Gaming Analysis - by Nick Nicholson

Picking up a newspaper or turning on the television to learn today's bad economic news has become part of our daily lives. It is not exclusively a Kentucky problem by any stretch of the imagination. In Kentucky, as in other states, government officials are forced to make difficult decisions.

At the same time, I am aware of no knowledgeable expert who believes that Kentucky’s recent tax increases and budget cuts will be sufficient to solve this crisis in the long term. In fact, even the proponents refer to them as “a good beginning.”

For the most part, it appears that we are limited to only two choices: deeper and deeper cuts in our state programs, including all levels of education, where no one wants to make cuts; or broad-based tax increases. This is not a situation any government official enjoys or prefers. Every member of the General Assembly wants a better Kentucky. We all do.

Kentucky is not alone in experiencing budgetary shortfalls. Other states are as well. It would be helpful to look at what they have done.

Of the 12 states closest to Kentucky that engage in horse racing, 11 have implemented some type of expanded gaming. They have done so to generate new state revenues while preserving existing jobs and creating new employment opportunities. 

These are not radical or “liberal” states. In fact, they are much like Kentucky. The list includes Arkansas, Illinois, Indiana, West Virginia, Louisiana, Florida, Maryland, Delaware, Pennsylvania, New Jersey, and New York. At this point, only Ohio and Kentucky have decided not to seize the concept.

So, let’s analyze why Kentucky should join these states and pursue expanded gaming.

The first reason is new revenue to state government. Independent economic analysts have projected that House Speaker Greg Stumbo’s House Bill 158 to allow video lottery terminals at existing racetracks would generate more than $200 million per year in direct new state revenue from the tax (or as the Speaker accurately calls it, a user fee from willing adults who choose to take advantage of this type of entertainment). This estimate does not include the economic benefit from the jobs created by the facilities' operations.    

The second priority, and a real benefit to the state, will come from funds set aside to spark economic development in Kentucky’s horse industry. This aspect of the program is in every sense of the word a “Kentucky Jobs Bill.” Any well-considered jobs bill is best if the impact of the jobs has economic diversity. That certainly is the case with this proposal. Raising horses and all of the related services and supplies are, by-and-large, a rural activity. The showcasing of the product—racing—is largely an urban activity. As a result, these jobs have a statewide impact in the sense of helping both rural and urban Kentucky.

There is also great diversity within the various levels of employment, with positions ranging from entry level agricultural jobs all the way up to the most skilled professions: equine surgeons and other veterinarians, lawyers, doctors, and accountants. If you are at the top of your profession in the horse world in Central Kentucky, you are at the pinnacle of your peers. Your expertise is sought after worldwide, and it is just one more source of net-positive economic infusion that the business brings to the state. So it is not an exaggeration to say that the impact of these jobs on Kentucky is wide and deep.

Here we have a proposal different from what we read and hear about every day. There are no program cuts, no involuntary tax increases, and no large government expenditures. There is also no geographical expansion of gambling. The venues stay the same; the menu is simply expanded.

There are three characteristics that this proposal has that compare favorably to other ideas being considered: create substantial new state revenue through voluntary user fees, save and create new Kentucky jobs, and require no government funds. All of the investment will come from the private sector: no bailout funds, no government investment, and no government risk.

While this proposal will generate considerable revenue, I think it is equally important for us to be responsible and say it will not solve all of Kentucky’s problems. Yet there is no good, sound reason that this should not be a part of the package as Kentucky works its way through these tough times.

Nick Nicholson is president and CEO of the Keeneland Association.

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