The 3rd meeting of the Interim Joint Committee on Licensing and Occupations was held on Friday, November 8, 2002, at 10:00 AM, in Room 129 of the Capitol Annex. Representative Denver Butler, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Brett Guthrie, Co-Chair; Representative Denver Butler, Co-Chair; Senators Tom Buford, Marshall Long, Richard Roeding, Tim Shaughnessy, and Jack Westwood; Representatives Carolyn Belcher, Tom Burch, Larry Clark, Ron Crimm, Jon Draud, Dennis Horlander, Joni Jenkins, Paul Marcotte, Reginald Meeks, Ruth Ann Palumbo, Jon David Reinhardt, and Jim Stewart.
Guests: David Switzer, Kentucky Thoroughbred Owners and Breeders Association; Dr. Robert Lawrence, College of Business and Public Administration, University of Louisville; and Dr. Joe McCormick, Kentucky Higher Education Assistance Authority.
LRC Staff: Vida Murray, Jack Jones, Ann Seppenfield, Cyndi Galvin, and Susan Cunningham.
David Switzer, Executive Director of the Kentucky Thoroughbred Owners and Breeders Association, spoke to the committee about concerns facing the thoroughbred industry in Kentucky. He said that in recent years competition from other states has increased in part, because of the Mare Reproductive Loss Syndrome; however, taxes on goods and services used in the horse industry have caused a major disadvantage. Mr. Switzer reported that in 1996, the American Horse Council, a trade organization in Washington, D.C., did an economic impact study showing that the thoroughbred industry brought $3.4 billion dollars into the state. He noted that additional moneys were generated if tourism was taken into account, the Kentucky Horse Park draws crowds of 800,000 visitors annually, the Kentucky Derby draws record-breaking crowds, and a local horse farm drew 10,000 visitors. Mr. Switzer told the committee that Kentucky produces 30% of the foal crop in North America. Of the 127 Kentucky Derbies run, 78% of the winners were bred in Kentucky. Of the 11 winners of the Triple Crown, eight were bred in Kentucky. He also noted that thoroughbred horse sales are the state’s number one agricultural cash crop and that our thoroughbred industry was recognized for its excellence.
Mr. Switzer said while Kentucky was number one in producing foals, it was at the bottom of the list of prominent states competing for purse revenue and breeder awards Kentucky is in the bottom of the prominent states. He told the committee that in New York, breeder awards were $26,000 per foal in eligible breeders’ awards and purse money where Kentucky breeders’ awards were only $15,000. Another area making it hard for Kentucky to compete for boarders is sales tax. Florida, New York and California, unlike Kentucky, do not charge sales tax on items like the stallion season, feed, straw, fencing or farm machines thus keeping down the cost of operating a boarding farm. Mr. Switzer noted that despite the widespread perception that horse farming is engaged in only by the wealthy, a demographic study performed by Dean, Dorton, and Ford in Lexington last year showed the typical farm is approximately 200 acres, has high debt, produces a gross income of $400,000, and a net income of $50,000. Three banks surveyed had $320 million on loan to 294 accounts in the equine industry in Central Kentucky. There are also larger farms such as Three Chimneys with 100 employees who manage 17,000 acres these farms generate revenue from boarding, sales of horses farm-owned, commissions from sales of boarded horses and fees for stallions that stand at the farm. He also said that stallions are the key to the industry, bringing 25,000 mares to Kentucky annually to be bred. In 1950, there were 66 Standard Bred stallions in Kentucky; however, today there are only six. The stallions left because other states added monetary incentives for the stallions to stand in their states. Other states also allow for artificial insemination. Mr. Switzer said in addition to sales tax, non-or lesser funded breeders’ awards, gaming machines at race tracks has put Kentucky at an unfair advantage to other states. Horses that would normally race at Churchill Downs or Turfway Park are going to Mountaineer Park in West Virginia because the purses, inflated by gaming revenue, are larger than those at the Kentucky tracks. Florida, New York, and Texas are moving toward gaming, and Pennsylvania and Maryland have just elected governors who favor gaming.
Mr. Switzer told the committee that the original estimate of a 30% foal loss attributed to the Mare Reproductive Loss Syndrome was actually 18%; however, this was still a significant loss. In 2002, there were 300 fewer mares bred because breeders feared losing a foal. He said extensive research had been done to determine the source of the syndrome with no definitive reason for the loss. The ingestion of Eastern Tent Caterpillars is suspected and farms have spent a great deal of money to control or eliminate the caterpillars. Cherry trees have been cut down and sprays have been used to manage the population of caterpillars with the goal of protecting the horses. The University of Kentucky College of Agriculture’s Entomology Department has played a big role in helping to implement and manage plans to control the Eastern Tent Caterpillars.
Representative Burch asked how removing the sales tax would improve the position of the thoroughbred industry and wanted to know what was the industry doing to promote itself compared to other countries that have pari-mutual betting. Mr. Switzer said removing taxes would only help part of the situation and stated that there are plans in 2003 to have a conference in Lexington at the Convention Center, much like the old International Thoroughbred Equine Conference to promote the industry. He said that the Governor’s Agriculture Development Cabinet had gone to Mexico City for a four day conference. Mr. Switzer responded that he has met with representatives from Portugal for development and trading, and has recently hired a grant writer to get money available through the United States Department of Agriculture for promoting the industry and marketing to foreign countries.
Representative Marcotte asked what legislation, other than expanded gambling, would the industry be proposing. Mr. Switzer said Representative Royce Adams had in the past been a proponent of removing sales tax from feed.
Senator Roeding asked how the horse farms were marketing tourism. Mr. Switzer said the Tourism Cabinet is aware of farms that schedule tours and the Convention and Tourism Bureau in Lexington promotes and schedules tours.
Representative Reinhardt asked if prior to the Mare Reproductive Loss Syndrome was breeding increasing in the state and how many states have gambling at tracks. Mr. Switzer said in the past three to four years, due to the economy, there had been a decline in breeding. Mr. Switzer responded regarding states with gambling at tracks, all of those with higher breeder incentives but Indiana, which has riverboats.
Representative Draud asked for a prediction on the outlook of the industry if tax cuts or added revenue do not materialize. Mr. Switzer said owning and breeding in Kentucky were not competitive with other states, and if Kentucky did not become pro-active, horses would begin to leave.
Representative Clark suggested that the horse industry pursue getting money from the Tobacco Settlement money.
Next on the agenda was Dr. Robert Lawrence, Chairman of the Department of Equine Business at the College of Business at the University of Louisville. He told the committee there are 150 equine schools in the United States; however, the university’s school was unique because it was based on a business program rather than an animal science program. Approximately 74% of the program’s graduates work in the industry. The school offers a variety of curricula including a certificate program and an event facility management course, as well as satellite courses at other institutions such as Murray State and Morehead and Texas A&M. The program’s students put on a horse show and the department has recently added a riding team that competes intercollegiately.
Dr. Lawrence told the committee two challenges the school faces are attracting students and finding qualified teachers for the program. He said the school has done extensive research on lotteries, casinos and riverboats and has looked at other changes in the industry. A research paper written on the economic impact of the Mare Reproductive Loss Syndrome, estimated at a $350 million loss, was used by the American Horse Council as an example for why breeding farms should be eligible for agricultural disaster relief. The school has put on approximately 160 seminars, that include topics on international management, substance abuse and academic conferences for pari-mutual wagering. The schools oldest accredited program is the steward program sponsored by the Jockey Club, the thoroughbred tracks, harness tracks, and the American Quarter Horse Association, among others. Stewards from Canada, Hong Kong, Korea, South America and Mexico attend an eight-day school and continuing education sessions. Eighty-five percent of the stewards working at tracks around the country have been through this program. Mr. Lawrence said the advisors feel that the main focus of the school should be business, in particular, management, marketing and accounting. Mr. Lawrence remarked that the school’s funding sources had remained constant.
In response to a question asked by Senator Roeding, Dr. Lawrence indicated that there was one source of money set out in statute that funded the University of Louisville’s Equine Program and another source to be used by Louisville and the four other universities, primarily for capital improvements.
Dr. Joe McCormick from the Kentucky Higher Education Assistance Authority (KHEAA) gave a follow up report to the committee regarding implementing House Bill 296 that requires all licensing boards to check with the KHEAA to see if an applicant is current on student loan payments. He told the committee he had met or talked to all the boards regarding compliance. He said a revised Memorandum of Understanding had been sent to the boards giving them the option to self certify. Another option offered to the boards was to send the license application information to the KHEAA and they would verify if the applicant was current or in default on his or her student loan. Dr. McCormick said another solution would be for the applicant to attach a statement from the KHEAA to his or her application saying he or she was current with his or her student loan. He also said that per Representative Clark’s suggestion a statement would be added to the loan information the KHEAA supplies telling the applicant that if he or she is in default his or her license application could be denied. Dr. McCormick assured the committee that implementation of House Bill 296 was moving forward.
There being no further business there was a motion with a second to adjourn.