Call to Order and Roll Call
The 1st meeting of the Interim Joint Committee on Licensing and Occupations was held on Friday, June 14, 2013, at 10:00 AM, at the Kentucky Horse Park in Lexington, KY. 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, Denise Harper Angel, Jimmy Higdon, Christian McDaniel, Morgan McGarvey, R.J. Palmer II, Dan "Malano" Seum, and Damon Thayer; Representatives Tom Burch, Denver Butler, Dennis Horlander, Joni L. Jenkins, Reginald Meeks, Brad Montell, Darryl T. Owens, Ruth Ann Palumbo, Sal Santoro, Arnold Simpson, Diane St. Onge, Ken Upchurch, and Susan Westrom.
Guests: Arch Gleason, President/CEO, Mary R. Harville, Senior Vice President/General Counsel, Howard Kline Senior Vice President of Finance and Administration/CFO, Kentucky Lottery Corporation; Danny Percell, Chairman, Letricia Chandler, Executive Director, Kentucky Board of Embalmers and Funeral Directors; Kelly Wasson, President, Funeral Consumers Alliance of the Bluegrass; John Nicholson, Executive Director, Kentucky Horse Park.
LRC Staff: Tom Hewlett, Bryce Amburgey, Carrie Klaber, Michel Sanderson, and Susan Cunningham.
Representative Keene thanked John Nicholson, Executive Director of the Kentucky Horse Park for inviting the committee to meet at the park. Representative Keene asked for a moment of silence in honor of the passing of Barbara Upchurch, Representative Ken Upchurch’s mother.
Approval of minutes
A motion to approve the minutes from the November 20, 2012 meeting was made by Representative Burch and seconded by Senator Schickel. It carried by voice vote.
Kentucky Lottery Corporation
Arch Gleason, President and CEO of the Kentucky Lottery Corporation (KLC), testified about projected sales for 2013 and reported on the Lottery revenues since its inception. Over $1.8 billion has gone to the General Fund, $2.4 billion to grants and scholarships, $42 million to literacy development, and $20.8 million to the Affordable Housing Trust Fund. Players have been paid $8.8 billion in prizes. Retailers have been paid $919 million in commissions.
Mr. Gleason said that, during the March meeting of the board of directors, the state treasurer moved to direct lottery management to proceed expeditiously with the implementation of the game, Keno. The motion included the pursuit of internet sales of lottery tickets. The board adopted the motion, and KLC has begun planning to implement the new game. Keno is a draw game played on the current terminal system at retailer locations. The type of Keno the KLC is proposing is commonly known as Club Keno, with drawings conducted at 5 minute intervals. Retailers may offer the game at their option. A group of new retailers is expected to come from the social environment such as restaurants, bowling alleys, fraternal organizations, bars, and taverns. This allows KLC to expand to new retailers with the ability to reach younger players from higher economic and educational backgrounds. Thirteen United States lotteries offer this style of game with a sales yield that averages approximately 5 percent of total lottery sales of all products, or 10 percent of sales from terminal lottery games. It is estimated that in the first full year sales could total $53 million. Annual dividends would amount to $15 million.
The lottery board believes that Keno can be conducted under the current lottery statutes. It could be offered by amending an existing contract with GTECH. GTECH has accepted the amendment, and the amended contract was presented at Government Contract Review’s June meeting. The amendment is expected to be more cost effective than a contract with a new vendor, but there will be a minor increase in the rate from 1.5 percent to 1.5395 percent and a three year extension on the contract’s length.
Keno is played from a field of 80 numbers. The lottery randomly draws 20 numbers from the field. Players win by matching up to 10 of the 20 numbers drawn. The more numbers a player matches, the higher the payout. The Keno play slip is similar to other draw games like Powerball. Retailers have one or more monitors in their stores that display the results of the game every five minutes. Recruitment of retailers from the social environment will begin in July, and KLC representatives will visit with retailers to determine if the game is suitable for their environment. It is expected that convenience stores will not participate due to inconsistencies with their basic business and traffic flow. Smaller locations with an area where people eat are better suited to accommodate the business model. Equipment and software instillation must be completed by October, and the game will begin in early November.
In response to a question from Representative Keene, Mr. Gleason said present regulation of the lottery suggests that all retailers sell all products. Restaurants, bars and taverns, and social clubs do not sell tickets due in part to scratch off tickets being covered with latex. The scrapings from these tickets create a problem for restaurants and bars that sell food and beverages.
Mr. Gleason told committee members that KLC is also considering iLottery, or the sale of lottery tickets over the internet. KLC’s outside counsel and counsels of most other lotteries in the United States believe that lottery tickets can be sold “intra” state by lotteries under state and federal law. Thus, tickets sold by the Kentucky lottery could only be sold within Kentucky. The transaction could not cross state lines. This project will not be launched until after Keno is in place and operation has started. This is to avoid re-negotiation of the GTECH contract. Also, to operate internet sales, KLC must negotiate with a bank, set up player accounts, verify location and age, set up time limits for wagering, and establish spending limits. The development of internet sales would be a slower process than the implementation of Keno. KLC believes sales over the internet would generate a similar or higher yield than Keno sales.
Mr. Gleason asked for the members’ confidence in the management of the Kentucky Lottery Corporation. KLC is proud of its achievements from the standpoint of business integrity and in dealing with players and retailers. The lottery has been recognized twice as an outstanding government agency in the Kentuckiana area relating to responsible gaming, and has been honored by the National Council on Problem Gambling. Mr. Gleason told members it is his pledge to the committee, to the General Assembly, and to the Commonwealth that KLC will move forward with its initiatives in a responsible manner.
In response to a question from Senator Thayer, Mary Harville, KLC General Counsel, responded that the constitutional amendment to allow the state lottery passed in 1988. KRS Chapter 154A sets out numerous provisions specifying the lottery’s boundaries. The definition for lottery, in KRS 154A.010(3), means any game of chance, approved by the corporation and operated pursuant to this chapter, except for games prohibited by the General Assembly as provided for in KRS 154A.063. KRS 154A.063 has a subsection that specifically requires the corporation not to approve and operate any casino, or similar gambling establishment, and not to approve or operate any game played with playing cards, dice, dominos, slot machines, roulette wheels, or where winners are determined by the outcome of a sports contest. Keno is just like other draw games in many respects in that it is a number match game that comes from the same terminal as other games. It is offered in different venues, but it is a game of chance that in no way involves skill. Previous general counsels have looked at this internally with the lottery and consulted with the law firm Goldberg Simpson, and all believe that Keno is consistent with the statute. It is the KLC’s belief that neither Keno nor iLottery will undermine existing lottery ticket sales.
Senator Thayer opined that this type of gambling should require, at the least, an Act by the General Assembly, if not a constitutional amendment. He disagreed with the KLC’s implementation that by-passed the General Assembly.
In response to a question from Senator Higdon, Mr. Gleason said when Kentucky first looked at Keno in 1988, it was premature. The gaming footprint has changed since then. To preserve the level of revenue, other options need to be considered. The statutes direct KLC to look at other lotteries and seek to offer games that are successful elsewhere. Other games have been offered and gone forward, and the lottery believes that it is on solid legal footing.
In response to a question from Representative Keene, Mr. Gleason said the policy on retailer commission is that no more than one percent of the sales of the lottery at the retailer level can be paid to the retailer as a bonus. This has been modified to either one percent or $100,000 maximum per winning ticket. The $100,000 maximum was necessitated by some of the large payouts in the multi-state Powerball drawings.
In response to a question from Representative Palumbo, Mr. Gleason said that the World Lottery Association has established criteria for a corporate and social responsibility framework. The Kentucky Lottery has achieved Level 3 out of 4 possible. Achieving level 4 would require extensive research on Kentucky demographics and could cost up to $50,000. The Lottery’s budget does not support that expenditure for research, but Mr. Gleason told Representative Palumbo that he would forward information on the criteria and what was required for each level.
In response to a question from Representative Owens, Mr. Gleason said the lottery is offline from 2:00 AM to 4:00 AM, and the hours of operation for Keno will be the same. The profile of the Keno player across the United States is higher both from an educational and socio-economic standpoint. There is no indication that Keno has contributed disproportionately or significantly to compulsive gambling problems in any other jurisdiction.
In response to a question from Senator Palmer, Mr. Gleason said that there are distinctions between iLottery and a slot machine. The KLC could not offer a simulation of a slot machine online. The initial approach would be to offer terminal based games via the internet. This is still in the developmental stage in lotteries across the country. To maintain revenue, the lottery needs to products that appeal to future generations.
In response to a question from Senator McGarvey, Mr. Gleason said players would need an account to facilitate play on the internet. One option is prepaid cards sold at retail establishments. GTECH has an arrangement with VISA Corporation to allow a player who plays on a funded card to do so with no handling fees. Depending on the retailer, payment of lottery tickets or scratch-off cards by credit cards is not prohibited under statute.
In response to a question from Representative Simpson about the state mandated reduction in amounts paid to winners, Mr. Gleason said the adjustment in the amount of prize money paid to players was a negative impact on sales. Sales have recovered since that time. There was also a negative impact on sales when Tennessee instituted their state Lottery. In FY 09, 10, and 11 and 12, the budget allocated 22 percent of KLC profit to higher education rather than the scholarship program.
Representative St. Onge encouraged Mr. Gleason and KLC to request an opinion from the Attorney General regarding the legality of Keno.
Senator Thayer stated that he disagreed with the implementation of Keno, saying that Keno and iLottery were expansions of gambling that require, at the least, action by the General Assembly and may require a constitutional amendment. Senator Thayer requested that KLC cease implementation of the game and work directly with the General Assembly and relative committees to protect the right of the people to have input on the changes.
Kentucky Board of Embalmers and Funeral Directors
Danny Purcell, Chairman of the Board, said that legislation passed in 2013 giving funeral directors a reciprocal agreement to use a “courtesy card” with Indiana and Ohio, allowing out-of-state directors to use their licenses in Kentucky and for a Kentucky licensed funeral directors to practice in those states. Consumers will no longer need to hire funeral directors from multiple states to assist in arrangements.
New requirements are in place for continuing education. Twelve hours are required over a two year period. At least six of those hours must be in-person training.
Mr. Purcell reported that receipts for the board in the past year totaled $441,081.74. Disbursements were $372,328.76, with a carryover of $68,752. The amount of fines levied in the past year was a record number, $81,400.
An Attorney General’s opinion stated that a licensed funeral director is required to provide all aspects of the funeral service, from time of death until the final disposition and time of burial. An AG opinion was determined that a licensed funeral director is required to sell a funeral. Notice was sent to all licensees giving all funeral homes an opportunity to acquire more licenses and pre-need licenses. An inspector found several violations, and a warning letter was sent to those businesses. Formal complaints were settled by agreed order, and fines were charged based on the severity of the violation.
A concern, after meeting with the Funeral Directors Association of Kentucky and the Kentucky Association of Morticians, is that retirees are moving to other states and not renewing their licenses. The majority of the boards’ funding comes from renewal fees.
Senator Schickel suggested that the board inform members when changes are proposed to the funeral statutes. Also, prefiling future legislation can help inform the public.
In response to a question from Representative Simpson, Mr. Purcell said a poll regarding removal of remains from the place of death to a mortuary concluded that a licensed funeral director should perform the removal. A licensed professional should attend due to training in microbiology, grief psychology, and other skills.
Funeral Consumers Alliance of the Bluegrass
Kelly Wasson, President of Funeral Consumers Alliance of the Bluegrass, said the alliance is one of two local chapters of the national group in Kentucky. It educates people who want to do home funerals. A general price guide of services offered by different funeral homes in the area is given to families to make them are aware of their options. The group supplies material, state by state, that provides laws and regulations for funeral homes and home burials.
There is a trend toward “green” funerals. Families may construct their own casket. Under Kentucky law, a body can be transported when accompanied by a provisional death certificate that can be obtained at a health department. Vaults are not required by law, but rather by individual cemeteries. Funerals should be about doing what is best for the family.
Senator Schickel commented that when he planned the funeral of both his parents the funeral home was cooperative and the funeral director was very helpful with all aspects of the green burial. Mr. Wasson said that he was not opposed to the funeral industry.
Representative Palumbo stated that there are issues regarding green burial and health and public safety.
Kentucky Horse Park
John Nicholson, Executive Director of the Kentucky Horse Park, said that from mid-March through Thanksgiving there are equine events taking place at the park on a daily basis. The current event is the Country Air Hunter/Jumper Show. Horses from around the country are competing at what has become the most prestigious competition center in the world. Competitors are at the park for extended periods of time. They spend money in different sectors of the economy generating tax dollars that ultimately return to the general fund. The average economic impact per year has been about $180 million.
The 2012 budget had language asking the horse park to develop a business plan and deliver it to both Appropriations and Revenue committees by June 30, 2012, which the horse park completed. This is the road map for the horse park’s measure of success. The General Assembly asked the park to write a plan for operation with no revenue from the General Assembly. At the time the park submitted its plan, in June of 2012, the projected cash balance for June of 2013 was $128 thousand. Instead, the park will have a cash balance of $623 thousand at the end of this fiscal year.
New for the park is ownership of the park’s food service, providing everything from burgers and fries to high-end catered events. This has been a dramatic revenue producer adding over $2 million. The park owns a convention liquor license and is increasing marketing to public and private sponsors.
In answer to the question of operation with no General Fund dollars: 1) the park will need to expand the campground, which is part of its six-year capital plan; 2) a public/private partnership to build a hotel on park property is essential. Proposals would come from the private sector, and the hotel would operate under a ground lease with a cut of the gross sales going to the park; 3) local support would be needed, which could come from a share of the Fayette County transient hotel tax.
In response to a question from Representative Simpson, Mr. Nicholson said the business plan has an eight-year progression leading to the Horse Park operating independently from the General Fund.
Representative Palumbo commented that the committee appreciates the vision of the park and the tax dollars being generated by activities at the park that flow to the state.
Senator Schickel reminded members that the July meeting topic is “Advanced Practice Registered Nurses” and asked that anyone who has an interest in this topic to contact committee staff to get on the agenda.
There being no further business, the meeting was adjourned at 12:08 PM.