The 3rd meeting of the Interim Joint Committee on Licensing and Occupations was held on Thursday, September 13, 2007, at 11:00 AM, in the Lexington Room at Keeneland Race Course in Lexington, Kentucky. Senator Gary Tapp, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Gary Tapp, Co-Chair; Representative Joni L. Jenkins, Co-Chair; Senators Tom Buford, Julian M. Carroll, Perry B. Clark, Julie Denton, Ray S. Jones II, Bob Leeper, Daniel Mongiardo, Ernesto Scorsone, and Damon Thayer; and Representatives Tom Burch, Ron Crimm, Tim Firkins, Dennis Keene, David Osborne, Ruth Ann Palumbo, Carl Rollins II, Sal Santoro, Ron Weston, and Susan Westrom.
Guests: Nick Nicholson, President and CEO, Keeneland Association; Alex Waldrop, President and CEO, National Thoroughbred Racing Association; Walt Robertson, President, Fasig-Tipton; Ken Jackson, Kentuckiana Farms; Rich Wilcke, Director of University of Louisville Equine Industry Program; Fred Sarver, Misdee Wrigley Miller, First Vice President, American Saddlebred Horse Association; Lisa Underwood, Executive Director, Marc A. Guilfoil, Deputy Executive Director, P. J. Cooksey, Policy Advisor, Kentucky Horse Racing Authority.
LRC Staff: Vida Murray, Tom Hewlett, and Susan Cunningham.
Nick Nicholson, President and CEO of the Keeneland Association, welcomed the members and told them that the Keeneland Yearling Sale is not only the best, but is the biggest yearling sale in the world. He said horses purchased during the sale will be shipped to 42 different countries on six continents. Mr. Nicholson added that 5,550 horses would occupy 1,500 stalls at Keeneland during the sales. He also said that more people are employed and more horse vans are used during the sale. Senator Tapp remarked that the horse industry is tough business, and most people do not realize the auction's impact on Kentucky's economy.
Next on the agenda Senator Tapp asked for a motion to adopt the minutes from the two previous meetings. Senator Buford made a motion, with a second from Senator Denton, and the minutes were adopted by voice vote.
Next on the agenda, Alex Waldrop, President of the National Thoroughbred Racing Association, gave the second report on the progress of the Sales Integrity Task Force. The Thoroughbred Owners and Breeders Sales Integrity Task Force was formed for the purpose of developing horse industry consensus on licensing of bloodstock agents and consignors, transparency in ownership in horse sales, and transparency in medication in the horse sales area. The task force includes members from all major breeds based in Kentucky. Three advisory subcommittees were formed: a legal advisory, veterinary advisory, and bloodstock agents advisory subcommittee. In July, all three advisory subcommittees reported to the full task force with recommendations for their respective areas saying that further study was necessary before a final recommendation could be made to the full task force. Mr. Waldrop said it was premature to report on specific results. He said that meetings are being well attended and discussion has been open and honest on all industry issues. He said that a consensus with specific, enforceable changes would attract new buyers to the horse industry, noting that is was important that changes are flexible enough to include particularities to each horse breed. Mr. Waldrop ended his report saying that once a consensus has been reached one or more public forums would be held before the task force makes its final presentation to the Licensing and Occupations Committee.
Next on the agenda, Walt Robertson, Auctioneer for Fasig-Tipton, told committee members that Fasig-Tipton was the oldest auction house in the United States and has been in Kentucky for 35 years, relocating the home office to Kentucky from New York in 1987. Mr. Robertson said Kentucky is the epicenter for horse sales. In 2006 horse sales totaled 900 million . The total economic impact of the equine industry in Kentucky is estimated at four billion dollars. Mr. Robertson said that the industry directly or indirectly employs 80,000 to 100,000 people, with an average salary of approximately $50,000. He said that Kentucky also leads the country in breeding, producing twice as many foals as Florida, our closest competitor. Kentucky is the envy of every breeding and racing state in the country, but there are areas of concern. Alternative gaming has been legalized in ten other states, and revenue from gaming was added to purses in Pennsylvania and New York, estimated to reach $60 to $80 million over the next few years in Pennsylvania and $50 million in New York. The influx of gaming money has put Kentucky at a disadvantage. Mr. Robertson said that Kentucky offers $15 to $20 million in breeder's incentives. He testified that thirty years ago the standardbred business was doing well in Kentucky; however other states offered more attractive incentives than Kentucky and the industry has all but vanished. He said the equine industry is portable unlike other states with signature attractions and Kentucky cannot afford any erosion of the industry. Mr. Robertson said that purses must be on par with other states, or not only would Kentucky lose out on racing but the breeding industry will suffer.
Ken Jackson, with the owners of Kentuckiana Farms and Lexington Selected Sales Company, a standardbred sales company, said his company was the premier sales company for standardbred horses. He said that the Sales Integrity Task Force has given his industry a chance to discuss the economic impact of proposed changes on the standardbred industry, which is different from the proposal's impact on the thoroughbred industry. Mr. Jackson said that if the standardbreds are forced to have a repository, it will cripple the industry. He said that the standardbred business is rooted in the Sire Stake's program and that the Breeders Incentive Fund portion the standardbreds received has enabled them to lay a foundation to attract horses back to Kentucky to race. Mr. Jackson said that The Red Mile racetrack recently held its first annual "Unbridled Night of Champions" with $1.8 million in purses for Kentucky-bred horses. He noted that in two weeks a standardbred sale at Fasig-Tipton would sell approximately 850 horses over five days. He said that 80 percent of those horses would not be Kentucky bred. Also, even though it has become more difficult, owners who live in Kentucky will ship semen to other states where their mares are boarded because they can get a better auction price for foals in another state. Mr. Jackson said that there are still a lot of outside influences such as tax incentives or subsidies from alternative gaming that are hurting the standardbred industry in Kentucky.
Rich Wilcke, Director of the University of Louisville Equine Program, spoke for the Kentucky quarter horse Association. Mr. Wilcke began by telling the committee that the Equine Program was created in 1987, and that U of L's College of Business is the only one in the world that offers an undergraduate business administration degree with a major in equine business. He said that in April 2008, the University of Louisville Equine Industry Program and the University of Kentucky College of Agriculture Equine Initiatives will co-sponsor the Kentucky International Equine Summit at the Radisson Plaza in Lexington. Mr. Wilcke then went on to say that the American quarter horse is the world's most popular horse breed; with approximately 300,000 owners and breeders. Mr. Wilcke said that there are currently 37,500 registered quarter horses in Kentucky, more that all other breeds, and that new foal registration in 2006 was 1,730. He said the quarter horse industry is a vital part of Kentucky's collective equine industry, even though quarter horse shows are no longer a prestigious event in Kentucky due to the inadequate facilities at the fair grounds. Mr. Wilcke went on to say that Kentucky is recognized as one of the best places for trail rides although trail growth is restricted by limited access to state and federal land. He said that in 2004, the Kentucky Quarter Horse Association Sprint Racing Committee was granted two racing days per year at the Red Mile by the Kentucky Horse Racing Authority; however, those two days were not enough to encourage breeders and owners to move their operations to Kentucky. He stated that the goal of the Kentucky Quarter Horse Association was to establish a licensed quarter horse track in Kentucky. Mr. Wilcke said that quarter horses received part of the "non-race breeds" portion of the Breeders Incentive Fund. He said that the association was using that money to stimulate demand for Kentucky bred horses. Mr. Wilcke said that there is room for growth in the industry; with better facilities, greater access to public lands, and more opportunities for sprint racing, Kentucky could take the lead as a quarter horse state.
Fred Sarver, President of the American Saddlebred Association, said the saddlebred was the oldest breed registry in the United States and that many years ago the breed was referred to as the Kentucky Saddler. Mr. Sarver said that the World Championship Horse Show is held at the Kentucky State Fair with more than $1 million in prize money. He noted that approximately one-fourth of that is from prize money raised from the breeders of American Saddlebreds, nationally. He said each county fair in Kentucky has a saddlebred horse show in conjunction with its fair. Mr. Sarver said he was not a native Kentuckian; however, he moved here three years ago because of the geographic location, the Kentucky soil, and the equestrian community. He added that the sales tax was something that Kentucky imposes that some other states do not. Mr. Sarver said he was pleased to be invited to be part of the Sales Integrity Task Force. Misdee Miller, First Vice-President of the American Saddlebred Association, said she too had relocated from another state to Kentucky. She remarked that an ongoing problem for owners and breeders was expenses, including sales tax; however, the Breeders Incentive Fund has helped with the saddlebred industry.
Representative Palumbo commented that she appreciated the work the task force was doing and that she thought the information was educational for the legislators. Representative Burch said that the Equine Program at the University of Louisville has been supported completely by pari-mutuel taxes for 20 years. Senator Tapp asked if the quarter horse Association had a master plan to bring back to the state events like the North American Live Stock Show and if the trail ride industry was working with the Department of Parks and the Department of Agriculture to have trails on state property. Mr. Wilcke said that the Kentucky Education Equine Project has put together a track and there have been meetings with officials to open a trail in Jefferson County that would support hikers, bikers, and horse riders. Senator Clark asked if the association needed to request more than two days of sprint racing from the Kentucky Horse Racing Authority, or if the General Assembly could give them more days. Mr. Wilcke replied that currently there were not enough purses to run more than two days. Representative Westrom said that she and Representative Royce Adams filed a tax equity bill in 2006 and that she plans to pre-file a similar bill this interim. She added that she is hopeful that the bill will pass both chambers during the up-coming session. Senator Thayer said it was good to hear from the industry that the Breeders Incentive Fund was working. Representative Rollins said that the horse industry is important to Kentucky and that the task force results should be applied nationally in order to keep Kentucky from becoming non-competitive. Senator Buford said that the six percent sales tax on horses in Kentucky is a small amount of money collected; however, it is a large amount for owners to pay and that buyers have their horses shipped out-of-state to avoid paying sales tax. He further stated that if the sales tax on horses was eliminated and the horses stayed in Kentucky, the return would be 20 percent in the form of employment and other equine services. Senator Jones asked Mr. Roberts if he knew how many horses leave the state to race due to expanded gaming in other states supporting bigger purses. Walt Roberts said he did not have statistics; however, other states have surpassed Kentucky in incentives and purses.
Next on the agenda, Lisa Underwood, Executive Director; Marc Guilfoil, Deputy Executive Director; and P. J. Cooksey, Policy Advisor, Kentucky Horse Racing Authority, were present to update the committee on the process of implementing recommendations from the Auditor of Public Accounts. The staff particularly addressed the audit of the Kentucky Thoroughbred Development Fund (KTDF). Ms. Underwood told members that the audit has been completed and operating procedures have been put into place. She said that the Authority has worked with tracks to settle the KTDF accounts and the KTDF Advisory Committee is meeting regularly to write a regulation for the fund. The final version will be presented to the Authority at the September meeting and then will be forwarded to the Administrative Regulations Review Subcommittee at LRC. Ms. Underwood said the management and financial audits requested by the legislature showed that the Authority was understaffed and under-funded. In particular, the management audit raised issues about the method of funding the Authority. Other states fund their regulatory racing offices with general funds, a pari-mutuel tax, a combination of both, or from track reimbursements. Ms. Underwood said that the General Assembly allocated 1.2 million of General Fund money to cover revenue that is normally provided by track reimbursements during fiscal year 2007. Because there was no resolution for funding the Authority in the 2007 session, the Authority will ask the 2008 General Assembly for funding.
Ms. Underwood said that the auditor suggested the Authority conduct criminal history checks as part of its background checks. She said the practice of fingerprinting was stopped in 1994, but the Authority is considering phasing in fingerprinting, beginning in 2008. She said that it would cost approximately $1,000 per machine, three machines would be required and staff would need to be trained to use the machines. She said that the Authority was also contacting Racing Commissions International to access their data base. Ms. Underwood stated that the audit also addressed monitoring the tote system. She said that the auditor told the Horse Racing Authority to provide independent assurance of pari-mutuel wagering and race track operations. Statutes require that there be a Supervisor of Pari-mutuel Racing. Currently the Authority does not have money for the position but is moving toward filling that position. Ms. Underwood said that the Authority recommends that a system be put in place to allow the tote information from all tracks to be provided directly to the Authority. This would allow for daily monitoring of tote, tax, and licensing information as well as balances accrued in the KTDF. Ms. Underwood said that drug testing was also addressed in the audit, including the number of drug tests performed, and the number of positive results. She said that the auditor's office commented that most states use in-state laboratories for their testing. Ms. Underwood said the Authority's response is that they are continuing to study new developments in equine drug testing and will always strive to be in the forefront of that area. She said the Authority is enforcing equine drug rules and retaining drug test information to perform historical trend analysis in comparison with other states. She said that the position of the Authority regarding an in-state lab is that any entity charged with conducting drug testing should be independent of the influence of the horse industry. Ms. Underwood indicated that the Personnel Cabinet had authorized the Authority to hire a Medical Director. She said that once this position has been filled, the Medical Director and a panel from the Authority would review information to see if changes should be made in drug testing policies. She added that when the Medical Director's position has been filled that person would prepare the Request for Proposal (RFP) for a laboratory. Ms. Underwood said that in the last twelve months: Churchill Downs has hosted the Breeders Cup, the Queen of England has attended the Kentucky Derby for the first time in its history, and Ellis Park hosted the Claiming Crown for the first time in Kentucky's history. She added that the Red Mile had just hosted its "Unbridled Evening of Champion's" and the Authority had awarded $12.6 million to thoroughbred breeders for 2006 races.
Representative Burch asked how much money the General Assembly cut from the Horse Racing Authority's budget last year. Senator Thayer said that $1.2 million was appropriated in the first year of the biennium to replace the assessment. Senator Thayer said that there was also approximately $500,000 generated in agency funds from revenue from license fees, adding that the audit shows that the agency needs $5 million a year to meet its statutory obligations.
There being no further business to come before the meeting, with a motion and a second it was adjourned at 12:30 p.m.