The 1st meeting of the Task Force on Economic Development of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, September 16, 2004, at 11:00 AM, at Toyota Motor Manufacturing, Kentucky, Inc., Georgetown, Kentucky. Senator Damon Thayer and Representative Ruth Ann Palumbo, Co-Chairs, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Damon Thayer, Co-Chair; Representative Ruth Ann Palumbo, Co-Chair; Senators Julie Denton, Vernie McGaha, Joey Pendleton, Richard Roeding, and Katie Stine; Representatives Eddie Ballard, Bill Farmer, and Brad Montell.
Guests: Claria Shadwick, Executive Director, Kentucky Equine Education Project.
LRC Staff: John Buckner, CSA; Karen Armstrong-Cummings; Lou Pierce; and Dawn Groves.
Representative Palumbo and Senator Thayer welcomed everyone to the meeting and thanked Toyota representatives for use of their facility and the upcoming tour of the plant. Senator Thayer said the first meeting of the Task Force would focus on the equine industry. He noted he and Representative Palumbo felt it important to hear from the new Kentucky Equine Education Project (KEEP) organization because the equine industry is not only agriculturally significant but it also affects state economic development. Senator Thayer then introduced Claria Shadwick, Executive Director of KEEP.
Ms. Shadwick said she hoped the Task Force would have a different view of the local horse farms after hearing KEEP’s presentation. She said the horse farms are Kentucky’s number one cash crop. They create jobs, economic opportunities and tax revenues for the state. Horse farming is an agribusiness unparalleled in its contribution to Kentucky’s tourism industry and unmatched in its ability to attract investment, as an agribusiness, into the state. She said these “horse factories” are populated with approximately 200,000 horses across the state, affecting every county.
Ms. Shadwick noted that Kentucky’s multi-breed horse industry contributes over $4 billion to Kentucky’s gross domestic product and creates an estimated 100,000 jobs. She said that horses define Kentucky to the rest of the world. Over two million people attend Kentucky’s racetracks. The Kentucky Horse Park has an economic impact of $240 million and the Kentucky Derby $217 million.
Ms. Shadwick stated the day has passed when prospective horse farmers locate their farms in Kentucky simply because of its history and tradition. She said Kentucky has fallen behind for several reasons, the first being Kentucky’s tax policies. Horse farmers pay six percent sales tax on in-state horse purchases, on stud fees, and on feed and supplies. She noted that purchases for other livestock are exempt from the sales tax on feed and supplies. Another reason, Ms. Shadwick said, is other states offer lucrative owner, breeder, and purse incentives to attract horses from out-of-state. Referring to a handout, Ms. Shadwick pointed out the decrease of Kentucky’s incentives versus competitive states. She also pointed out the decrease in the number of Kentucky-sired foals born in Kentucky and the increase in number of Kentucky-sired foals being born in other states for their incentive programs. Lastly, Ms. Shadwick said, whereas Kentucky’s incentives have dropped from $1,522 to $1,105 per foal, other states offer significantly higher amounts, up to over $25,000.
Ms. Shadwick said the thoroughbred stallion population has decreased from 626 in 1986 to approximately 370 today. She said the standardbred industry has suffered the same the same hardships as the thoroughbred industry.
KEEP’s main mission, Ms. Shadwick stated, is first and foremost to educate all Kentuckians about the economic significance of Kentucky’s horse economy which is the key to preserving and promoting the equine industry. To do this, KEEP is recruiting team leaders in every county to act as ambassadors. It is also focusing on membership recruitment. KEEP’s other mission is to unite all breeds with a single goal of strengthening Kentucky’s horse economy--creating additional jobs and economic opportunities for Kentuckians. Ms. Shadwick said that, with the legislature’s help, they hope to develop legislation to help Kentucky horse farmers compete in the global market To retain them, and their investments, in Kentucky by addressing the state’s tax disincentives and providing more funding for the Kentucky Thoroughbred Development Fund (KTDF).
Senator Stine asked Senator Thayer to explain his previous legislation on the subject matter. Senator Thayer explained that during the 2004 General Assembly he proposed legislation that would have eliminated the feed, fencing, and farm equipment sales tax for horse farmers. He noted that no other Kentucky livestock farmer is taxed for these items. Senator Thayer said he also had a bill that eliminated sales tax on stud fees, which no other state levies on its horse farmers. He said the bills were never brought to committee but the Governor included them in his first tax modernization package.
Referring to Senator Stine’s inquiry on Kentucky’s tax incentives, Senator Thayer said one incentive exists--the KTDF. Funded from a portion of the pari-mutuel excise tax, it only awards horse owners. Explaining the process, he said eighty percent of wagers go back to bettors as winnings, and twenty percent is split between the racetracks, the horsemen’s purse account and the state. A portion of the state’s share reverts to the General Fund, some goes to the University of Louisville’s Equine Program and a portion funds the KTDF. Senator Thayer said the fund incents people to purchase Kentucky-bred horses and to race them in Kentucky. He said the KTDF is an owner’s incentive fund but also needed is a breeder’s incentive fund. Ms. Shadwick added that different states have different incentive awards. Many have owner awards (horses place in one of the top three spots in a race), breeder’s awards for whoever bred the horse that won the race, and some also have stallion awards. She said there are restricted races where horses only bred in that state can run in a race with additional purse monies being provided.
Senator Thayer said the simplest fix would be to put the six percent sales tax paid on stud fees, approximately $14 million on thoroughbreds alone, into a breeding incentive fund. Ms. Shadwick added that all breeds should be considered.
Senator Denton asked how other states fund their incentive programs. Ms. Shadwick said through taxes on pari-mutuel wagering and expanded gaming.
Representative Ballard noted several years ago there was proposed legislation to tax horse sales such as the Keeneland auctions, and asked if other states tax horse sales. Ms. Shadwick said many states do not.
Senator Roeding said he recently attended a Farm Bureau meeting where a resolution was proposed to stop the Property Value Administrators (PVA) from taxing horse farms differently by not recognizing them as legitimate farms. He suggested that KEEP speak to the PVAs on this issue. Ms. Shadwick said she had heard about it and agreed.
Representative Palumbo thanked Ms. Shadwick for her presentation and noted how important the equine industry is to Kentucky and the importance of KEEP. She said she would like for Ms. Shadwick to appear before the Economic Development and Tourism Committee during the 2005 General Assembly session. Representative Palumbo said prefiling legislation is also an option.
There being no further business the meeting adjourned at 12:10 p.m.