraping by.

Davenport's figures do suggest dog tracks may have a better argument against higher contributions than the three horse tracks: The figures show that while wagering on horses has been increasing, dog wagering has been declining.

Overall, Gonsher said, the tax credits and exemptions during the last six years have totaled $44 million. The result is that only one of four Arizona horse and dog tracks — Turf Paradise — has paid any racing taxes for several years.

Turf Paradise declined to comment.

The racing agency's comments come in response to Davenport's review of its operations. Among her conclusions is that the department needs to improve its oversight of wagering.

She said other states have tightened standards in the wake of a 2002 scandal involving fake and altered betting tickets. Changes include new standards to prevent access to and tampering with the computers that calculate odds and take wagers.

Gonsher, in his response, said his agency is taking steps to improve its monitoring of the industry. But he said there is only so much he can do.

"The department does not have sufficient funding to regulate the parimutuel industry in a safe manner," he wrote.

Gonsher said track operators have successfully lobbied the Legislature to get the tax breaks and block any move to increase what they have to pay for regulation. He said that is based on their arguments that having to pay more would put them out of business.

"The financial records reveal otherwise," Gonsher wrote.

"Track owners are earning millions of dollars a year in profits," he continued, at least in part because more than two-thirds of the wagering that takes place off-track is not taxed.

LaSota said tracks make less money on off-track betting because they have to pay a fee to the track where the signal originates. And he said Arizona tracks also don't get the profits from ancillary products, like drinks and food, if people choose to wager at a local bar instead of going to the track.

Figures from Gonsher show two tracks — Rillito Park and Yavapai Downs — reporting a net loss even after tax breaks. There were no net-income figures for Tucson Greyhound Park.