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12 Casinos Possible for Kentucky

February 17, 2008

Gov. Steve Beshear unveiled his long-awaited plan for expanded gambling yesterday, proposing up to 12 casinos that could generate as much as $600 million a year in revenue for the state. Beshear said the state needs casino gambling to work its way out of the "financial quagmire" that plagues it. And he said it will allow Kentucky to compete with neighboring states that have made hundreds of millions of dollars from casinos.

"I am proposing that we get off the fence one way or the other because other states are leaving us behind," he said at a news conference.

His announcement opened what almost certainly will be the most divisive battle of this legislative session. And it brought immediate criticism.

"It's not going to pass the House, and it's surely not going to pass the Senate," said Senate President David Williams, R-Burkesville.

Still, with the support of a first-year Democratic governor who made it a centerpiece of his campaign, casino gambling has its best chance of success after falling by the wayside in previous sessions. Beshear pledged to lobby legislators for his proposals, which would allow both slots and table games at the casinos.

His proposals would face a tougher battle in the Republican-majority Senate if they pass the Democrat-led House.

Beshear's plan would allow seven racetrack-operated casinos and five free-standing gambling halls. The estimated annual revenue is 20 percent more than the $500 million Beshear cited in his campaign.

The proposed constitutional amendment would allow Kentucky to join border states like Indiana, Illinois, Missouri and West Virginia that have expanded gambling.

To get as far as a statewide vote in November, the amendment requires a three-fifths majority in both the House and Senate. The companion bill that spells out details of the proposal would require a majority in each chamber. Beshear left open the option of dealing with the enabling bill during another session after the amendment is considered by voters.

"For too long the people's wishes conveyed through surveys and trips to casinos on our borders have been pushed aside," he said. "For too long this revenue option has been ignored while we've hemmed and hawed. It is time for resolution."

The effective casino tax rate proposed by Beshear -- 50.65 percent -- would be one of the highest in the country.

The casinos could also face the challenge of having in-state competitors nearby. Turfway Park in Florence would be near a Kenton or Campbell county casino. In Western Kentucky, Ellis Park in Henderson could compete with a casino in neighboring Daviess County. Casinos along the Ohio River would also compete with those in Southern Indiana and Illinois. Potential racetrack operators at Churchill Downs, Turfway and Ellis all said they believe they could be profitable under the plan.

"We're very happy that the governor has taken a leadership role in this and that we have an opportunity to put this before the voters of the commonwealth of Kentucky," said Kevin Flanery, vice president of national public affairs for Churchill Downs Inc. "And we're very encouraged that this is a great first step."

Churchill would compete against a Harrison County, Ind., casino with an effective tax rate below 30 percent, but Flanery said the Louisville-based track operator could be successful.

"Part of it is where we're located," he said. "Part of it is the facility that we have. Part of it is that we have the Churchill Downs brand. People know us. They trust us."

He said Churchill will evaluate the governor's proposal before determining how much it would invest, what its development would include -- such as a hotel -- and where it would be built.

Flanery said Churchill's preference is to develop a casino at the Central Avenue track. But since the bill would allow the casino to be elsewhere in Jefferson County, the company will consider what's best for itself, Louisville and the state.

The amendment calls for 50 percent of the tax revenues to go to education, 20 percent to health care, 13 percent to local governments and 17 percent for other government programs.

For the first five years the tax rates would be 10 percentage points lower, Beshear said, to offset licensing fees and start-up costs. He said he wanted all casinos to be on a level playing field.

The racetrack operators, however, would benefit from having 15.65 percentage points of their 50.65 percent in taxes being returned to the horse industry. Some of the money would go to thoroughbred and standardbred purses.

Beshear defended returning some money to tracks, saying the difference wouldn't disadvantage nontrack casinos.

The racetrack licenses would produce one-time payments totaling $500 million, with the Lexington tracks -- Keeneland and The Red Mile -- sharing a license. That Lexington license and the one for Churchill Downs would cost the most, at $100 million each.

The tracks could build on their property or elsewhere in their county, if the local legislative body agrees.

The five free-standing casinos would be awarded in a competitive bidding process established by a new Gaming Commission. Beshear said his administration projects those five licenses could generate $328.7 million. They would be in Daviess County, Christian County, Kenton or Campbell county, Boyd or Greenup county, and Laurel or Whitley county. Those casinos would be subject to a referendum in the city or county where they would be located.

Ultimately, if all 12 casinos were built, Beshear said the state budget office projects that the casinos could produce up to $599.3 million a year from wagering taxes and license fees. The license fees would produce $500.9 million in 2008-09 and, combined with taxes, $481.9 million in 2009-10.