Program Review and Investigations Committee




<MeetMDY1> November 10, 2011


Call to Order and Roll Call

The<MeetNo2> Program Review and Investigations Committee met on<Day> Thursday,<MeetMDY2> November 10, 2011, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Fitz Steele, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Fitz Steele, Co-Chair; Senators Perry B. Clark, Vernie McGaha, John Schickel, Dan "Malano" Seum, and Brandon Smith; Representatives Dwight D. Butler, Leslie Combs, David Osborne, Ruth Ann Palumbo, Rick Rand, and Arnold Simpson.


Guests: Julian Tackett, Commissioner; Chad Collins, General Counsel; Kentucky High School Athletic Association. Brian Gupton, Chief Executive Officer; G. Henry Hunt, Chief Operating Officer; Dataseam. Jamie Eads, Director of Incentives and Development; Marc A. Guilfoil, Deputy Executive Director; Tim West, Assistant General Counsel; Kentucky Racing Commission. David Switzer, Executive Director, Kentucky Thoroughbred Association/Kentucky Thoroughbred Owners and Breeders.


LRC Staff: Greg Hager, Committee Staff Administrator; Christopher Hall; Sarah Harp; Colleen Kennedy; Van Knowles; Lora Littleton; Jean Ann Myatt; Cindy Upton; Kris Harmon, Graduate Fellow; Stella Mountain, Committee Assistant; Program Review and Investigations Committee Staff. Mike Clark; Perry Nutt; LRC Staff Economists Office.


Approve Minutes for October 13, 2011

Upon motion by Representative Simpson and second by Representative Butler, the minutes of the October 13, 2011 meeting were approved by voice vote, without objection.


Consideration of report Kentucky’s Community Mental Health System Is Expanding and Would Benefit From Better Planning and Reporting: An Update (presented at October 13 meeting)

            Representative Steele announced that consideration of the staff report on the community mental health system would be postponed until the December meeting.


            Follow-up to 2009 report Kentucky High School Athletic Association

            Commissioner Tackett updated the committee on the 2009 Kentucky High School Athletic Association report. Some changes recommended by the report were already in the process of being made when the report came out. As recommended in the report, the Kentucky High School Athletic Association (KHSAA) looked at the eligibility rules of other states and made three changes to the exceptions to the waiting period for transferring students. The divorce exception was expanded. The second change is that a student can transfer without eligibility penalties if the sport he or she plays at the varsity level is dropped by the school. The third change is that the student now has to sit out for a calendar year instead of for an entire school year. KHSAA declined the recommendation exception of a student getting married because that is rare and can be considered in the due process procedure. In April 2012, KHSAA will have a new rule that will allow it to put together educational guidelines for parents and other constituents on procedures for getting waivers without jeopardizing KHSAA’s ability to enforce the rules.


            Representative Steele asked what KHSAA considered the calendar year to be. Mr. Tackett said a calendar year for a particular student is one year from the last day that the student played in an athletic contest. Representative Steele asked if a student would have to sit out of athletics for one year if the parents had to move due to loss of a job. Mr. Tackett replied that moving to a new school district has always been an allowable exception. Changing schools without a change in residence requires that the student seek permission to participate in athletics immediately by going through the KHSAA due process procedure.


            Representative Palumbo commended KHSAA for its work.


            Senator Seum asked if KHSAA has any involvement with middle schools. Mr. Tackett said that the trend is toward more involvement related to health and safety issues. In response to a question from Senator Seum, Mr. Tackett said that no association governs middle school athletics, which is locally controlled.


            Senator Smith described a situation in his district in which two players at two schools switched schools. One was granted permission to play athletics immediately, one was not. He asked how this could happen. Mr. Tackett said that each case is considered separately. The process begins with schools exchanging paperwork with copies sent to KHSAA. He noted that KHSAA will move toward making this an electronic process as recommended by the Program Review report. There is an initial ruling, which may be appealed to a hearing officer, whose decision may be appealed to the commissioner. The commissioner makes the final ruling for KHSAA, which rarely goes against the decision of the hearing officer. Testimony and documentation may be different for cases that otherwise seem similar.


            In response to a question from Senator Schickel, Mr. Tackett said that about one-third of high school students participate in athletics. Participation is likely to increase with three sports that KHSAA plans to add: archery, bowling, and competitive fishing.


            Coal County Computing Program

            Brian Gupton introduced the following school district personnel present at the meeting: Dr. Michael Kessinger, Assistant Superintendent and Director of Technology and Finance, Martin County Schools; Thomas Burns, Director of Technology, Lawrence County Schools; Sam Williams, Head Network Technician, Boyd County Schools; Jill Roden, Director of Technology, Whitley County Schools; Sandy Johnson, Superintendent, Hazard Independent Schools; and Charles Morton, Director of Technology, Harlan Independent Schools.


            Mr. Gupton said the Coal County Computing Program is a partnership between Kentucky K-12 schools, Kentucky higher education institutions, and private sector technology interests. It provides workstations to schools in the coal producing counties in Eastern and Western Kentucky as a part of a competitive-based grant program. The program is voluntary and is available to both county and independent school systems.


            Since 2005, the program has produced one of the largest computing infrastructures of its kind. The legislative foundation for Dataseam is the Kentucky Postsecondary Education Improvement Act (HB 1), which created the Research Challenge Trust Fund and the Kentucky Innovation Act (HB 572). The program started in Princeton, Kentucky, funded by two grants totaling $1.9 million through the Kentucky Economic Development Finance Authority (KEDFA). The General Assembly has appropriated $2.5 million per fiscal year to the program since 2006. Dataseam reports to KEDFA and Kentucky Department of Education twice annually, and its contract is renewable on an annual basis.


            Participating school districts are mainly in Eastern and Western Kentucky. Some participating districts are not coal districts; they already had the technology and chose to participate. Dataseam has created a computing infrastructure concept known as a grid by connecting workstations in participating K-12 schools to a network, creating a virtual supercomputer. Over the past 6 years, over 15,000 workstations have been placed in coal-producing districts in response to grant submissions.


            The research through the James Graham Brown Cancer Center at the University of Louisville is structure-based drug design focused on developing the next generation of chemotherapy treatments that only target cancer cells with no toxic side effects. There are 14 research teams with approximately 27 researchers at U of L that use the grid.


            Dataseam impacts approximately 100,000 students and 10,000 educators statewide. It partners with Morehead State University and Western Kentucky University. Dataseam professionally certifies individuals to support the technology, which results in Kentucky having the largest number of certifications per capita in the nation. The new technology in the schools provides new curriculum opportunities such as multimedia and video editing. It allows the school systems to diversify their Perkins career and technical education programs. Dataseam provides scholarships to students at U of L and Morehead State University. It also provides workshops for educators and supports the Governor’s School for the Arts.


            Senator Smith asked why the University of Kentucky is not a participant in the research program. Mr. Gupton said that UK is welcome to participate. In response to a question from Senator Smith, Mr. Gupton said that no technical and community colleges participate at this time.


            Representative Combs asked why county school districts in her legislative district are not participating. Mr. Gupton said requests for proposals are sent to school districts each year. For districts that do not currently participate, Dataseam contacts the technology officer and superintendent.


            Representative Combs suggested that Dataseam approach technical and community colleges to participate. Mr. Gupton agreed that this was a good idea.

Senator Smith noted that changing from PCs to Macintoshes has been perceived as a barrier. He asked if Dataseam does the initial set-up. Mr. Gupton said that Dataseam does a lot of the initial work. Districts are responsible for maintenance.


            Senator Smith stated that switching systems should not be a large factor now, the upkeep is the obstacle. Mr. Gupton agreed, especially because the trend is toward Web-based technology. Senator Smith commented that this is a good use of coal severance funds. His only complaint is that more school districts should be participating. He reiterated his support for participation by technical and community colleges, even if this requires new legislation.


            In response to a question from Representative Steele, Mr. Gupton said that training requirements depend on the needs of the districts and that districts generally take good care of the equipment. Dataseam works with districts to resolve hardware and network problems. Mr. Gupton said that the computers provided are mostly desktops because these are best for grid computing.


            Senator Schickel asked for a breakdown on what each county has received. Mr. Gupton said that he would provide this information.


            Staff Report: The Kentucky Thoroughbred Breeding Industry and State Programs That Assist the Equine Industry

Perry Nutt and Christopher Hall presented the report The Kentucky Thoroughbred Industry and State Programs That Assist the Equine Industry. Mr. Hall provided an overview of how Kentucky came to dominate the horse breeding industry. In the past, the success of a region’s horse industry has been tied to public sentiment and local laws. An example is the period when all states, except two, largely banned horse racing. For most of the industry’s history, the decisions of a few industry leaders largely determined the primary location for horse breeding in the US. This included the move away from and return to Kentucky by key leaders in the industry. After Kentucky’s return to industry prominence in the early 20th century, the state’s breeding industry has become increasingly intertwined with local economies.


Mr. Nutt summarized results of an LRC staff survey of more than 150 Thoroughbred horse breeding farms in the state. Half the farms have broodmares and do some boarding, 23 percent are boarding operations, and 27 percent are diversified. Sixty percent of the horses on the farms are owned by the farms outright or in partnership; 40 percent are boarded for others. The largest sources of income for the farms are stud fees (30 percent of income), equine sales (24 percent), and boarding fees (23 percent). For measures such as number of horses, income, and employment, a relatively small percentage of farms are predominant. For example, more than 65 percent of surveyed farms each has 50 or fewer horses. These farmers have about 24 percent of total horses on the farms. Farms with more than 100 horses are less than 13 percent of surveyed farms, but have nearly half the total Thoroughbreds.


Since 1991, the number of Thoroughbred mares bred in the US has declined. Mares bred in Kentucky increased for much of this period but have declined in recent years. The number of mares bred is shrinking but Kentucky remains the dominant state. From 1991 to 2011, the percentage of mares bred in the US that were bred in Kentucky increased from 23 percent to 43 percent. In 2010, 42.9 percent of mares bred in the US were bred in Kentucky, just less than the 43.7 percent bred in the nine next highest states. Data from the survey were used to estimate the direct economic effects of the Thoroughbred breeding industry on Kentucky’s economy. Staff used multipliers developed by the US Bureau of Economic Analysis to estimate the indirect effects. Estimated total Kentucky spending associated with its Thoroughbred industry in 2010 was $1.58 billion ($912 million direct, $672.7 million indirect), estimated jobs were 17,657 (10,797 direct, 6,860 indirect), and estimated total earnings were $352.7 million ($167.9 million direct, $184.8 million indirect).


Mr. Nutt summarized Kentucky’s incentive funds for the horse industry. Three breeders incentive funds provide financial awards to breeders or owners based on horses’ performance in races, shows, or contests. The Thoroughbred Breeders Incentive Fund receives 80 percent of the revenue from the sales tax on stud fees, the Standardbred Breeders Incentive Fund receives 13 percent, and the Horse Breeders Incentive Fund receives 7 percent. Development funds for Thoroughbreds; Standardbreds; and Quarter Horses, Appaloosas, and Arabian horses are funded by the pari-mutuel tax. As the number of mares bred and stud fees have decreased, revenue for the breeders and development funds has declined.


Statute requires that the Kentucky Horse Racing Commission promulgate regulations establishing the distribution of funds from the Kentucky Standardbred Breeders Incentive Fund. No such regulations have been issued. Recommendation 2.1 is that the commission do so.


            Representative Osborne asked whether staff analyzed the Canadian horse industry. Mr. Nutt said that is a growing market but that it was not considered for the report.


            Representative Palumbo asked about the calculation of employment. She said that it seemed low. Mr. Nutt said that the estimate of direct employment was derived from the responses to the survey. The multiplier determined the indirect employment. Other studies have looked at the broader industry. The Program Review report only covers the Thoroughbred breeding industry.


            Mr. Switzer asked that legislators pay particular attention to the section of the report on taxes that Kentucky collects but that competing states do not.


            Representative Osborne asked staff from the Racing Commission to address the lack of regulations from the Standardbred Breeders Incentive Fund. Mr. West said that money from the incentive fund was merged with money in the Standardbred Development Fund and the distribution has been governed by the regulations for the development fund. He agreed that the Racing Commission would promulgate the regulation as recommended in the report.


            The meeting was adjourned at 11:51 a.m.