New legislation that Rep. Greg Stumbo, D-Prestonsburg, plans to file for the upcoming legislative session would pour $15 million to $20 million from video lottery terminals into horse racing purses, something Kentucky racetracks say they desperately need to compete.
"I'm convinced if we don't do something, we're going to lose our horse industry," Stumbo said in an interview last week. "We may end up with just two tracks."
His proposal also would bring in nearly $300 million in new revenue for the state to put toward needs such as education and prisons at a time when Kentucky is facing huge budget shortfalls.
"Racino" states such as Indiana, Pennsylvania and New York are ramping up competition for the state's racehorses and breeding industry with purses and incentives fueled by expanded gambling.
A task force appointed by Gov. Steve Beshear to look at horse racing recommended increasing purses on Monday but did not offer any suggestions to pay for more prize money.
A draft of Stumbo's bill proposes to dedicate 80 percent of the racetracks' video lottery terminals revenue to purse enhancements, but Stumbo said that specifics of how to spend the money are still being debated.
The racing industry supports the measure.
"It may be too late to save the Thoroughbred industry, but from my perspective as a Kentuckian, I want to give us a chance to compete. It would be a shame to let this go through lack of action," said Ron Geary, owner of Ellis Park in Henderson. "I'm hoping there may be a change of attitude as far as saving the horse industry ... This bill makes so much sense."
Geary, the other racetracks, and horse industry groups have lobbied unsuccessfully for expanded gambling for at least a decade. More than a dozen states, including major racing states such as New York, Florida, Illinois and Louisiana, have some type of alternative gambling that could shore up purses.
"We are obviously hopeful the legislature is willing to improve our competitive position as it relates to surrounding states," said Patrick Neely, spokesman for the Kentucky Equine Education Project, which has lobbied for expanded gambling. "The governor's task force made it perfectly clear: The surrounding states are doing all they can to take our horses."
As Keeneland president Nick Nicholson put it last week in the report to Beshear, "The threat to Kentucky's horse industry is very real and it's not long-term; it's imminent."
Numbers compiled by the task force found that, because of recently added slots, purses in Indiana and Pennsylvania are expected to more than double next year. New York has awarded a contract for its Aqueduct racino and Gov. David Paterson on Tuesday proposed adding another at Belmont. Maryland voted to expand gambling in November, making Kentucky the only Triple Crown state without gambling-supported racing.
Beshear said Monday that he will not look to expanded gambling to address the state's $456 million budget shortfall for this fiscal year, which ends June 30.
But Stumbo said he thinks gambling revenue could be needed down the road. "We could limp through this fiscal year, but what happens next year if this doubles? We could be facing a billion-dollar shortfall next year," he said.
Stumbo, who is challenging Democratic Rep. Jody Richards of Bowling Green for Speaker of the House, said he will file the bill regardless of who wins that contest.
The bill would allow video lottery terminals at racetracks but not at any free-standing casino locations.
The video lottery terminals, which resemble electronic slot machines, would be regulated by the Kentucky Lottery Corporation, under the legislation. As attorney general, Stumbo issued an opinion that such lottery-style games would not require an amendment to the state constitution to be legal.
Stumbo said he's hearing support for his proposal from members of the House and the Senate, and claims that this approach to expanded gambling does not carry the same stigma that doomed Beshear's attempt earlier this year to bring casinos to the state.
Senate president David Williams, R-Burkesville, declined to comment. Williams has long opposed expanded gambling.
Sen. Damon Thayer, R-Georgetown, said he still thinks a public vote on a constitutional amendment is needed to expand gambling, but he also thinks Stumbo's bill will refocus the debate on the need for purse subsidies at racetracks. "I hope we can get away from this silly debate on other casinos," Thayer said.
The Legislative Research Commission estimates Stumbo's legislation could generate up to $400 million annually in revenue for the state; about $110 million of that would replace revenue from the state's portion of property taxes on motor vehicles and boats, which the bill would scrap.
According to the draft of Stumbo's bill, the replacement revenue to the General Fund would come off the top. After that, 30 percent of the rest would go back to the tracks. Another 15 percent, or up to a maximum of $25 million, would go to drug and alcohol rehabilitation, while 15 percent, or up to $25 million, would go to counties to pay for the housing of state inmates in jails.
Four percent, or up to a maximum of $2.5 million, would be used to treat problem gambling, with the remaining 1 percent, or up to $2.5 million, going to Kentucky PRIDE, which cleans up dumps and addresses other environmental problems.
Any remaining money would go to the state Department of Education.
Estimates from the racetracks have said the state would get between $600 million and $700 million, Stumbo said.
He said the tracks are prepared to make significant investments in video lottery terminal facilities, which would have to be located on the racetracks' grounds. Churchill Downs in Louisville is talking about a potential $900 million investment, Stumbo said. The Lexington racetracks, which would have to share a license although they could put machines at both tracks, are talking about $750 million, as is Turfway Park in Northern Kentucky, he said.