For the second year in a row, the Kentucky Breeders' Incentive Fund is facing a double whammy that will mean about a 30 percent drop in available money next year.
Jamie Eads, director of the fund, said registration of Thoroughbred mares to participate in the fund is down about 10 percent and stallion registrations are down 6 percent, with seven stallions leaving Kentucky for Pennsylvania.
Fewer than 10,000 mares were signed up by the August deadline; to be eligible, mares must remain in Kentucky until they foal.
"We feel like the mares are the economic drivers in this state," Eads told lawmakers on Tuesday. And while seven stallions doesn't sound like much, she said, it is expected to cost Kentucky about $200,000 in revenue.
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The equine incentives are funded by the 6 percent sales tax on stud fees, with 80 percent going to Thoroughbreds, 13 percent to Standardbreds for their annual Sire Stakes, and 7 percent divided among a variety of other breeds such as quarter horses, walking horses and saddlebreds.
The drop in breeding, coupled with a continuing decline in stud fees, particularly at the top end of the market dominated by Kentucky, means the state is expecting to have about $9 million for Thoroughbreds in 2011.
In March, the fund distributed about $15 million for Thoroughbred awards earned in 2008; next spring, the fund will have about $13 million to pay out for awards earned in 2009.
The state is competing for a shrinking pool of Thoroughbred mares. According to The Jockey Club, about 13.5 percent fewer mares were bred nationally this year. About 2,300 fewer mares were bred in Kentucky this year than in 2008.
Eads said that the numbers of foals born in Kentucky is dropping faster, a sign that mares are being sent to other states to foal.
Since 2006, the state has used the breeders' incentive fund to encourage breeders to bring mares to Kentucky stallions and keep them here year-round. But now Kentucky is going up against states like Pennsylvania, which will have more than $20 million in incentives spread out over a much smaller population of horses.
Unlike Kentucky's fund, Pennsylvania's is boosted by the proceeds of expanded gambling. But the economy has taken a toll: Pennsylvania's budget-strapped state lawmakers recently voted to reduce funding for the next four years, a move Pennsylvania horsemen say will reduce their competitiveness.
Even so, Kentucky Thoroughbred breeders say they need slots at racetracks to keep up.
"We must match other state-bred programs out there," Matt Koch, president of the Kentucky Thoroughbred Farm Managers Club, told lawmakers.
"Very few farms can sustain another year like 2009," Koch, who owns Shawhan Place Farm in Paris, said, adding that he has lost mares and cut staff to stay afloat. "I don't see anything else (but expanded gambling) that can save my auction results next year."
There are competing proposals for how best to help.
A constitutional amendment proposed by Republican Sen. Damon Thayer, the sponsor of the original breeders' incentive fund, would allow slot machines in Kentucky counties with racetracks and put 25 percent of the proceeds into purse supports, incentives and marketing.
However, the horsemen favor giving racetracks sole rights to video slots, which the racing industry says would be more lucrative for them.
Tim Capps, an economics professor at the University of Louisville, said the immediate danger is not to big breeding farms like Lane's End or WinStar, which dominate breeding statistics with high-end stallions, but to those like Koch's.
"I don't think the top tier of Kentucky breeding is threatened at the moment. I don't think they are likely to send top sires to other states," Capps said. "But you are not going to bleed to death by stab wounds; you are going to bleed to death by razor cuts. The lower end of the market is going to be affected. It's the rest of the program, which is the bulk of the program."
To shore up the fund, Thayer suggested cutting back to $50,000 from $100,000 the bonus paid for a Kentucky-born Kentucky Derby or Kentucky Oaks winner. Other possible revisions: finding a way to tax foal-sharing and other non-cash breeding partnerships where no stud fee changes hands.