A nonprofit publication of the Kentucky Center for Public Service Journalism

Commentary: Ky. can’t miss the opportunity to bring $100 million to schools, public services this session

By Members of the Kentucky General Assembly
Special to KyForward

The Kentucky Supreme Court’s recent ruling that historical horse racing (HHR) slot machines do not meet the definition of pari-mutuel wagering puts the responsibility on the General Assembly to act and clarify their legality. We must do so this session, and ensure continued support for our valued horse industry.

At the same time, we must also correct a mistake of the past and increase the outrageously low tax rate on these machines so that our schools, health, and other vital services benefit as well. That low rate has allowed large casino corporations to make enormous profits from HHR even while our essential public investments are shortchanged.

Betting on HHR slot machines has grown 463% in the last 5 years, and will total approximately $3.6 billion this year. That’s three times more than Kentuckians will buy in lottery tickets, and twice what is bet on the lottery and live horse racing combined. The Racing Commission has approved thousands more of these machines, so those numbers will only go up, especially after the General Assembly gives the green light by addressing the court ruling.

Yet the state budget collected only $15 million in General Fund tax revenue from these machines in 2020, compared to $274 million from the lottery.

That’s because the tax rate equals only 18% of gross commission, of which only 8% goes to the state budget, with the rest going back to the industry. That’s far lower than nearby states’ tax rates on slot machines. For example, slots are taxed at 33.5% in Ohio, up to 40% in Indiana, up to 50% in Illinois, 53.5% in West Virginia and 55% in Pennsylvania. Other top horse racing states also tax slot machines at much higher rates than we do: Maryland at up to 61%, New York at up to 65% and Florida at 35%. And none of Kentucky’s taxes go to local governments, unlike in many other states.

Clarifying the legality of HHR will allow the continued growth of dollars to purses for winning horses and for breeding. And increasing the tax will allow us to reinvest in our schools, human services, health care and infrastructure at the same time. Other states are using that combined formula successfully, but Kentucky is falling behind.

A longtime argument for casino gambling in Kentucky was that while these activities have social costs, people are crossing the borders into Ohio, Indiana and other states to play them regardless — giving our neighboring states the tax revenue. Through the backdoor method of HHR slot machines, we now have slots in Kentucky. But because of the egregiously low tax rate, we are not seeing the tax revenue we should. We’re paying the social costs of gambling but receiving almost none of the benefits.

Just increasing the tax on HHR slot machines to be on par with nearby states would raise approximately $100 million annually for education, healthcare and other key public investments across the commonwealth. That revenue would make a major positive difference after a decade of painful budget cuts, allowing us to do things like address the unemployment crisis by modernizing our unemployment system and reopening career centers. Revenue would grow further in the future after the legality of HHR is addressed.

When the existing tax rate on HHR slot machines was established, the explosive growth that would follow was not foreseen. It’s resulted in enormous profits for large gambling corporations even while the General Assembly has had to make harmful cuts to critical public services. The CEO of the primary corporation running these slot machines, Churchill Downs, made $10.6 million last year even while the median employee at the company made just $23,670. Churchill Downs has seen its stock price soar 400% in the last 5 years thanks in large part to slots.

We must show leadership now. We have a chance to correct our mistake this legislative session and ensure Kentucky is getting its fair share.

Doing so will allow us to reinvest in our kids, our communities, our health, and our economy at one of the most critical moments of this century. It’s the only politically feasible opportunity in the near future to raise real new tax revenue that Kentucky and Kentuckians so desperately need.

We support Kentucky’s horse industry. Now we’re asking the horse industry to support the people of Kentucky.

Signed, Members of the Kentucky House of Representatives:

Tina Bojanowski, District 32

George Brown, Jr., District 77

Tom Burch, District 30

Jeffery Donohue, District 37

Kelly Flood, District 75

Nima Kulkarni, District 40

Mary Lou Marzian, District 34

Reginald Meeks, District 42

Charlie Miller, District 28

Patti Minter, District 20

Josie Raymond, District 31

Attica Scott, District 41

Buddy Wheatley, District 65

Lisa Willner, District 35

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