The 1st meeting of the Interim Joint Committee on Licensing and Occupations was held on Friday, July 14, 2006, 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 Tom Buford, Julian M Carroll, Perry B Clark, Julie Denton, Carroll Gibson, Robert J (Bob) Leeper, and Dan Seum; Representatives Tom Burch, James Carr, Larry Clark, Ron Crimm, W Milward Dedman Jr, Jon Draud, Dennis Horlander, Joni L Jenkins, Dennis Keene, Stan Lee, Paul H Marcotte, Ruth Ann Palumbo, Jon David Reinhardt, Ron Weston, and Susan Westrom.
Guests: Shannon Stamper, General Counsel, Environmental and Public Protection Cabinet; Lavoyed Hudgins, Executive Director, Laura Moore, Deputy Executive Director, and Steve Humphress, General Counsel, Office of Alcohol Beverage Control; Mac Stone, Director, Division of Value-Added Plant Production, Department of Agriculture; Kristen Branscum, Tourism Development Manager, Department of Tourism; Jim Gallagher, Executive Director, Patricia Cooksey, Deputy Executive Director, Kentucky Horse Racing Authority; and Lisa Underwood, Deputy Commissioner, Department of Public Protection.
LRC Staff: Vida Murray, Bryce Amburgey, Tom Hewlett, and Susan Cunningham.
Senator Tapp called the meeting to order and asked for a motion and a second to adopt the minutes from the last meeting. The minutes were adopted by voice vote.
The first item on the agenda was a report on the implementation of Senate Bill 82; AN ACT relating to wineries and making an appropriation therefor. Lavoyed Hudgins, Executive Director of the Alcoholic Beverage Control (ABC), told the committee that there were 40 wineries in Kentucky, of which 30 were operational. He said that the ABC office had drafted regulations for implementing Senate Bill 82 and has forwarded them to the Cabinet for review. He said that the office has also sent the draft regulations to interested parties for review. The new license for small farm wineries is available to those wineries that do not produce more than 50,000 gallons of wine, annually. He said that only wine that contained at least 75 percent of Kentucky-made or grown products could be labeled as Kentucky wine, and that the ABC may conduct product integrity investigations to determine the origin of the wine. He said that all small farm wineries must have the Federal permit before being licensed in Kentucky as a small farm winery. The department, in conjunction with the Grape and Wine Council, is meeting with the Department of Agriculture to coordinate implementation efforts for the Small Farm Winery license that will be issued January 1, 2007. This new license will take the place of the Small and Farm Winery licenses.
In closing, Mr. Hudgins said that the Small Farm Wholesaler license will be available only to those who do not have a substantial interest in an entity holding a small farm license or operating as a small farm winery.
Senator Carroll asked if there was adequate communication to the wineries. Mr. Hudgins replied that Laura Moore was working as the office's outreach coordinator. Representative Draud asked if there was the potential for the developing new wineries to replace the tobacco industry. Mr. Hudgins said there was no current projection. Senator Tapp asked for the status of the Huber case. Shannon Stamper, General Counsel for the Environmental and Public Protection Cabinet, replied that the Huber case was ongoing; however, now Huber Winery and Cherry Hill Winery have filed a second complaint challenging the new legislation, specifically alleging that the requirement forcing people to purchase wine in person at the wineries still gives preferential access to in-state sellers and discourages shipments out-of state. Steve Humphress, ABC General Counsel said he believed that the Huber lawsuit came from larger wine companies who want access to sell wine over the Internet. Laura Moore, ABC Deputy Executive Director added that the Cabinet did believe that Senate Bill 82 was constitutional.
Mac Stone, Director of the Division of Value-Added Plant Production, Department of Agriculture, gave an update on the Grape and Wine Council's implementation of Senate Bill 82 and the administration of the Kentucky Small Farm Winery Support Fund. Mr. Stone said that the department would take the number of operating wineries beginning in January of 2007 and divide that number by the $100,000 in the fund. He said currently 21 wineries are selling wine out of their tasting rooms and using that number, there would be $4,000 available for each winery. He said the department has set up a traceable account for the support fund. Mr. Stone said that the department is working with the Tourism Cabinet to develop a schedule for branding and billboards with $1,000 set aside for a local market. Mr. Stone said that each quarter the fund will be re-assessed. If some of the smaller wineries are not using their share, the money left over will go back into the fund to be re-distributed to the larger wineries that are using their share of the fund money. Mr. Stone said that $25,000 had been marked for administration of the Grape and Wine Council whose membership expires on December 31, 2006. On January 1, 2007 a diverse council will be appointed. Mr. Stone said that the department would contract to hire a webmaster to update the Grape and Wine Council website.
Mr. Stone said the council has negotiated with wholesalers a cost of $12.00 per case for distribution of wine. However, the price of the wine will not change. Mr. Stone said the $75,000 set aside in the distribution fund would allow each winery to have 300 cases distributed. The department will access the reimbursement to the wholesaler the end of each quarter to calculate the amount of product each winery is selling. Some smaller wineries may not sell any cases, therefore their allotment will go back into the fund to be redistributed to larger wineries. He said they are trying to keep an equal playing field; however, the larger wineries with higher volume should be able to sell more cases. Mr. Stone said that there are reporting forms being developed for reimbursement and for applications for authorization of wineries and wholesalers. He said there will also be a rating sheet to help determine what was working and to ensure good communication between the office of the ABC, and the Departments of Agriculture and Tourism. He said the council has drafted by-laws for administration that would be adopted at its August meeting and that regulations are being drafted to be submitted for approval. Also, there will be a newsletter sent out to the wineries and the grape growers keeping them updated. Mr. Stone said that Kaan Kurtural, Viticulturist (grape growing) and Dr. Tom Cottrell, Enologist (winemaking) at the University of Kentucky were very important to the success of grape growing and to the quality of grapes at crush time. Mr. Stone said that he and Steve Edwards are working on guidelines to create a small farm distribution license. Mr. Stone said other marketing activities underway were the creation of a Kentucky Wine Trail program and a website.
Kristen Branscum, Tourism Development Director for the Department of Tourism, told committee members the department has developed categories for a marketing strategy including brand development, website development, writing a brochure and purchasing a list of people who have expressed an interest in wine. She said that the department would invite magazine writers and journalist who write articles about wine to Kentucky to familiarize them with Kentucky products. Ms. Branscum said that there will be a media/advertising program and a retail program, which the department expects to have in place by July 1, 2007.
Senator Tapp commended the Office of ABC, and the Departments of Agriculture and Tourism on their cooperation in getting the program up and running. Representative Stan Lee asked who was getting the $12.00 per case and if there was a limit on the number of cases to be distributed. Mr. Stone responded that the winery and the retailer set the price of the wine. The wholesaler then picked up the wine, warehoused the wine, reported the number of transactions to the Department of Revenue, and distributed the wine for $12.00 per case. Representative Burch asked if all the growers produced wine or if some only grew grapes and how many gallons of wine were produced per year. Mr. Stone said that the majority were grapes growers contracting with wineries and that production of wine was well over the 6,250 cases that could be supported by the fund. He added that most wineries would still sell wine through their tasting room. Representative Carr asked what the start-up cost would be for grapes compared to other crops, as well as the average return per acre. Mr. Stone said that generally the range was $6,000 to $10,000 per acre to establish a vineyard and that there are several years before quality grapes would be harvested. He said depending on the type of grape produced the return could be $4,000 per acre. Mr. Stone added that information on grape growing was available at local county extension offices. Representative Draud asked if the transition from growing tobacco to growing grapes would hurt the small farmer. Mr. Stone replied that the Governor's Office of Agriculture Policy had model programs and cost-sharing diversification programs available to growers. Senator Carroll asked if the council planned to do something to increase the production of grapes and said that he, as a legislator, would be interested in assisting the council. Mr. Stone responded that there was more room for growth; but added that certain disincentives are in play such as considerable start-up cost and stiff competition from foreign markets that are able to produce wine cheaper.
The next item on the agenda was an update from the Kentucky Horse Racing Authority on racing regulations for equine drug testing, jockey advertising and international wagering hubs. Patricia Cooksey, Deputy Executive Director of the Authority spoke in favor of the new drug regulations. She said when she was riding horses in the late 70's at Latonia Race Course, now Turfway Park, an owner of a horse she was going to ride told her he had to bring his horse from New York to Kentucky to race because the horse was sore and needed medication. She said in another race her horse took a bad step and was so medicated that it could not feel its broken leg. She said that all the jockeys that she had spoken with agreed that the new medication rules are in the best interest of the sport. Jim Gallagher, Executive Director of the Authority, said that the Equine Medication Rule went into effect September 7, 2005 when Turfway Park opened its fall meet. The Authority was aware that there would be an adjustment period for trainers and veterinarians going from a four-hour to a 24-hour withdrawal period so the Authority worked with veterinarians on the administration of non-steroidal anti-inflammatory drugs to avoid overages. Race day medications are now limited to Furosemide (Lasix), a bleeding medication that helps horses that have pulmonary hemorrhage, and adjunct bleeder medication. Mr. Gallagher said that since the rule was enacted there have been 12 warnings issued, seven fines imposed for overages in violation of the regulation and three post-race positives. He said the Authority has been successful in relaying to trainers and veterinarians the medications that were compliant. He said that the Authority has incorporated by reference a withdrawal guideline schedule into its administrative regulation with the help of the Equine Drug Council. He said this guideline has been distributed to trainers and veterinarians and is posted on the Authority's website. Mr. Gallagher said that Kentucky is on the forefront of major advancements in horseracing. Turfway Park has installed Polytrack, an all-weather synthetic surface that has had a dramatic effect on the number of breakdowns. Keeneland Racecourse has a Polytrack training surface and is currently installing Polytrack on their main racing oval in time for their October meet. He said using this synthetic surface will increase starts because it maintains a consistent surface in all types of weather.
Representative Clark asked if the horses sold at the Keeneland sales were tested for drugs. Mr. Gallagher said if the horses were in the training sessions they were drug tested; however, the administrative regulations were more particular to the racing industry than the breeding industry. Representative Burch asked how the Authority determined when a drug in a horse's system was "too much" when testing after a race and if there were drugs that could not be detected. Mr. Gallagher said there is a withdrawal guideline schedule so the trainers would know how to administer medications to avoid their horses testing positive. Mr. Gallagher said currently there are 750 compounds that could be detected; however, there are other drugs that can not be detected.
Lisa Underwood, Deputy Commissioner for the Department of Public Protection, gave an update on jockey advertising and international wagering hubs. She said currently jockeys are not allowed to wear advertising or promotional material one hour prior to a race or during a race unless the jockey has the consent of the owner and the licensed racing association for advertisements other than its recognized logo or an entity representing the Jockey's Guild, and specific size requirements are met. Jockeys must fill out a form, found on the Authority's website, with the signatures of the Authority, the owner, and track stewards in order to wear other advertising patches. Ms. Underwood said that prior to Derby Week the Authority sent out notices to all jockeys it anticipated riding at Churchill Downs advising them of these requirements. She said that they are currently updating administrative regulations to clarify what jockeys may wear.
Ms. Underwood said that hubs are a business through which a subscriber-based service conducts pari-mutuel wagering on simulcast horse races after a person sets up an account with the business to wager through that account. She said there have been administrative regulations filed with one public hearing. She said that there has been one public comment and that the Legislative Research Commission wants an application form on file; therefore the Authority is developing a form. Ms. Underwood said the Authority had received one application from a business named Betpad LLC; however, Betpad asked that its application be held until the administrative regulations were approved. She told the committee that late in June, the Authority had met with other potential applicants to get feedback on fees, distribution of money collected from these fees, as well as how to create a good enterprise for Kentucky. Ms. Underwood said the fees established must be competitive with Oregon's and because the statute limited Kentucky to four hubs, generating a profit could be a challenge.
Senator Tapp asked when the regulations would be complete adding that there were many communities in Kentucky that would like to have the opportunity for 30 new jobs. Ms. Underwood said that the regulations should be in place by November. Representative Clark asked if the Authority had any locations in mind to place the hubs and if there was a revenue projection should the Oregon hubs move to Kentucky. Ms. Underwood replied that at this time she could not comment on sites being considered. She said that one hub operator could possibly generate $300,000. Mr. Gallagher said that there was potential for growth if Kentucky could be successful in attracting the advance deposit racing companies to relocate.
Representative Butler asked staff to contact the Department of Charitable Gaming to attend the October meeting to explain new regulations that were being written prohibiting the use of "hard cards" for Bingo.
There being no further business to come before the committee the meeting was adjourned at 11:35 AM.