The 3rd meeting of the Interim Joint Committee on Licensing and Occupations was held on Friday, September 10, 2004, 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; Senators David Boswell, Tom Buford, Brett Guthrie, Robert Stivers, and Jack Westwood; and Representatives Tom Burch, Larry Clark, Ron Crimm, Jon Draud, James Gooch, Dennis Horlander, Joni Jenkins, Paul Marcotte, Charles Miller, Ruth Ann Palumbo, and Jon David Reinhardt.
Guests: John Clay, Executive Director, Office of Alcoholic Beverage Control; Arch Gleason, President, Kentucky Lottery Corporation; and Joe McCormick, Executive Director, Kentucky Higher Education Assistance Authority.
LRC Staff: Vida Murray, Ann Seppenfield, Bryce Amburgey, and Susan Cunningham.
Senator Tapp called the meeting to order and asked for a moment of silence in recognition of the anniversary of September 11, 2001.
The first item on the agenda was the approval of the minutes of the August 27, 2004 meeting. The motion carried and was adopted by voice vote.
Next on the agenda John Clay, Executive Director of the Alcohol Control Board, told the committee that taxes collected from the alcohol beverage industry were currently estimated at $84 million, about $4 million higher than those generated in 2003. He said House Bill 466, passed in the 2004 General Session, now allows the Board to order server training in lieu of it imposing fines or suspending licenses. The Education and Development Branch conducted 100 classes last year in proper server training. The bill also allows the Board to issue supplemental bar licenses for caterers and establishes limited restaurant and limited golf course license fees. He told the committee that 14 new administrative regulations were currently going through the legislative review process. Mr. Clay said legislative changes proposed for the next session include: prohibiting traffic in alcoholic beverages the day of a local option election; allowing restaurants to sell their alcoholic beverages on another licensed premises; requiring out-of-state importers of distilled spirits and wine to pay the same license fee as out-of-state brewers; and allowing corporations that reorganize to pay a license fee and submit certain paperwork to update their files rather than applying for new licenses.
Mr. Clay told the committee that in 2000, the law was changed to allow golf courses and wineries in dry territories to serve alcohol. Since that time, 54 local option elections have been held or are planned. Of those elections 36 voted to be wet, 16 voted to be dry, and two are pending. Mr. Clay told the committee that one of the issues the Board faces is Sunday sales at retail package stores. Another issue is whether or not certain facilities in Louisville on Baxter Avenue are restaurants or bars. He noted that the small farm winery license affords its licensees numerous privileges with very little oversight. Unlike other retailers, the wineries may serve at festivals where gaming may occur. He added that Congress was working on underage drinking prevention legislation that may give the Board some grant money to supplement its existing prevention programs.
Representative Marcotte asked if the three positions on the organizational chart that were unfilled were for budgetary reasons. Mr. Clay said the positions had not been filled by the Governor's Office yet.
Senator Buford asked if combination drink licenses for restaurants that also sell package liquor still existed. Mr. Clay responded that there were a few such licenses in Northern Kentucky.
Representative Clark asked why the administration decided not to appeal the court decision allowing package sales on Sundays. Mr. Clay said the office had been notified that the administration would not appeal Sunday sales. He added that the language of the current statute and the unanimous decision of the Court of Appeals suggest that an appeal would be a waste of time and money.
Senator Tapp asked what plans were being implemented to address underage drinking. Mr. Clay responded that the programs in effect now, "Operation Zero Tolerance" and "Cops In Shops," are successful and the Board is waiting to see what action Congress takes in this area.
Representative Draud asked how many wineries were in Kentucky. Mr. Clay responded that there were 24 licensed ones.
Next on the agenda, Arch Gleason, President of the Lottery Corporation, testified on the Kentucky Lottery Corporation's sales and dividend growth and the impact Tennessee's lottery will have on projected sales for fiscal years 2005 and 2006. He said 2003 saw the largest increase in Lottery sales, $52 million over 2002. He said because of the large jackpots and the creation of some new instant games, this year's profits had been higher than anticipated. He said the Lottery had paid $193.5 million dollars from proceeds in fiscal year 2004 to the Commonwealth. In January of this year, the Tennessee Lottery came online, gradually adding more products, and in April, Tennessee joined the multi-state Power Ball, causing Kentucky's bordering counties' sales to drop by 22 percent. The Lottery anticipates a loss of $67 million to Tennessee, or $17 million of profit, for the fiscal year. He said states that offer Lotteries and in addition to traditional games more aggressive forms of gaming show a higher growth rate.
Mr. Gleason informed the committee that the Lottery hoped to improve its revenue by adding games and scratch off tickets. Such games and tickets accounted for a $50 million dollar growth last year. He said there was a new on-line style game offered through retailers with a daily drawing. The Lottery estimates that about $7 million dollars in sales will be realized from an on-line game, Tic-Tac-Toe, and the Lottery will offer another on-line game in the Spring through retailers. He said that last year Lottery revenues of $193 million were distributed to KEES, CAP, and literacy programs, and nearly $36 million were distributed to the General Fund.
Senator Boswell asked how many of Kentucky's bordering states had both a lottery and expanded gaming. Mr. Gleason said all of the bordering states have lotteries. He said the states with aggressive games were West Virginia with expanded gaming at racetracks; Indiana with its riverboat operations that allow dockside and 24-hour gaming; Illinois with riverboats and casinos; and Missouri with riverboats. Ohio is considering expanded gaming. He added that revenue from West Virginia's limited video lottery games in bars and taverns had increased to over a billion dollars for last year. He said that because Kentucky citizens patronized these bordering operations there is less profit for the Lottery.
Mr. Gleason said a marketing study conducted for the Lottery revealed that 60 percent of Kentuckians were not aware that the Lottery's proceeds go to education scholarships and grants. The study showed that 55 percent of the public plays the Kentucky Lottery and that 63 percent of the population that formerly played the Lottery would play again if they knew the proceeds went to education.
Senator Tapp asked if the 55 percent figure applies to those who play consistently. Mr. Gleason said the survey question asked, "Have you played the Lottery in the last year?" and that number includes casual players. There is no firm number as to who plays week-in and week-out. He said the figures were tracked on a quarterly basis.
Representative Draud said 90 percent of the people he came in contact with did not know that Lottery proceeds were used for education and advocated that the public be made aware of that. Mr. Gleason said the Urban Studies Division at the University of Louisville will conduct research for the Lottery Corporation this fall and will have a better answer in January. He said the Lottery was prohibited by statute from referring to programs that benefit from the Lottery's proceeds. He said the Board was in favor of having that constraint removed. Mr. Gleason said he felt it was possible to advertise in a responsible way. He said that Kentucky was the only state lottery with that type of restriction.
Representative Crimm asked what percentage of the Lottery's proceeds went to the Kentucky Educational Excellence Scholarship (KEES) program and whether that program was secure. Mr. Gleason said that moneys have increased gradually over the years. In the next fiscal year, 100 percent minus the $3 million earmarked to the literacy programs will go to Kentucky Higher Education Assistance Authority (KHEAA) programs. He said 45 percent will go to KEES and 55 percent to the need-based programs. He said the demand would soon out-strip the funds, particularly since sales were on the decline.
Senator Boswell said the Lottery was initially sold to the public as money devoted to education and that the public should be re-informed that the Lottery's proceeds are going to education.
Senator Westwood asked how many dollars actually go to education and asked how the Lottery would tactfully advertise to the public what proceeds go to education. Mr. Gleason said the amount was gradually increasing and approximately 80 percent went to education in 2003. He said initially $32 million of the Lottery proceeds went to the Vietnam Veterans Bonus program, but that $400 million dollars had gone to the KEES program with nearly 400,000 grants pending. Regarding advertising, Mr. Gleason said the restriction was enacted because legislators feared that the Lottery would run advertisements that were offensive and that would induce citizens to play.
Representative Marcotte asked if sales would rise if the Lottery put scratch-off games and pull-tabs at racetracks, and award the commission to racetracks. Mr. Gleason said Ellis Park has been a retailer for the Lottery; however, tracks were not good retailers and sales had no significant impact on the racetracks.
Joe McCormick, Executive Director of KHEAA, said that the amounts of the KEES award have not changed since the program's initiation. The number of students qualifying as "Senator Jeff Green Scholars" has gradually increased each year. The scholars must maintain a 4.0 GPA or higher in all four years of high school and have a 28 or higher composite ACT score. Sixty-six percent of those students qualifying for the scholars' program stay in Kentucky to attend college. He added that the cost of tuition is increasing every year at Kentucky's four-year public universities, while the KEES award amount is staying the same. The maximum award per year is set at $2,500, and this year's average tuition at the eight public universities is $3,700. Dr. McCormick said that even though the total dollars spent in the KEES program have increased, KHEAA will not have to use reserve funds because of an unexpected increase in the Lottery's proceeds. Dr. McCormick said the KEES program has three objectives: to promote college access and attainment; to encourage and reward students who work hard academically; and to encourage the "best and the brightest" students to attend college in their home state. He said that prior to the establishment of the KEES program, college enrollment was stagnant, but recent data indicate that these objectives are being fulfilled. He said his only concern was whether or not the lottery revenues will continue to fund these programs in light of annual rises in college tuition.
Representative Miller said the program has not only inspired students to attend college, but it has also encouraged the parents to become more involved with their children.
Senator Guthrie said the KEES money is the only money a lot of families receive. He added that some parents have expressed concern that the KEES program may disappear for lack of funding. He noted that if the moneys needed exceed the revenues produced, the moneys would have to be apportioned among the eligible students. He asked how students were informed that the awards would be issued. Dr. McCormick said a letter was sent to the student saying the awards were subject to the legislative appropriation process so that the student was not misled to think the money was an entitlement. He said that technically the Lottery's proceeds go to the General Fund and the legislature decides how the moneys are spent.
The next item on the agenda was the review of administrative regulations from the Board of Licensure for Marriage and Family Therapists and the Board of Veterinary Examiners. Senator Tapp said there was no action necessary.
There being no further business with a motion and a second the meeting was adjourned.