What will it take for Albany politicians finally to scratch the New York Racing Association? NYRA, the nonprofit organization that runs the Aqueduct, Belmont, and Saratoga thoroughbred horse tracks, has reeked for years of corruption and mismanagement. Yet every time prosecutors file charges, or auditors publish scathing reports, the governor and state Legislature rush to extend the association’s exclusive franchise — which it has held since 1955 — without any thought of competitive bidding.

Last week’s settlement with the acting federal attorney for the Eastern District of New York, Andrew Hruska, looks to be no exception. In an indictment unsealed Thursday, Mr. Hruska charged NYRA and six of its employees with committing tax fraud worth millions of dollars. Allegedly, the clerks were allowed to take cash out of their drawers, have the same amount withdrawn from their paychecks, and claim a tax deduction for those transactions as unreimbursed business expenses.

In a settlement, the association acknowledged that unnamed senior managers had known of the scheme, condoned it, and attempted to cover it up during investigations by state officials. NYRA agreed to pay a fine of $3 million — which, in effect, will come out of the pockets of taxpayers, since NYRA is supposed to turn over any excess revenues to the state treasury. The association will also replace several of its top managers, open its ledgers to public scrutiny, and bring in an independent watchdog that will report to the state comptroller.

But one thing NYRA will not do is give up its license to take bets on the ponies. It will even qualify for an automatic extension of its franchise, to 2012 from 2007, if it can get a video lottery operation up and running at Aqueduct by April 1. Much the same thing happened in 1997, when Attorney General Dennis Vacco was investigating shady construction practices at NYRA, including a no-bid contract awarded to a firm with no relevant experience and alleged ties to organized crime. Before Mr. Vacco could even publish his findings, Governor Pataki and the state Legislature continued NYRA’s franchise to 2007 from 2000, pre-empting a bidding process that was to have begun in late 1997.

It’s not as if NYRA has done a stellar job with its monopoly. Running a gambling business would seem like a license to print money. But attendance and gambling have been flat at NYRA’s tracks in recent years and, in a financial statement made public after last week’s legal settlement, the association reported a $21.7 million deficit in 2002.

So what explains Albany’s love affair with NYRA? Perhaps it has something to do with the fact that NYRA trustees donate generously to the political campaigns of state lawmakers, more than $1 million since 1999, according to an analysis by Albany Law School’s racing and wagering law program. One of the chief beneficiaries of this largess was Mr. Pataki, whose representatives lobbied the Eastern District attorney to settle with NYRA rather than pursue a full prosecution. The stated rationale was to avoid jeopardizing the start-up of the video lottery games, which state government is counting on to help balance its budget in coming years. But it’s hard to avoid the perception that Mr. Pataki was returning a favor to a group of people who helped him win reelection.

Privatization holds great promise for improving government services in New York. Unfortunately, NYRA and those who run state government are teaching us a lesson in how not to do it.