KyKurmudgeon

Attorney General Jack Conway issued an opinion Monday morning that said the General Assembly has the authority to approve racetrack slots statutorily. Bottom line of the opinion:

“In sum, it is the opinion of the attorney general that the General Assembly may authorize the Kentucky Lottery Corporation to operate video lottery terminals at designated horse racing tracks under Ky. Const. (Section) 226(1) without further amendment to the Kentucky Constitution.”

Sunday’s column:

FRANKFORT — For years, I argued that, although a constitutional amendment might not be legally necessary to expand gambling in Kentucky, it was the best political road to that end.

I also argued that a limited mix of racetrack-owned and independent land-based casinos with all the attendant bells and whistles was the best way for this state’s economy and government coffers to recapture the money Kentuckians have been wagering in neighboring states over the last 10 to 15 years, while at the same time helping Kentucky’s racing industry compete with racino-enhanced purses and breeding incentives offered by tracks in other states.

A casino with a hotel, golf course, restaurants and shows featuring name entertainers equals a destination resort. Slots at racetracks equal, uh, slots at racetracks. Such was my thinking.

Then came 2009 and a succession of short race fields, canceled races and canceled racing dates that signal an impending implosion of the state’s traditional year-round racing circuit.

So, in 2009, with the cracks in the racing industry’s foundation widening at a scary rate and with Ellis Park and Turfway Park threatened with closure before the long amendment route to expanded gambling can be completed, I became a believer in statutory approval of racetrack slots.

If it happens, I hope it will be just a first step toward passage of an amendment authorizing full casinos. But if it isn’t, so be it. I’m willing to settle for second best if it means saving Kentucky’s $4 billion signature industry and the more than 100,000 jobs it provides.

I am convinced the industry faces a tipping point today, and that waiting until November 2010 (the earliest Kentuckians could act on an amendment) is not a viable option for saving racing as we have known it in the Bluegrass State.

We’ve known this day was coming for some time. With tracks in 11 out of 12 competing states now enhancing purses and breeding incentives with revenue from expanded gambling, it was inevitable. Still, the events of 2009 have shocked even those in the industry.

“I will be the first to admit that the effect on Kentucky’s racing circuit has been quicker and far more dramatic than we initially thought,” Keeneland President Nick Nicholson said last week. “There is no doubt in my mind that, if we do nothing, a year-round Kentucky racing circuit over the next 18 months will cease to exist.”

If that happens, if large gaps appear in the year-round circuit, the small and medium-sized operations that fill Kentucky’s race cards on a daily basis will leave. Some of them already have because of the bigger purses to be found elsewhere.

Most of the canceled races and race dates of 2009 can be attributed to the disparity of purses between Kentucky tracks and those that benefit from casino gambling.

At Tuesday’s Kentucky Horse Racing Commission meeting, Burr Travis Jr. told his fellow commission members of a day last year when he had a horse eligible for a race at Turfway and for a similarly classed race in Pennsylvania.
“The purse at Turfway was $22,000,” Travis said. “The purse in Pennsylvania was $77,000. … We went to Pennsylvania.”

Who wouldn’t?

At that same meeting, commission member and trainer John Ward spoke to the other part of the double whammy facing Kentucky racing — the enhanced breeding incentives the racino states are offering.

“This has been spun as being a racetrack purse bill,” Ward said of Gov. Steve Beshear’s slots proposal. “… This is about the breeding business in Kentucky. Without this, our Kentucky breeding industry is getting ready to be at the bottom of the list.”

Noting that other states are taking “mares away from us, stallions away from us,” Ward added, “This (slots legislation) is a way to save (Kentucky’s breeding industry) and bring it back to where it used to be, at the top of the world.”

So, yes, in 2009, I’ve changed my position on expanded gambling. I’m a convert to the idea of statutory approval of racetrack slots because Kentucky needs to keep its $4 billion signature industry at the top of the world. And that may not be possible if we wait any longer to give it the tools it needs to remain competitive.

As Keeneland’s Nicholson noted, “While it would be nice to wait for a constitutional amendment in 2010 or 2012, the undeniable reality is, if we do that, the existing Kentucky racing circuit will be lost and the prospect of rebuilding one will be slim.”

So, bring on the slots now. And we’ll talk later about recapturing the rest of the gambling and entertainment dollars Kentuckians are spending at destination casinos in other states.

Latest word from Attorney General Jack Conway’s office is that an opinion on whether the legislature can approve racetrack slots without a constitutional amendment will not be ready Thursday or Friday. The General Assembly convenes Monday for a special session to consider, among other things, Gov. Steve Beshear’s proposal to authorize racetrack slots by statute.

Thursday’s column:

FRANKFORT — When Gov. Steve Beshear proposed casino legislation in the 2008 regular General Assembly session, it prompted me to use such words as “unrealistic, over the top, bizarre even.”

By contrast, the racetrack slots legislation he offered Tuesday is a “clean” proposal, particularly in the sense that it doesn’t contain dozens of “earmarks” specifying how the state will spend the revenue it receives from slots operations.

That may not sit well with those legislators, particularly in the House, who want some of the new money spent on their pet causes. And industry folks like earmarks because they see them as a means of winning votes for the cause.

From a political perspective, earmarks ultimately may prove necessary. But fiscally, Beshear’s thinking is sound. Earmarks add rigidity to the budgeting process. And earmarks are far harder to undo than they are to create.

So, 10 years down the road, when another generation of lawmakers decide that spending 5 percent of slots revenue on Pet Cause A isn’t nearly as important as giving Pet Cause D more than the 2.5 percent earmarked for it, they may find their hands tied.

Of course, they can always add a few dozen more of those “notwithstanding KRS blah-blah-blah, we’re going to take money from A and give it to D” clauses to the budget.

But that in itself argues against specifying how slots revenue will be spent. Some of today’s “earmarks” inevitably will become tomorrow’s “notwithstandings,” leaving the folks whose causes wind up on the losing end feeling like they’ve been shafted once again, generating ill will and an increased lack of trust in the political process.

Beshear’s proposed tax credit for the state portion of the property tax on motor vehicles may placate lawmakers who have insisted on using slots revenue to offset repeal of the motor vehicle tax, but Kentuckians should not be fooled.

When lawmakers — and subsequently, voters — approved a constitutional amendment giving the General Assembly authority to repeal this tax, the implied promise was that quick repeal was forthcoming. Years later, that promise still hasn’t been kept. It should be.

Industry folks may argue the 35 percent tax rate that kicks in after five years under Beshear’s proposal is too high. Coupled with the requirement that about 16 percent of “net terminal revenue” from slots be used for purse supplements, breeding incentives and assorted other benefits for Kentucky’s horse industry, that will leave the tracks with about 49 percent of the revenue.

Before everyone jumps up screaming that 49 percent for the tracks represents an outrageous profit, it’s far from being all profit.

Net terminal revenue is the amount wagered less the 85 percent minimum payout to players. It doesn’t include the cost of building, maintaining and operating the facilities, including personnel costs (which will generate additional revenue for state and local governments through income and payroll taxes). Nor does it include the additional state and local property taxes tracks will pay.

Once those costs come out of the tracks’ share, their real profit will be considerably lower that 49 percent figure. But they will turn a reasonable profit while assuring that Kentucky purses and breeding incentives can compete with those offered by other tracks that benefit from expanded gambling. That should be enough for them.

One of the politically savvy aspects of this proposal is a carryover from the slots bill House Speaker Greg Stumbo introduced in this year’s regular session — using some of the state’s revenue to offset exempting Kentuckians on active military duty from the state income tax.

Senate Republicans have been pushing such an exemption for years. And if it remains in the legislation as it makes its way through the process, it increases the pressure on lawmakers from the Fort Knox and Fort Campbell areas to vote yes.

Hallway chatter has Attorney General Jack Conway issuing an opinion later this week on the legality of approving racetrack slots by statute. Former House Speaker Jody Richards asked for the advisory opinionin response a proposal by Gov. Steve Beshear, backed by current Speaker Greg Stumbo and Speaker Pro Tem, to put the slots issue on the agenda of the special legislative session that begins June 15. When he was AG, Stumbo issued an opinion that a constitutional amendment isn’t necessary to approve expanded gambling. Previous AG opinions had held that an amendment is necessary. Conway is expected to weigh in on the subject Thursday or Friday.

Sunday’s column:

FRANKFORT — For 18 months, I’ve waited (impatiently, at times) for Gov. Steve Beshear to demonstrate a little “damn the consequences” brand of leadership. Thursday, in deciding to push for racetrack slots in the upcoming special legislative session without any certainty of success, he did it.

Where, oh where, has this attitude been hiding?

In many ways, Beshear’s administration resembles the administration of former Gov. Paul Patton. It’s open and accessible. It doesn’t take constructive criticism personally. It rolls with the punches because it knows what comes with the territory it occupies.

But it has been lacking in the boldness Patton demonstrated in successfully pushing through a controversial plan for higher education reform and in volunteering to take the hit for comprehensive tax reform on his way out of office after an extramarital affair effectively ended his political career. (If lawmakers had taken Patton up on his offer, the state’s ongoing revenue woes would have been less severe.)

Thursday, with no cloud hanging over his own head, Beshear channeled some of Patton’s boldness.

“If I had made this decision to put (slots) on the (special session) call on the basis of political considerations,” he told the media, “I probably wouldn’t be standing here today, because it would be much easier to take a pass on this issue that to do what I’m doing today.

“So, this is not about Steve Beshear. This is not about his political future. This is about the future of a vital industry for us, and I’m willing to take the hit. I’ll take the blame or I’ll take the credit, and I’ll share it with anybody who wants it. But it’s time we step up and do the right thing.”

Later, he returned to the same theme.

“I’m not really concerned about where people are going to place the credit or the blame,” he said. “This issue is too important for us to look at in political terms. This issue has a huge economic impact to this state. … We’ve got an industry that employs 100,000 Kentuckians, and we’re seeing it go down the tubes. We cannot stand by and watch that happen. I’m not going to.”

So, what spurred Beshear to action?

A real concern for a Kentucky racing industry that’s in free fall, certainly. But also an understanding of one of the realities of legislative politics that perhaps eluded him in the early days of his administration: You don’t always get an honest answer about where lawmakers stand on a controversial issue until you force them to vote.

“We could spend the next six months talking to legislators and trying to build political support,” Beshear said. “And we likely would be right where we are today — unclear about the chances for passage.”

So, damn the consequences. Let’s force that vote.

Later Thursday, Senate President David Williams played the tax-and-spend liberal by offering a counterproposal that rolled $64 million in new taxes and $19 million in existing revenue into an $83 million bailout for an industry that hasn’t asked for one.

“We’re not looking for a bailout,” Churchill Downs President Bob Evans said at a recent industry press conference. “We’re not requesting … any taxpayer dollars. … All we want to do is to invest about a combined $1 billion of our shareholders’ money, not taxpayers’ money, in one of the bigger multiyear construction projects across the commonwealth. …

“All we want to do is produce thousands of new permanent jobs for the citizens of Kentucky. All we want to do is produce hundreds of millions of dollars of tax revenue for our state each and every year, tax revenues that are desperately needed in this particular economic time. And most importantly, all we want to do is to secure the future and secure the legacy of Kentucky’s horse industry.”

Hmm. A $1 billion private investment in Kentucky’s economy or an $83 million public bailout at a time Kentucky faces massive revenue shortfalls? Easy call.

Regular readers of my columns and the KyKurmudgeon blog know I rarely make hard and fast predictions about anything related to Kentucky politics. Judge James Henry Mulligan didn’t write that “And politics - the damnedest in Kentucky” line because it’s easy to predict political outcomes here.

But I will be very surprised if Gov. Steve Beshear doesn’t add racetrack slots to the special session call he issued Wednesday, and it could come as early as Thursday. Word is his staff has blocked out time both Thursday and Friday for possible announcements of additions to the call that now is limited to balancing the 2010 budget.

And Beshear said in Wednesday’s press conference that the issue is so volatile and contentious that you may never be able to build a consensus “unless you just address it,” a suggestion that he is ready to punch the button on the electronic slots issue and see what happens.

Some members of House Democratic leadership are meeting with Gov. Steve Beshear and a few of this aides in the Governor’s Mansion early Wednesday morning, prior to the governor’s scheduled 10 a.m. meeting with the leadership from both chambers of the General Assembly. The meeting at the Mansion began shortly before 9 a.m. and continues at the moment. The dominant topic of the Mansion meeting was expected to be racetrack slots legislation. Beshear is expected to call a special session to address the state’s revenue shortfall and other possible issues, perhaps including slots legislation, at a press conference Wednesday afternoon.

Today’s column:

FRANKFORT — Catching up from a week of desk work at the mother ship and a subsequent unplanned vacation courtesy of car trouble during a weekend trip to Western Kentucky:

State Senate President David Williams doesn’t want Gov. Steve Beshear to call a June 15 special session of the General Assembly. He’s said so repeatedly, and everyone gets that message.

What we don’t know is why Williams, who has gone to court on more than one occasion to protect the legislature’s power (including challenging a governor’s authority to make spending decisions on his own), seems so adamantly opposed to having lawmakers live up to at least their minimum budgetary responsibilities this time.

Perhaps I should stress “minimum” because lawmakers’ idea of their responsibility might be as minimal as coming to town, passing legislation giving Beshear the authority to deal a projected revenue shortfall for the fiscal year beginning July 1 and going back home.

Of course, that would be an abdication of their responsibility to provide an adequate level of services to the citizens of Kentucky. But hey, since they’ve been abdicating that responsibility forever, why expect them to change now?

Williams is right in saying the Consensus Forecasting Group’s $996 million number overstates the problem facing the state. But because the current budget contains a lot of one-time money that won’t be there next year, the problem is not as small as the $130 million number he tosses around. I suspect the real shortfall is somewhere in the high middle of those two figures.

And the budget bill passed in 2008 contains language that requires Beshear to call a special session if any shortfall exceeds 5 percent of the original revenue estimates for the 2010 fiscal year. This projected shortfall meets that test, so Beshear has no choice but to call lawmakers to the Capitol.

So, why is a Senate president who went to court to challenge gubernatorial authority to make unilateral spending decisions telling Beshear to do just that this time?

Does he think this will give Beshear sole ownership of the pain that accompanies whatever level of spending cuts that are required?

Is he worried Beshear and House Democrats will summon the nerve to send him a racetrack slots bill and thus put the fate of the state’s $4 billion signature industry and the 100,000-plus Kentuckians it employs in his hands?

Or is the June weather in Frankfort just not to his liking?

* * *

One thing Williams doesn’t have to worry about is another tax increase proposal. Both Beshear and House Speaker Greg Stumbo have taken that topic off the table. Both recently said now is not the time to raise taxes on Kentuckians.

I won’t argue with them on that. But now, with the economy Kentucky’s tax structure has relied on for decades crumbled into so much dust, is exactly the time to be discussing comprehensive tax reform, particularly reform that ties into the most recession-resistant sector of the economy — the service sector.

A reform of this nature while revenue neutral at the outset, would grow over time into a more stable and sustainable revenue base for the state.

But Beshear also took tax reform off the table for the special session recently, saying the issue needs an in-depth look over the next few months. Let’s hope the implication of that statement is that the governor thinks more persuasion and arm-twisting are needed before this issue is ripe for consideration because, if he really is suggesting tax reform needs more study, it’s a very lame excuse.

Tax reform has been studied to death for more than 15 years. A new wing of the Capitol Annex could be built just to house the reports of those studies. (OK, that’s a bit of an exaggeration. But you get the point.)

Maybe more political will is needed to bring about comprehensive tax reform, but more study is not.

Wednesday’s column:

FRANKFORT — In and out of special session in five days. Two weeks minimum, maybe more. Slots Bill, a veteran campaigner who has trained often for the Legislative Derby but has yet to leave the gate, doesn’t have the speed to sprint through the House. Slots Bill will breeze through the House with speed to spare, allowing some of his secret admirers to avoid risking a bet on him.

If Slots Bill gets through the House, he will fade fast in the Senate stretch. Slots Bill could have an easier time in the Senate than in the House.

As these contradictory comments suggest, if you can imagine it, it’s probably been uttered in the halls of state power the past couple of days. And generally speaking, you take it all with a healthy helping of that staple one company peddles with the aid of a girl, her umbrella and the slogan “When it rains, it pours.”

All except this:

If Gov. Steve Beshear, House Speaker Greg Stumbo and the horse industry (Ol’ Slots’ current trainer, jockey and owners) seriously want him to win this race, they better have him leading or at least in a dead heat with Budget Reduction when the field makes the turn for home. Let Budget Reduction round the turn first, and the Senate might declare him a winner, distribute the purse and send its folks home before Slots appears before them.

If I were training or riding Slots, I would want him deep into the stretch before Budget Reduction enters it. That way, a Senate that acts with warp speed on a revised $9 billion General Fund budget would look a tad hypocritical if it tried to us lack of time as an excuse for not dealing with Ol’ Slots.

But if you see Slots Bill trailing Budget Reduction in the race to the Senate, you can draw one of two conclusions. His camp either has lost its will to win, or it has lost its collective horse sense.

Either would be unfortunate because the stars seem to align themselves better for Slots Bill this year than at any time in the past.

Recent events have clarified the gravity of the crisis facing the Kentucky’s racing industry due to the competitive advantage racino tracks have in offering purses and breeding incentives. Those same events — shortened fields, canceled races and race dates — have built momentum for giving Kentucky tracks the tools to compete.

Attorney General Jack Conway’s opinion, issued Monday, concluding that enacting expanded gambling statutorily is constitutional improved Slots Bills’ a bit.

Permit me an aside here. To be honest, the longer Conway delayed releasing this opinion, the more I wondered if his U.S. Senate aspirations might have him looking for a way to dodge the issue. My bad.

His office produced a sound, reasoned opinion that took a strong stand on a controversial matter. And although he didn’t write the opinion himself, he will take the political hit for it.

He didn’t have to do so. He could have used his father’s involvement in racing and membership on the Kentucky Horse Racing Commission as an excuse to claim a conflict of interest and avoid the issue completely.

Instead, he sought advice from the Executive Branch Ethics Commission staff. And when John Steffen, the commission’s executive director, told him in a letter that any potential for conflict of interest was not “substantial or material,” Conway stepped up and did his job, despite the potential consequences for his Senate campaign. That moved him up the stature scale a bit.

Now, back to Slots Bill’s bid to win the Legislative Derby.

I thought Beshear missed an excellent opportunity to stress the urgency of the horse industry’s crisis during his address to a joint session of the General Assembly Monday night.

An alarm going off somewhere in the Capitol caused Beshear to hesitate a few moments before beginning his speech. What a great time to say, “Hear that. It’s a call to action in this emergency.”