The 2nd meeting of the Interim Joint Committee on Licensing and Occupations was held on Friday, August 27, 2004, at 10:00 AM, in the Triple Crown Room at Churchill Downs. Representative Denver Butler, 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, Tom Buford, Brett Guthrie, Richard Roeding, and Jack Westwood; and Representatives Tom Burch, Larry Clark, Ron Crimm, Jon Draud, James Gooch, Joni Jenkins, Paul Marcotte, Charles Miller, and Ruth Ann Palumbo.
Guests: Bill Schreck, Director, Inspections, Permits and Licensing Office of Jefferson County Metro Government; Steve Sexton, President, Churchill Downs; Alex Waldrop, Senior Vice President of Public Affairs, Churchill Downs, Inc.; LaJuana Wilcher, Secretary, Environmental and Public Protection Cabinet; and Bill Street, Chairman, Kentucky Horse Racing Authority.
LRC Staff: Vida Murray, Ann Seppenfield, Bryce Amburgey, and Susan Cunningham.
The first item on the agenda was approval of the minutes of the July 9, 2004 meeting. The motion carried and was adopted by voice vote.
The next item on the agenda was a welcome to Louisville from Bill Schreck, Director of the Inspections, Permits, and Licensing Office, Louisville/Jefferson County Government.
The next item on the agenda was a welcome to Churchill Downs and a report on the track's renovation and the corporation's operations. Steve Sexton, President of Churchill Downs, told the committee that the renovation of the track was on schedule. He discussed the effect the track and the industry have on the state's economy. Churchill Downs Racetrack has 900 employees and Ellis Park has 400. During Derby Week, the number of people employed at Churchill Downs Racetrack is approximately 10,000. The racing industry has a $34 billion impact on the state's economy. Mr. Sexton reported that the proliferation of riverboat gaming has affected not only racing, but has also trickled down to affect related occupations, such as trainers and veterinarians. He added the off-track betting facilities in Evansville, directly across from Ellis Park, are impacting that track and its ability to award competitive purses. Tracks such as Prairie Meadows in Iowa and Mountaineer Park in West Virginia offer larger purses because of moneys from slot machines at those tracks. Horsemen are taking their horses to race where the purses are larger.
Alex Waldrop, Senior Vice President of Public Affairs for Churchill Downs, Inc., differentiated between Churchill Downs and Churchill Downs, Inc. He said that Churchill Downs, Inc. is the fifteenth largest publicly traded company in Kentucky with racetracks in California, Florida, Illinois, and Indiana. In a twelve-year period, the company's annual revenue has grown from $50 million to almost one-half billion dollars. He told the committee that the Kentucky General Assembly has played a significant role in helping Kentucky achieve national prominence in the racing industry through the enactment of intertrack wagering legislation in the late 1980's and full card simulcasting legislation in 1994. However, he cautioned that the state is in danger of losing its preeminence because other states, such as West Virginia, Louisiana, Delaware, and Iowa, have incorporated gaming at their racetracks. New York and Pennsylvania will soon implement gaming at their tracks. Currently, Michigan, Ohio, Nebraska, and Oklahoma are considering whether to add gaming at their tracks. Mr. Waldrop said states without expanded gaming are lagging and reported that international simulcasting is not a viable solution because of existing trade barriers and international taxes. He concluded his presentation by noting that he will come to the next session with new ideas for expanded gaming.
Representative Marcotte asked on what exchange is Churchill Downs' stock traded and do any of the corporation's other tracks have slots. Mr. Waldrop answered that Churchill Downs' stock was traded on NASDAQ. He responded that of the other tracks Churchill Downs, Inc. owns (Arlington Park in Illinois, Calder in Florida, Hoosier Park in Indiana, Hollywood Park in California, and Ellis Park in Henderson), none have expanded gaming.
Representative Clark asked what role city and state government had in the renovation of the track. Alex Waldrop responded that part of the financing of this project was done through a local Tax Increment Financing (TIF) district and that the City of Louisville had granted the Louisville track an industrial revenue bond which will contribute approximately $15 to $16 million over a 30-year period, effectively selling Churchill Downs to the City of Louisville. The property is rented by Churchill Downs.
Senator Tapp asked how Churchill Downs' attendance compared to that of the corporation's other tracks. Mr. Waldrop said Churchill Downs was the corporation's preeminent track because of the Derby. He noted that Calder Racetrack in Florida, which runs over 200 days per year, has a higher daily handle than Churchill Downs. Together, the tracks under the corporation's umbrella account for about 20 percent of the nation's daily handle.
Senator Borders commented that he was supportive of the racetracks, but questioned whether expanded gaming was the way to help the tracks succeed. He asked what proceeds the track receives from the Derby. Steve Sexton said that the corporation receives a commission from the moneys wagered on the Derby, televising rights' fees from NBC, and sponsorship fees from VISA.
Senator Boswell asked how Churchill Downs intended to approach expanded gaming in the upcoming session, since Tennessee and Ohio are encroaching on Kentucky's tax revenue. Steve Sexton said they were open to various formulas regarding gaming operations, whether it be only at tracks or multiple locations. He said the corporation wants to take its cues from what the voters want and put what they want on the ballot. Alex Waldrop added that he would hope that a dialogue could begin today to work out differences. Senator Boswell said that Kentucky and Tennessee are in unique positions because of the number of states each borders and that he is concerned that delaying decisions about gaming in Kentucky may provide more opportunities for other states to saturate the market.
Representative Butler encouraged the tracks to get together and come to an agreement. He added that he hoped that any legislation would be proposed early in the session rather than during the last days.
Representative Draud asked about the future of Turfway Park given the nearby Argosy Casino. Alex Waldrop said Bob Elliston, President of the track, is concerned that soon the track may be more valuable as real estate than as a race course. Mr. Waldrop indicated that Turfway's exit would be a loss to the industry, since it accounts for five months of racing days. Representative Draud noted that he had heard that one-third of the people going to Argosy are from Kentucky. He added that the proceeds from Argosy had provided free scholarships for high school students in the Lawrenceburg, Indiana area.
Representative Miller said there was more to the slots issue than helping racetracks and there were people who did not want slots just at the tracks.
Representative Marcotte asked if the pari-mutuel taxes in Kentucky were comparable to those in other states. Steve Sexton said pari-mutuel taxes differ from state to state and vary as to the threshold used. Alex Waldrop said the law in Kentucky imposes a 3.5 percent flat tax on Churchill Downs, which is the largest tax on any racing association in America. He said that the budget impasse has cost Churchill Downs a tax credit that was included in prior budgets. He added that the 3.5 percent tax rate would not be in effect since the track's handle had dropped below the $1.2 million threshold. Harness tracks do not pay taxes in the Commonwealth.
Representative Crimm asked how slots at the tracks would compete with full casinos other than when there was attendance for racing. Alex Waldrop said the bill last session was for casinos. He said that slot machines are competitive, generating 80 to 90 percent of the revenue. However, it makes sense to have the full casino for broader appeal.
Next on the agenda Secretary LaJuana Wilcher, Secretary of the Environmental and Public Protection Cabinet and Bill Street, Chairman of the Kentucky Horse Racing Authority, explained issues affecting the Kentucky Horse Racing Authority. Secretary Wilcher told the committee that Governor Fletcher was committed to insuring that Kentucky remains the horse capital of the world. She indicated that horse racing and other related businesses provide over 30,000 jobs in the state and pump billions of dollars annually into the Kentucky economy. She said that the newly established Kentucky Horse Racing Authority is an independent agency of state government charged with the responsibility for regulating the conduct of horse racing, pari-mutuel wagering on horse racing, and related activities in the Commonwealth. Secretary Wilcher noted that the first challenges facing the new Authority included the need to evaluate some of the policies and practices of the former Kentucky Racing Commission and to find a new Executive Director. Governor Fletcher requested that an audit be conducted by the Auditor of Public Accounts on certain irregularities Secretary Wilcher's staff had found in the Racing Commission's accounting and compliance procedures. She added that the Governor later expanded that request to include the security and data integrity of the licensing systems, the efficiency of travel and payroll expenditures, and the new internal control procedures that her Cabinet had put in place. She said the auditor found that travel vouchers had not been properly filled out, state travel regulations were not followed in some cases, and that use of earned leave and overtime by the Racing Commission staff was inconsistent. Secretary Wilcher said the audit also found that the former Racing Commission did not follow state procurement policies and that there was a conflict of interest for one person to serve as both executive director of the Racing commission and chief state steward simultaneously. She reported that the acting executive director has implemented new travel policies and procedures and that new policies on time and attendance have been implemented which have been subsequently evaluated and approved by the State Auditor. Secretary Wilcher said the Kentucky Horse Racing Authority has hired a financial officer who is responsible for seeing that these and other important policies are followed. She also assured the committee that no one on the Authority's staff would be paid for holding two state jobs and drawing two state paychecks for working the same hours. Secretary Wilcher informed the Committee that John Nicholson, Executive Director of the Kentucky Horse Park, would be serving as interim executive director until the Authority's new executive director begins next month.
Following her testimony, Chairman Street told the committee that the Kentucky Horse Racing Authority deals not only with racetracks but also the entire racing industry. He said the industry needs serious attention and must establish more competitive purses. He said the entire industry needs to meet multiple challenges in order to stay in the forefront. He said there were three things that he believed would help move the Authority forward. First, the Governor has appointed Jim Gallager, who has 27 years of regulatory racing experience with the New York Racing Association, as Executive Director. Second, two task forces have been established from among the staff at the Horse Racing Authority and a few outsiders. One group is reviewing regulations that apply to horse racing and is holding public hearings to identify where changes need to be made. Some issues being addressed are jockeys wearing advertisement on their silks, improvements to required jockey helmets, and weight requirements for jockeys. He said the most contentious issue is the establishment of a uniform medication policy. He said another issue is determining the number of racing stewards at each race meet and the qualifications to become a steward. He said the other task force was looking at promoting the horse racing industry with tourism and establishing a more aggressive relationship with the news media.
Senator Tapp asked how Kentucky's regulations for administering medicine differ from other states and if Kentucky had looked at working with other states to streamline medication regulations. Bill Street said Kentucky has the reputation of having the most liberal medication policies of the major racing venues of this country; however, there are good policies in place and enforcement of these policies might be an issue. He added that a group is developing a uniform medication policy for the country.
Representative Burch said he felt the Governor had made a wise choice to change the commission; however, the audit of the old commission did not find any fraud. Secretary Wilcher said it was not the goal of the audit to make anyone look bad but to determine how policies and procedures were being followed.
Senator Buford said the current audit was for specific activities and asked if there would be an examination of the Racing Commission. Secretary Wilcher said the request was based on findings from an internal audit and that the Governor's request for an examination had yet to be carried out.
Representative Clark said he would like for the Authority to consider having drug testing for horses done in-state rather than out-of-state.
Senator Boswell asked if the 30,000 jobs created by the horse industry were attributed just to the thoroughbred industry or were some of those jobs attributed to standardbred and quarter horse racing, as well. Secretary Wilcher said the Authority did approve quarter horse racing dates for 2004. She said the statistics she had came from the University of Kentucky Gatton Business College of Economics report published in January of this year.
Representative Butler thanked Secretary Wilcher and Chairman Street for coming to the meeting. There being no further business before the committee, with a motion and a second the meeting was adjourned.