Call to Order and Roll Call
The 3rd meeting of the Interim Joint Committee on Licensing and Occupations was held on Monday, August 27, 2012, at 10:00 AM, in Room 129 of the Capitol Annex. Representative Dennis Keene, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator John Schickel, Co-Chair; Representative Dennis Keene, Co-Chair; Senators Tom Buford, Julian M. Carroll, Denise Harper Angel, Jimmy Higdon, Paul Hornback, Dan "Malano" Seum, Kathy W. Stein, Damon Thayer, and Robin L. Webb; Representatives Larry Clark, David Floyd, Dennis Horlander, Wade Hurt, Joni L. Jenkins, Adam Koenig, Reginald Meeks, Charles Miller, Michael J. Nemes, David Osborne, Ruth Ann Palumbo, Carl Rollins II, Sal Santoro, Arnold Simpson, and Susan Westrom.
Guests: John Ward, Executive Director, Marc Guilfoil, Deputy Executive Director, Mary Scollay, DVM, Equine Medical Director, Jamie Eads, Director of Incentives and Development, Greg Lamb, Supervisor of Pari-Mutuel Wagering, and Susan Speckert, General Counsel, Kentucky Horse Racing Commission; Arch Gleason, President and CEO, Kentucky Lottery Corporation; Rick Hiles, President, Horsemen’s Benevolent and Protective Association, Inc., Clara Fenger, DVM, private veterinarian; John Piehowicz, DVM, private veterinarian.
LRC Staff: Tom Hewlett, Bryce Amburgey, Carrie Klaber, Michel Sanderson, and Susan Cunningham.
Approval of minutes
A motion to approve the minutes from the July 13, 2012 meeting was made by Senator Buford and seconded by Representative Horlander. The motion carried by voice vote. Representative Keene announced that the September committee meeting will be held on its regular day, September 14. However, the location will at Southern Wine and Spirits in Louisville, Kentucky. Directions were included in members’ meeting folders and will be mailed with the September two-week notice.
Kentucky Horse Racing Commission
John Ward, Executive Director, Kentucky Horse Racing Commission, (KHRC) told members he has been Executive Director for only five months, adding that this was his first time before the committee. Mark Guilfoil, Deputy Executive Director of the commission introduced Jamie Eads, Director of Incentives and Development for a report on the breeder incentive and thoroughbred development funds. Ms. Eads told the committee the breeder incentive funds come from the six percent sales tax assessed on the fee for breeding a stallion to a mare in Kentucky. This is split among thoroughbreds, standardbreds and 11 non-race breeds in statutorily determined amounts. The funds are designed to reward breeders who have mares bred and foaled in Kentucky.
The thoroughbred breeder is required to register on or prior to August 15 to qualify for this fund. It is estimated that 60 percent of the 8,000 thoroughbred mares bred will register for the fund this year. Thoroughbred breeders receive awards from the fund when horses bred and foaled in Kentucky win an eligible race. In November of 2011 regulation 810 KAR 1:070 was changed to increase the numbers of eligible races. The change also allowed mares in the November sales to pay a late fee of $150 rather than $750. Another change to the fund is the incorporation of stakes races outside of Kentucky and removal of the age limitation on stakes races outside Kentucky to support longevity in the sport.
This year the KHRC is working with the Kentucky Thoroughbred Owners and Breeders (TOBA) to co-brand their product, allowing the commission to highlight the quality of Kentucky breds and save on marketing dollars.
The Kentucky Standardbred Incentive Fund nominations are down in the two-year olds, yearlings and the stallions. The committee has started a dialogue to change the regulation to better support the program. The Kentucky Sire Stakes is one of the richest sire stakes for Standardbreds in North America. It consists of two legs and a final for two and three year-olds. On September 9, at the Red Mile, over $2 million in purses will be awarded.
Greg Lamb, Supervisor of Pari-Mutuel Wagering, also provided information to the committee. He said historical racing has been implemented at Kentucky Downs. In the first 11 months of the fiscal year, $129 million was wagered on historical racing. This has produced almost $2 million for various state programs and $454,528 for the General Fund. Depending on the weekends in a given month approximately $15 million, on average, is being wagered. The Kentucky Thoroughbred Development Fund has received $1.2 million from Kentucky Downs. These funds came from wagers placed on historical racing.
Additionally, in the last year Advanced Deposit Wagering (ADWs) has become licensed in Kentucky. Licensees are required to submit data showing the amount Kentucky residents are wagering through the ADWs. The amount wagered by Kentucky residents via ADW in the second quarter of 2012 was over $47 million.
The KHRC also now licenses totalisator companies. Totalisator standards have been developed that define basic procedures all totalisator companies must follow to operate in Kentucky.
In response to a question from Representative Clark, Mr. Lamb said Oregon charges a daily fee for ADWs, of one-eighth of one percent of the first $60 million wagered, and then the rate goes up on the amount wagered over $60 million. He said that Kentucky, charging one-half percent, to return to the industry through incentive programs, was not out of line.
In response to a question from Senator Buford, Mr. Guilfoil said Rock Ohio purchased a share of Turfway Park recently. Ohio recently stated it will be three years before it knows where its breed development fund stands. Expanded gaming in Ohio will definitely hurt the Kentucky tracks. Racetracks in Ohio are being relocated to areas that will better accommodate expanded gaming at racetracks.
Senator Thayer said the expansion of gaming in Ohio was approved through a state wide constitutional amendment, where the people of Ohio voted to approve casinos. There are going to be four full-blown casinos in large cities and several racetracks are already operating video lottery terminals and slot machines. In Kentucky, the state pari-mutuel tax of 1.5 percent is applied to wagers on historical racing. A part of this money goes to the breeders incentive fund. The amount of money generated for incentive funds in Kentucky will not be able to match the money Ohio will generate by expanded gaming.
Senator Thayer also said that Advance Deposit Wagering is account wagering by someone who has put money into an account and can wager from that account over the phone, computer, or smart phone. The ADW is the only pari-mutuel wagering growth area; however, it is not taxed in Kentucky. Because that money does not add to the breeders incentive fund or the development fund it makes Kentucky’s product less competitive to surrounding states.
In response to a question from Representative Clark, Mr. Lamb clarified the amount reported, and said the Kentucky Oaks and Kentucky Derby wagers were included in the second quarter report of ADWs.
Mary Scollay, DVM, Equine Medical Director for the KHRC, said Kentucky is host to the most prestigious race, with the most coveted prize in the world on the first Saturday in May. The public expects the race to be held with integrity and that the outcome will not be impacted by illegal, performance enhancing drugs. In 1939, people across the country embraced an ugly, crooked-legged horse that overcame adversity again and again. The fact that Seabiscuit was often lame but still managed to race successfully was celebrated. By 1968, it was acceptable practice to make a lame horse sound and able to race with medications that masked pain or enhanced performance. In 2008, however, the public had changed its perception and an unsound horse that raced on medication was no longer viewed as courageous or inspirational, but rather as being exploited.
The use of drugs or medications to make a lame horse comfortable enough to race is no longer an acceptable practice. The use of corticosteroids two days before a race has been prohibited since 2005 and anabolic steroids were banned in Kentucky in 2008. The safety of horses and jockeys is a priority for the KHRC veterinarians and the protocol is the most comprehensive in the world. Kentucky shares information with a group of international sport regulators and gets information in a timely manner that allows the commission to prepare responses as threats emerge. Kentucky is serving as a model to other racing jurisdictions, both domestic and international.
Regarding 810 KAR 1:018, Medication; testing procedures; prohibited practices, Dr. Scollay said there were four substantial changes to the regulation. The first addresses the Phenylbutazone threshold, which is five micrograms. The threshold is to be reduced to two micrograms per milliliter of serum. This is a model rule recommendation from the Racing Medication Testing Consortium (RMTC) and the Association of Racing Commissioners International (RCI). This will make Kentucky consistent with other racing jurisdictions. Regulatory veterinarians had concerns that a horse examined in the morning could be under the influence of medications that could mask their condition and make an accurate assessment of the horses ability to race difficult. Dr. Scollay arranged to have samples taken at the time of the morning exam and found that 25 percent of the horses tested were positive for levels of Phenylbutazone greater than five micrograms. This level is recognized as the lowest amount that will have an effect on the horse. Therefore those horses with levels greater than five were under the influence of a non-steroidal anti-inflammatory.
Allowing only KHRC veterinarians to administer Furosemide on race day is another RCI and RMTC recommendation model rule. This recommendation has been endorsed by the American Association of Equine Practitioners and is being practiced in New York, Delaware, and Canada. California is preparing to implement it as well. This has been a standard practice in Kentucky in Standardbred racing since 1988.
The third change is the elimination of adjunct bleeder medications. Kentucky is one of the few states that permits adjunct bleeder medications. It is also a RCI/RMTC model rule to withdraw them. There is no scientific evidence to support their effect. The American Association of Equine Practitioners also endorses this change.
The fourth change is to eliminate a period of ineligibility of a horse that is withdrawn from Furosemide to race in a specific event. Currently, if a horse goes off of Furosemide there is a 60 day waiting period before it is eligible to race again. The proposed change is being made in anticipation of the Breeders Cup, which this fall is requiring that two-year olds race without Lasix. Therefore, if a horse races in the Breeders Cup and comes back to Kentucky to race later in the fall, the horse will be able to have Lasix without penalty. This prevents a horse without Lasix from competing against horses that are allowed to have Lasix.
In response to a question from Senator Webb, Mark Guilfoil said any training center that turns in “official works” is under the jurisdiction of the KHRC. He agreed to a change in the language in the proposed regulation to “official training center.” Susan Speckert, General Counsel for the KHRC added that striking language on page four made the regulation consistent with the penalty regulation. Ms. Speckert said the syringe language is struck because the trainer is no longer administering the medication.
In response to a question from Representative Floyd, Dr. Scollay said with respect to performance enhancement and masking of pain, there is a difference and they are two different issues. When a trainer uses Phenylbutazone, the issue is the welfare of the horse. If the horse is lame and is given medication to relieve the pain but not fix the underlying cause of the lameness, the horse is put at risk for further injury.
In response to a question from Representative Osborne, Dr. Scollay likened a KHRC veterinarian giving a horse an injection on race day to a patient in a hospital getting an injection by a third party that a doctor has signed off on. Dr. Scollay added that she was not aware of any adverse effects to using adjunct bleeder medicine. Representative Osborne went on to say that he was concerned, as are other horseman, that this practice would limit the number of veterinarians allowed on a racetrack. He said that stopping the cheaters, instead of the trainers who use Lasix, should be the focus of the commission.
In response to a question from Representative Clark, Ms. Speckert responded that two other states have signed on with the International Racing Compact legislation that was passed in the 2012 session. However, six states must become signatory for the law to take effect. Dr. Scollay said that California has changed its regulations to reflect the recommendations of RCI and RMTC, as have New York, Delaware, and Pennsylvania.
Representative Clark told the commission to consider using a contract instead of hiring more personnel. He advised consideration of the veterinarians who worked for the owners and implementing guidelines for performance of race day injections.
Senator Thayer said the changes in the regulation were about protecting the safety of the equine athlete, competing at the peak of performance. These athletes are being wagered on by the public who deserve to know that the sport in Kentucky is being conducted with integrity and with minimal medication intervention. Kentucky is unique to have the Equine Drug Research Council (EDRC) made up of horseman, officials from racetracks, veterinarians, and a legislative representative. All regulations regarding medication start with the EDRC, and if approved, they go to the KHRC. Kentucky is a leader on medication. This regulation is about veterinary access--human access to these equine athletes during the four hours leading up to the race.
Rick Hiles, President of the Horsemen’s Benevolent and Protective Association, Inc., also the Vice-President of the National Horsemen’s Protective Association, and a member of the EDRC, said he did not vote in favor of the regulations. There was a lengthy discussion about the regulations at the EDRC in which he agreed to vote for the regulations because the EDRC wanted to send a unanimous vote of approval to the KHRC. His vote was based on the assumption that the EDRC would not ban the use of Lasix on race day. In the past Phenylbutazone (Bute), an anti-inflammatory, was allowed to be give on the morning of a race. In a spirit of cooperation horsemen agreed not to administer Bute 24 hours before race day. After 40 years of training horses it is his opinion that giving a horse Bute 24 hours before the day of a race is not going to mask symptoms to make the horse appear sound. The five microgram level is safe and allows trainers to give two, one milligram tablets the day before the race and stay under the level. State stewards have offered that 92 percent of the horses tested have results under two percent. Very few reach the five percent level. The allegation that veterinarian checks the morning of the race are hampered by medication given the day before is hard to fathom because, as Dr. Scollay testified, the Bute only has an effect for about six hours.
The adjunct bleeder medicine does work. There is no scientific data to prove that it does not work. This medication, for horses that hemorrhage and bleed, has an effect that allows them to race at their normal level.
Regarding the state veterinarians administering Lasix, Mr. Hiles said the HBPA does not agree with the using KHRC veterinarians to inject a trainer’s horse. The Trainer Responsibility Rule holds the trainer strictly liable if one of his horses tests positive for a banned substance.
John Piehowicz, DVM, a private veterinarian who has worked at Turfway Park for the last 17 years, said he has never had a race day violation. It is offensive to him to imply that he is not qualified or does not have the integrity to administer Lasix to his client’s horses. Transferring this duty to commission veterinarians takes a private economic matter to public means without public interest being demonstrated. Constitutional attorneys agree it fits a three prong criteria of the taking clause. The Kentucky Practice Act clearly states that in order to administer prescription medication there must be a veterinary patient-client relation. The commission veterinarians will not have this relationship.
Clara Fenger, DVM, said she has a master’s degree in equine exercise science from Ohio State University, a Ph. D. from the University of Kentucky, and 15 years of experience working part-time for the KHRC. Prostaglandin E2 (PGE), a potent inflammatory mediator, is elaborated in everyone when undergoing exertion or exercise. This goes up into joints and is a mediator of the ultimate degeneration of cartilage in joints that leads to osteoarthritis. Phenylbutazone administered at 4.4 milligrams per kilogram, which is the 2 gram dose, per 1,000 pounds of animal weight, prevents the production of PGE for 24 hours after administration. There is no pain killing effect at this time. Therefore this medication is safe and effective for the prevention of inflammation and joint damage to the equine athlete. Not all animals fall under the 2 milligram level at 24 hours. A study conducted at the University of Pennsylvania shows that 5 percent of horses receiving this dose intravenously fall over the level. This makes this regulation inappropriate with the current wording.
Representative Keene noted that this was a very contested regulation. He asked for a motion to find the regulation deficient. Senator Webb made the motion, which was seconded by Representative Clark. Senator Thayer asked for a roll call vote. There were 19 Yes votes, 1 No vote, and 4 Pass votes. Regulation 810 KAR 1:018 was found deficient and returned to the KHRC. Also, 811 KAR 1:090 is identical to the previous regulation, although it applies to Standardbreds. Senator Webb moved to find this regulation deficient, and it was seconded by Senator Harper-Angel. Regulation 811 KAR 1:090 was found deficient by voice vote.
Representative Keene opined that there was a large divide in the horse community and advised them to work together to come to compromise. Senator Thayer said there are other states that have implemented this regulation, which is a national model rule. He said that the federal government will take over if the state continues to intervene in delaying changing regulations. He encouraged Governor Beshear to use his executive authority as Governor to implement these regulations as emergency regulations in order to have them in place for the beginning of the Turfway meet in September.
Kentucky Lottery Corporation
Arch Gleason, President and CEO, told the committee that the Kentucky Lottery Corporation’s (KLC) mission was to act responsibly and offer the best games to the Commonwealth.
Since its inception the lottery has received just under $14 billion in sales. About $3.71 billion is returned to the Commonwealth. $8.33 billion has been paid to winners, $871.2 million paid to retailers, and $964.0 million went to operating expenses. KEES received $8.3 million. Last year, sales improved by approximately five percent, and next year’s projection shows similar improvement.
During fiscal year 2008, the legislative session added a mandate that specifically required 28 percent of lottery revenue to be returned to the General Fund based on sales. The lottery made changes to conform and has improved profitability. However, the KLC did not keep pace with the growth rate of other lotteries in the United States. In the 2012 session the General Assembly removed this provision and it is the feeling of KLC that this will allow more money to be returned to the General Fund.
Regarding the distribution of a carve-out fund, 22 percent, was set aside for higher education beyond the scholarships program. This percentage is not in effect next year, therefore the full $211 million will be available for the scholarship and grant programs.
The KLC is adding enhancements to its product and restoring cash prizes to players with instant tickets. A survey revealed that players did not like the free ticket, but would rather have cash. The product mix has been contemporized with a player reward program. Players can enter non-winning tickets at kylottery.com and accumulate point to cash in for merchandise in the Player’s Fun Club-Points for Prizes store as well as enter top prize drawings. This program is expected to increase sales between two and four percent. This program, with the prize store, is expected to launch this fall. Three other state lotteries, Arizona, Iowa, and Tennessee offer this program and North Carolina and Missouri will offer Points for Prizes this summer.
In response to a question from Representative Floyd, Mr. Gleason said participation has gone down in the number of tickets purchased. However, there has been a 30 percent net revenue increase in the game. By allowing the jackpot to grow more rapidly more people are attracted to play the game.
Representative Keene reminded members that the next committee meeting will be on September 14, 2012, at Southern Wine and Spirits in Louisville, Kentucky.
There being no further business to come before the committee the meeting was adjourned at 11:46 AM.