The 4th meeting of the Interim Joint Committee on Licensing and Occupations was held on Friday, November 21, 2003, at 10:00 AM, in Room 129 of the Capitol Annex. Senator Gary Tapp, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Gary Tapp, Co-Chair; Representative Denver Butler, Co-Chair; Senators Charlie Borders, David Boswell, Brett Guthrie, Richard Roeding, and Jack Westwood; Representatives Tom Burch, Larry Clark, Dennis Horlander, Joni Jenkins, Paul Marcotte, Reginald Meeks, Charles Miller, Ruth Ann Palumbo, and Jon David Reinhardt.
Guests: Steve Hoerner, Commissioner, and Sandra Watts, Manager of the Education Branch, Department of Alcoholic Beverage Control; John Winstead, Commissioner, Carla Arnold, Deputy Commissioner, and Leah Cooper, Assistant Director of Licensing and Compliance, Department of Charitable Gaming; Bill Lear, Stoll, Keenan and Park, Bob Benson, Benson, Byrne and Risch, and Richard Riedel, Executive Director of the Kentucky Racing Health and Welfare Fund, Inc. reporting on the Kentucky Racing Health and Welfare Fund, Inc.
LRC Staff: Vida Murray, Jack Jones, Ann Seppenfield, Judy Fritz, and Susan Cunningham.
Senator Tapp recognized Penny Gold and members of the Kentucky Society of Certified Public Accountants who were in the audience.
Steve Hoerner, Commissioner of the Department of Alcoholic Beverage Control (ABC) and Sandra Watts, the manager of the Education and Training Branch, told the committee members that the Department would like to amend KRS 243.480 to permit the ABC Board to order a licensee to have his servers ABC trained. He said currently, licensees who violate the statutes relating to the sale of alcoholic beverages are able to buy out their penalty in lieu of suspension of their licenses. The change would allow the board to order first time violators who sell to an underage buyer or an intoxicated person to have their servers trained. He told the committee the Department's, Server Training and Alcohol Regulations Program (STAR) is a 4 1/2 hour training session. The Department has offered the program for the past three years and conducts ten sessions per month. He testified that since the program's inception the number of violations for sales to minors has decreased.
Representative Butler asked where the training occurred. Ms. Watts said that the training was offered across the state and that every three months, notification is sent out to licensees regarding the designated training sites.
Senator Tapp asked how long the STAR program had been available and how it compared to programs in surrounding states. Mr. Hoerner said that some form of the program began about eight years ago; however, Ms. Watts had implemented a more structured curriculum in the past three years. Ms. Watts said that Alabama was the only other state with a similar program.
Representative Reinhardt asked how the program's success was measured. Mr. Hoerner said the Department had measured success by the number of requests for the program by licensees and the decrease in the number of violations from the Operation Zero Tolerance Decoy Program.
Senator Tapp recognized that there was a quorum at the meeting. A motion and second were made and the minutes of the October meeting were approved.
Next on the agenda, John Winstead, Commissioner of the Department of Charitable Gaming, told the committee that in 2001, there was an excess of $600 million wagered and in 2002, an excess of $608 million wagered in charitable gaming. The net receipts available to charities was $48 million in 2001, and had increased to $50 million in 2002. From this money, the charities pay fees and sales tax. Statewide, the moneys going to charity is increasing.
Leah Cooper, told the committee that the "40% rule" was the main concern for charities; however, it only affects 10% of the licensees. In 2002, only 87 licensees from a total of 790 failed to meet the 40% threshold. She said the average retention has continued to grow statewide. Ms. Cooper told the committee that training was available at the Department's office to licensees once a month. Training is also done throughout the state with as many as 50 licensees in attendance. Licensees also may download the training manual from the Department's website. Ms. Cooper said if a charity falls below its 40% threshold, the Department will contact the charitable organization and ask it to come in for training. If the charity is below 30%, training is mandatory.
Senator Tapp asked how many licensees were penalized repeatedly. Ms. Cooper said in 2001, there were 19 and in 2002, there were 28.
Mr. Winstead went on to say that the organizations' gross receipts in 2003, were in excess of $149 million. In addressing how the charitable organizations had responded to the fee increase established in the budget bill, Mr. Winstead said that 58 charities out of 788 did not pay the fee increase; however, when they were sent out a notice of the fee increase, they paid their invoices. The department has not received any complaints regarding the fee increase. The fee is due on the thirtieth of the month in which each quarter ends.
Next Mr. Winstead discussed Department personnel, noting that there are currently nine vacancies, four of which are merit positions. The four merit positions need to be filled to provide service to the charities. People in these positions would go to charitable games to perform audits, and make sure the games are being run correctly. The Principal Assistant position has been abolished.
Senator Westwood asked how Keno being offered by the Lottery would affect charitable gaming. Mr. Winstead said any form of expanded gambling will affect charitable gaming. He said the department is statutorily authorized to regulate Keno as a special limited game.
Representative Clark, referring to the handout showing receipts and expenditures, asked how the Department handled returned checks. Mr. Winstead said since the checks were written to the charity by its patrons, it was the charity's responsibility to collect the checks and the amount upon receipt had to be added back into the charity's gross receipts.
Representative Butler explained that Keno games are allowed for only 2 events per year. John Winstead said Keno is restricted to a six-hour session scheduled between 12 Noon and 1:00 AM. He said the Department also has administrative regulations written for Keno.
Representative Marcotte asked if establishing slots at race tracks or casinos would affect charitable gaming and if so, did the Department have figures on the effects. Leah Cooper said there were some numbers from other states comparing the impact on charitable gaming when there is another form of gaming, including slots at the racetracks. In Nebraska, prior to the onset of other types of gaming, including dog tracks and river boats, charitable gaming generated $200 million and is now down to $84 million. She said that Louisiana had also seen a 200 million dollar impact as well. Regarding the impact on charitable gaming if slots or casinos became legal in Kentucky, Mr. Winstead said that might not be possible to determine the financial impact until that time.
Representative Marcotte also asked what the rationale was for the fee increase. Carla Arnold said that without the fee increase the Department was going to be in the red, even after cutting expenses.
Senator Guthrie asked for an explanation of the "40% rule." Leah Cooper said that the 40% rule was a requirement from the legislature relating to the profit the charity retains. For example, if a charity has a prize donated then there is no payout and the charity would have 100% retention.
John Winstead reported that the Department had been granted peace officers powers in 2000, and had been certified this past September. He said this has taken the criminal element out of charitable gaming. He said as a result of a survey of licensees the Department’s legislative agenda would ask that the fee increase become a statutory requirement.
Representative Meeks asked who was in the category “other” on a graph supplied to committee members showing gross receipts and payouts. Leah Cooper said that it is sometimes hard to put a licensee in a particular category and that the Department would provide the committee with a list of who these charities are.
Representative Palumbo asked what constitutes "criminal syndication." Mr. Winstead said that if there are five or more people who engage in a crime or act together to commit a crime, the charge is criminal syndication.
The last item on the agenda was a report from the Kentucky Racing Health and Welfare Fund, Inc. Bill Lear, special counsel representing the Fund, told the committee the Fund was begun in 1978, to help backside employees, such as stable hands and hotwalkers, who did not have health care plans. In 2000, a retirement benefit was added. The money for the Fund comes from un-cashed pari-mutual tickets. He said before 1998, a pari-mutual ticket could be held for two years before being considered un-cashed, but was changed to one year in 1998. The Racing Commission tracks pari-mutual tickets and after one year the money is turned over to the Fund. In 2002, the Fund purchased an old school building next to Churchill Downs to renovate. That building currently houses the offices of the Health and Welfare Fund, forty low-income rental units, and the Thoroughbred Addiction Council of Kentucky which is known as TACK. In the spring of 2004, it will house a daycare for up to forty-eight children from the families of those employed in racing. The building will soon house the Kentucky Horseman’s Wellness Center that will provide screening for racing personnel and the offices of the Kentucky Horsemen’s Benevolent and Protective Association (HBPA).
Mr. Lear said that the Fund had built a reserve that is invested and managed by PNC Bank. He said that the State Auditor was concerned about the portfolio’s unrealized losses; however, because the bond portfolio had gained more than the stock portfolio had lost, the Fund had an overall plus. He said the retirement fund is invested as a typical investment fund, similar to the legislators' and teachers' retirement funds. He said 1000 people so far had signed up for the retirement benefits and those qualifying will receive benefits in January, 2004.
Mr. Lear told the committee that claims for medical benefits have risen in the last five years by 52% and that approximately 94% of the applicants have received payments. He said those who didn’t receive benefits did not meet the criteria for coverage.
Senator Tapp asked if there was anyone on-site to help people with their applications. Richard Riedel responded that there were several people who were bi-lingual both at the Fund’s office and at the track to assist those making applications.
Representative Clark said he was concerned about the retirement fund and some backside employees not being eligible for benefits and asked that the criteria for eligibility be sent to the committee co-chairs. Richard Riedel said that there was an age group that was grandfathered for eligibility. He also said that the benefit was a one-time payment instead of a monthly payment.
Representative Palumbo asked how one determined whether a person was not eligible for benefits. Mr. Riedel said that people may have been traveling racing circuits in surrounding states at the time they applied which would make them ineligible for the Fund’s benefit payment.
Representative Burch asked how much it cost to covert the old school building Mr. Lear said the total amount was about $5.5 million, including tax credits and mortgages.
Senator Tapp said considering the square footage, and the buildings uses as a daycare center, apartments, and offices, the estimated value of $5.5 million was accurate. Mr. Lear added that the Auditor’s Office had determined the property's value by just looking at a strict income valuation on the low-income apartments, which by their admission was not a complete account of the value. He said that was only one component of the value of the project. He said that the Fund had acted within its legislative authority and was willing to work with the General Assembly to resolve questions regarding the Auditor's Report.
Representative Burch said that he felt that the legislature had lost its oversight since forming the Fund and that the Racing Commission should have more control over the Fund and allocate the Fund the money it needed to provide services, and added that a surplus could be used for something else. Richard Riedel said he understood what Representative Burch was saying; however, the reserve account allows benefit payments to be consistent. He said medical costs were rising and other sources such as medical assistance were no longer available to clients and more people were applying for benefits. He said the income from the un-cashed pari-mutual tickets had become stagnate and the Fund felt it was necessary to keep funding for a year and a half's worth of services in reserve.
Senator Westwood asked if the $1.2 million that had been invested in the Heywood Elementary School project was available to the Health and Welfare Fund. Mr. Lear said that was a loan to the project that would be repaid in 15 years.
Representative Meeks asked why there was a 40% denial rate for work-related claims and what the time requirement was to cover pregnancies. Mr. Lear said the statute expressly excluded work-related injuries from coverage. Benefits are for those that do not have other benefits available. He said that it has to be an off-the-job injury since an on-the-job injury should be covered by workers compensation. As to benefits for child birth, Mr. Riedel said the person would have to be in the state 90 days prior to conception.
Representative Meeks said he would like a list of the people who were denied benefits by the Fund and the reasons why. Mr. Lear said that there were about 1,000 people who had been denied benefits over the last five years and that he would provide a list.
Senator Tapp made a motion and with a second the meeting was adjourned.