Legislature approached with differing slot machine plans for Horse Industry

By: Tara Hester, Staff Member

Disclaimer: The following post reflects the views of the author and not that necessarily of

KJEANRL

.

Governor Beshear's slot plan was not received well by the House or Senate. House Speaker Greg Stub filed a competing plan shortly after receiving Beshear's, which would spend the tax revenue from slots on a massive school construction program, instead of helping to erase the shortfall in the next two years budget, as Beshear had proposed. Janet Patton,

Beshear Slots Plan Gets Tepid Reception

, Lexington- Herald Leader Jan. 21, 2010, available at

http://www.kentucky.com/2010/01/21/1104634/beshear-slots-plan-gets-tepid.html

(last April 2, 2010). House Democrats have caucused to get support for Beshear's proposal, which would allow racetracks to add electronic slots under existing lottery laws.

Id.

However, although no official vote was taken, it appears that there was not much sentiment in favor of Beshear's bill, with one Representative calling the plan "delusional".

Id.

Stumbo said of his own competing bill "over a billion dollars worth of construction… best thing we could do for the budget is create jobs all over the state".

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Stumbo said in his bill anticipates that 400-500 million in state tax revenues will be collected from slots over the next two years when all facilities are fully up and running.

Id.

Beshear said temporary slots could be up and running within six months, and projected 295 million in tax revenues for the first 18 months of slots.

Id.

Beshear's plan also takes into account the new casino's in Ohio, which is estimated to cut revenues at Turfway Park by 40%.

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The horse industry seems to be very supportive of Beshear's and Stumbo's proposals, in a large part because the horse industry is facing significant competitive challenges.

Id.

However, while seemingly supporting both Beshear and Stumbo's bills, many in the horse industry are willing to talk with others proposing plans in an effort to help the struggling industry, and it seems that slots may be the best way to do this.

Id.

PROPOSALS TO EXPAND KENTUCKY GAMBLING MET WITH LITTLE ENTHUSIASM FROM LEGISLATURE OR INDUSTRY

By: Cara Houlehan, Staff Member

The Kentucky legislature is considering several proposals concerning the addition of slots at racetracks. Janet Patton, Beshear Slots Plan Gets Tepid Reception, Lexington Herald-Leader, Jan. 21, 2010, available at http://www.kentucky.com/

/horse_racing/story/

1104634.html. Governor Steve Beshear's bill would place electronic slot machines at racetracks in accordance with Kentucky's present lottery statutes. Id. Beshear says his proposal would generate $295 million in tax revenue within its first 18 months. Id. Keeneland spokesman Jay Blanton said of the plan, "We appreciate the governor's strong and continued support for the state's signature industry, which is facing significant competitive challenges."Id. However, a recent House democratic caucus revealed little enthusiasm for the bill; it was described as "delusional" by State Rep. Mary Lou Marzian. Id.

House Speaker Greg Stumbo, who asserted that there is "no sentiment" for Beshear's proposal, is pushing his own competing plan. Id. Stumbo claims that his proposal would generate $400-$500 million in revenue within two years, which would then be spent on a school construction project in an effort to boost Kentucky's budget by creating jobs. Id.

While both bills suppose that gambling can be expanded under current lottery laws, a third plan, approved Jan. 20 by a Senate committee, demands an amendment to Kentucky's constitution to allow gambling to be expanded. Id. As a proponent of this approach, Senate President David Williams is skeptical that bills like Beshear's, operating under present lottery statutes, could pass in either the House or the Senate. Id.

Ultimately, though, Williams' proposal has not quelled the concerns of the horse industry. Id. Blanton remarked, "…our concern about a proposed amendment remains the same: our challenges require immediate relief; any proposed amendment that we've seen thus far would, at least, take years to afford any assistance to the industry. That hasn't changed." Id.

Horse sales tax exemption: Good for the industry, bad for the state?

By: Adrianne Crow, Staff Member

According to a recent article in the Lexington Herald-Leader, some Kentucky citizens have begun to question tax exemptions provided to horse sales and the impact of this exemption on the state's economy. Janet Patton, Horseman say exemption crucial for Ky., Lexington Herald-Leader, Jan. 17, 2010, available athttp://www.kentucky.com/horse_racing/story/1099255.html (last visited Jan. 20, 2010). Kentucky Revised Statute § 139.531 provides exemptions for sales tax and use tax for the sale or use of horses made for breeding purposes only as well as for the sale of horses less than two years of age bought by out-of-state residents who take the horses out of Kentucky. Ky. Rev. Stat. Ann. § 139.531(2) (2009).

Based on estimates supplied by the state, this practice has cost the Kentucky almost $220 million in lost revenue from 2004 to 2010. See Patton. For example, SheikhMohammed bin RashidalMaktoum of Dubai, Kentucky's top buyer of thoroughbreds, has purchased more than $60 million in broodmares at Keeneland's fall sales since 2002. Id. Had these purchases been taxed at Kentucky's rate of six percent, they would have generated more than $3.6 million by themselves. Id. During this time of budget short-falls and overall cut-backs in our state, some suggest that it is time to reevaluate Kentucky's tax code.

However, others worry that that taxing more sales would cost Kentucky a competitive edge in the horse industry, which is already hurting. Those in the horse industry are afraid that if Kentucky imposes a sales tax, buyers will simply go to other states that offer exemptions, including Maryland, New York, California, Florida, Pennsylvania and Texas. Id. Additionally, those who support keeping the tax exemptions point out that the horse industry is taxed in ways that other agriculture sectors are not. Jay Blanton, spokesman for Keeneland, explained "that sales of many horses, including those of racehorses, are taxed, and that horse farms pay sales taxes that other agricultural enterprises don't. Feed and hay for cattle, for instance, are exempt while the same products for horses are taxed." Id.

During these continued tough economic times for people in Kentucky and across the country, these issues regarding tax reform are surely to be debated by our legislators in the near future.

Senator Thayer Pulls in the Reins on his Gambling Amendment

By: Natasha Farmer, Staff Member

Republican Senator Damon Thayer called off a committee vote on his proposed constitutional amendment on January 13. Janet Patton, Senator Calls Off Committee Vote on Gambling Amendment, Lexington Herald-Leaser, Jan. 14, 2010, available at http://www.kentucky.com/news/state/story/1094981.html (last visited Jan. 17, 2010). His proposed amendment, if passed by the full Senate, would allow video lottery terminals in up to seven counties that have racetracks, but the racetracks would have to compete for this license.

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This bill was expected to pass the Senate State and Local Government Committee; however, it was unlikely to pass a floor vote by the full Senate.

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Thayer

believed that delaying the bill would give him more time to gain additional support for his bill. Ron Mitchell,

Thayer

Delays Committee Vote on Gaming Bill

, January 14, 2010,

available at

http://www.bloodhorse.com/horse-racing/articles/54796/thayer-delays-committee-vote-on-gaming-bill (last visited Jan. 17, 2010.)

Thayer

said that he "wanted to see if there is anyone else that is willing to come to the table."

Id.

Many leaders and racetracks of the horse industry have opposed Senate Bill 21 because "it does not guarantee that tracks get expanded gambling." Janet Patton, Senator Calls Off Committee Vote on Gambling Amendment, Lexington Herald-Leaser, Jan. 14, 2010, available at http://www.kentucky.com/news/state/story/1094981.html (last visited Jan. 17, 2010). But, Thayer said he has heard from a few "rank and file" horsemen that are disappointed with the horse industry opposing his bill. Id.Thayer explained that delaying the vote until later this month will hopefully translate into bipartisan support. Id. "Gambling Licenses are something of value to the people of Kentucky. A competitive bidding process is likely to result in higher fees to the state," Thayer explained. Id. Furthermore, he said that increased purses from the slots would bring more racehorses, which would generate revenue for the tracks. Id.

Senator Ed Worley has said no Democrat will vote for Thayer's bill. Id. If Worley's statement is true, Thayer's bill will not pass because a constitutional amendment needs at least 23 votes in the Senate to pass. Id. Only time will tell if Thayer's amendment can gain enough bipartisan support to pass through the Senate.

Pony Up: Gov. Beshear Predicts Video Slot Machines May Be Legalized at Kentucky Racetracks in 2010

The following post was written by staff member Donald Smith.

Kentucky has, in various forms, debated the legalization of gambling, particularly in the form of video slot machines at racetracks, for more than a decade. Beth Musgrave & Janet Patton, Beshear Wants Slots Bill by Winter, Lexington Herald-Leader, Nov. 5, 2009, available at http://www.kentucky.com/181/story/1006050.html?storylink=omni_popular (last visited Nov. 17, 2009). After Ohio residents passed a referendum on November 3, 2009, allowing casino gambling in four major cities, including Cincinnati, the efforts to legalize gambling gained momentum. Id. Governor Beshear issued the following statement after the referendum passed: "Clearly, the time to act on expanded gaming is now.… Ohio citizens are going to reap the benefits of thousands of new jobs and millions of dollars in tax revenue. Ohio's decision reinforces the urgency to pass the video lottery terminal bill I proposed earlier this year." Id.

In addition to questionable popular support, the proponents of legalizing gambling have faced the criticism that the move can only legally be made through amendment of the state constitution, an argument that Governor Beshear labels as a stall tactic that cannot be tolerated as the Kentucky horseracing industry faces tough times. Id. Although last term a bill passed the democrat-controlled House, but did not get out of committee in the Senate, Governor Beshear now predicts that the bill would pass both houses in 2010, after changes in membership. Ryan Alessi, Beshear: Slots Will Pass the Full Senate if Given a Chance, Bluegrass Politics, http:// bluegrasspolitics.bloginky.com/2009/11/17/beshear-slots-will-pass-the-full-senate-if-given-a-chance/ (last visited Nov. 17, 2009). Speaking of the impact on the horse industry, which would receive a cut of profits under the proposed bill, Governor Beshear stated: "In my opinion we must protect this industry. Why? Not because there are two to three rich guys in it. But because there are 100,000 hard working Kentuckians who work in that industry every day." Id. Only time will tell whether the bill will in fact pass the legislature, and if so, only the courts will tell if the bill passes constitutional muster.

Alternative Gaming Revenue: Good for Kentucky’s Horse Industry?

The following post was written by staff member Adrianne Crow.

The horse industry is a vital part of Kentucky's economy. In fact, the industry is alone responsible for 80,000-100,000 jobs in the state. Kentucky Equine Education Project, Why Kentucky's Horse Industry Needs Support (2007), available at http://www.horseswork.com/pdf/why_to_support.pdf. However, this industry is currently threatened by increased competition from surrounding states that allow alternative gaming revenue. Because revenue from casino style gambling at racetracks boosts purses and breeding incentives, horses traditionally bred and run in Kentucky are now being taken elsewhere because of the opportunity to earn greater amounts of money.

Kentucky currently has five thoroughbred racetracks in the state: Churchill Downs in Louisville, Keeneland in Lexington, Ellis Park in Henderson, Turfway Park in Florence, and Kentucky Downs in Franklin. Gregory A. Hall, Ky. horse tracks request fewer racing dates in 2010, COURIER-JOURNAL, Oct. 26, 2009, available at http://www.courier-journal.com/article/20091026/BUSINESS/910260343/Ky.+horse+tracks+request+fewer+racing+dates+in+2010. Kentucky tracks have already requested fewer racing dates for 2010 due to decreased revenue, and if things continue in the current fashion, it could mean the end of one or several of these historic venues. Id.

Although the racing industry is suffering nationwide, several states have managed to avoid some of the problems that Kentucky is currently experiencing through the introduction of alternative gaming. According to statistics found in the American Gaming Association's 2009 State of the States report, 12 other horse racing states, including Indiana and West Virginia, allow patrons at the track to wager on video gambling machines, slot machines or other casino-style games. American Gaming Association, State of the States 2009: The AGA Survey of Casino Entertainment (2009), http://www.americangaming.org/assets/files/aga-sos2009web.pdf. This type of expanded gaming has allowed those states to increase purse sizes, attracting many of Kentucky's thoroughbreds to race at those locations rather than in Kentucky.

The size of the purse that racetracks can offer directly affects the quality and quantity of horses that run at the track and the bettors and money that come in to the state. Comparing the purses at Kentucky's Turfway Park and Pennsylvania's Presque Isle Downs, it is clear that purses increased dramatically after the introduction of casino betting in Pennsylvania. Kentucky Horsemen's Benevolent and Protective Association, Inc., Understanding Kentucky's Horse Industry (2009), available at http://www.kyhbpa.org/resources/IndustryHandout.pdf. High purses also mean more jobs for residents of the state. Id.

Additionally, many states have greatly increased purses for horses which are born in that state. See supraAmerican Gaming Association. This practice entices horse owners to move their breeding operation to certain states to ensure that their horses are eligible for the state-oriented prizes, thereby affecting Kentucky breeding farms which have experienced reduced stallion and foaling or broodmare income. Id.

This past June during a special legislative session, Kentucky's House of Representatives passed the Video Lottery Bill which would have allowed slot machines at racetracks. John Cheves, Slots bill dies in committee, LEXINGTON HERALD-LEADER, June 23, 2009, available at http://www.kentucky.com/302/story/839602.html. However, the bill soon died in the Senate. Id. According to Senator Tim Shaughnessy, D-Louisville, the issue is not over: "[t]he reality is, history is on our side. This is eventually going to happen, whether it's done by an act of the legislature or put before the voters of Kentucky for a formal vote. It may be stopped today, but the issue isn't if this happens, it's when this happens." Id.

According to Attorney General Jack Conway, however, it doesn't appear necessary to send the decision to Kentucky voters. In an opinion issued by Conway in June responding to a request by State Representative Jody Richards, Conway found that the "General Assembly may authorize the Kentucky Lottery Corporation to establish, license, regulate and tax video lottery terminals at designated horse racing tracks under Ky. Const. § 226(1) without further amendment to the Kentucky Constitution." Video Lottery Terminals at Kentucky's Horse Race Tracks, Op. Att'y Gen. 09-004 (2009), http://www.law.louisville.edu/sites/www.law.louisville.edu/files/OAG09004.pdf. While this opinion is merely advisory and not legally binding, it represents a well-reasoned argument analyzing Kentucky's laws and furthering the idea that the General Assembly is permitted to make the decision on slots without putting it on the ballot, allowing them to more quickly respond to the urgent situation with Kentucky's horse industry.

The bottom line is that horses help create and support jobs in Kentucky, and it is important for our legislators to support the industry that is so vital to our local economy. Ultimately, if Kentucky allows expanded gaming at the state's racetracks, it will increase revenues, thereby increasing purses and breeding benefits, and will help keep horses and jobs in Kentucky.

Coexisting: Track Betting and Lottery Prohibitions

This post was written by staff member Alex Torres.

While a great number of states authorize, if not actively run and endorse, lotteries there was a time when such widespread presence was non-existent. Specifically the Supreme Court in Champion v. Ames, 188 U.S. 321 ( 1903) upheld, as within Congress’ powers under the Commerce Clause, the Federal Anti-Lottery Act which prohibited the transport of lottery tickets across state lines. While lotteries have become increasingly prevalent among the several states in the century since the decision in Champion tensions have arisen when this prohibition, which was incorporated into multiple state constitutions in the following years, was alleged to prohibit other types of gambling.

Specifically, the Supreme Court of Michigan was called on in Rohan v. Detroit Racing Ass’n, 314 Mich. 326, 345 (Mich. 1946) to determine whether a state statute authorizing the licensing and “parimutuel betting” violated the Michigan Constitution providing that “the legislature shall not authorize any lottery nor permit the sale of lottery tickets.” MICH. CONST. of 1908, art. V, § 33. Should the court have found that horse betting did qualify as a lottery the import would have been to establish a precedent against horse betting and, by extension, the horse racing industry as a whole as a result of extensive lottery prohibitions in state constitutions across the country.

Thankfully the court held that gambling on horse races did not come within the penumbra of a lottery. The court based this primarily on the logic that lotteries were differentiated from horse races, and presumably other games of ‘chance’, on the premise that the result of a lottery could not be divined by “will… human reason, foresight [or] sagacity.” Rohan, 314 Mich. at 343(citing People v. Elliott, 74 Mich. 264, 267 (Mich. 1889). Chance was further emphasized as a necessary ingredient in the finding that a system was a lottery with the court emphasizing that, “[c]hance is an essential element of a lottery in the sense that, unless a scheme for the awarding of a prize requires that it be awarded by chance, it is not a lottery.” Id. at 344. The court held that betting on horse racing required more than mere chance, specifically that winners were not ones chosen at random but those who, by their own volition, “bet on the winning horse.” Id.

Since the winners were not determined by mere chance, but by exercise of “judgment and discretion” in selecting their entrants, the court found that pari-mutuel betting fell outside the purview of the lottery prohibition and was therefore not unconstitutional in that regard. Id. at 346. This holding is especially relevant as the 6th Circuit is home to our nation’s greatest reserve of equine potential which would have been unfairly stunted should horse betting have been found violate. Further, the court’s holding that horse betting was more than mere chance imparts an air of respectability, and perhaps glamour, to our equine industry, differentiating it from mere lotteries and other games of chance.