HHR Passes Ky House 55-38 After Emotional Debate

The bill to legalize historical horse race (HHR) gaming in Kentucky by defining “pari-mutuel wagering” to include previously run races passed in the House of Representatives by a 55-38 vote shortly after 8 p.m. Thursday, with seven legislators not casting votes.

Capping an emotional and contentious—but always civil—floor debate that stretched over three hours Feb. 11, the most controversial bill of the 2021 Kentucky legislative session now heads to Governor Andy Beshear, who has previously indicated support for keeping HHR intact in Kentucky.

The passage of SB 120 this week by both the Senate and House clears the way for the continued operation of the 3,625 HHR machines at six licensed venues so they can keep generating $2.2. billion in annual handle. The Kentucky Thoroughbred Development Fund's purse-money cut from HHR is three-quarters of 1% of that handle.

But even as the issue was being debated, some legislators expressed a certainty while speaking from the House floor that the pending HHR law was sure to be litigated in the courts, continuing a 10-year legal odyssey in the state over whether the slot machine-like gambling machines are legal under the state's constitution.

Other representatives vowed to pursue changes to state law to make HHR's continued operation more profitable for the state by filing legislation that would raise Kentucky's tax on HHR higher than the current 1.5% of the handle.

Proponents hit repeatedly on the need to preserve one of Kentucky's signature industries, and painted dire pictures of what would happen to constituents if the Thoroughbred industry and all of its ancillary industries and small businesses were allowed to slip off the grid by taking away HHR, which has been operating under questionable legal status since 2012.

Opponents of SB 120 presented wide-ranging arguments against enabling HHR to continue. Among them were religious convictions against gambling, broadsides against corporate greed (that legislators aimed at HHR licensees), the interpretation that the Kentucky constitution forbids HHR, the fact that litigation is ongoing over HHR and thus should not be voted upon, and a moral emphasis on “the rule of law” versus “too big to fail.”

Rep. Matthew Koch (R-Paris) set the pro-bill tone early in the debate by asking fellow legislators to envision a debilitated Kentucky in which breeders, owners, and the tracks would vacate the state in droves if HHR were allowed to vanish.

“Let me remind you that while Kentucky is the best place to raise a horse, it is not the only place that you can raise a horse,” Koch said. “And we have to fight to keep that here. “[If] we've got no horses, you have no barns. You have no fences, no hay, no straw. No blacksmiths, no veterinarians, no equine transportation. No trainers. No tourism dollars. And when you don't have any of that, you don't have any sales tax on it, either. That's less tax revenue for Kentucky.

“And I can't imagine a more dangerous time to cripple our industry,' Koch continued. “I cannot imagine sitting here today and voting to put Kentucky families on unemployment. Not now. This bill is about fighting for jobs in our signature industry.

“And I'm going to end this with two questions,” Koch summed up. “What would anyone in this body do, and how hard would we fight, to bring an industry [to] this state right now that was bringing several thousand jobs with it? And I think we all know the answer for that.”

Opponents didn't buy that line of reasoning. David Hale (R-Wellington), who is recovering from lingering effects of COVID-19, said he had someone drive him in an ice storm to Frankfort on Thursday just to take an impassioned speech against allowing HHR to operate, even if it's the last speech he ever makes on the House floor. After another legislator described Kentucky's tracks as having acted in “good faith” regarding HHR while the legality of the machines was being litigated, Hale let forth with the following bit of bombast:

“Would somebody please give me a break?” Hale railed. “Doing this in good faith? When over and over and over they were told that you're doing something that's illegal? Time after time, year after year, the courts kept telling them you're…operating something that is not legal under the law, you must cease. And they snubbed their nose at it again time after time—and now they're in trouble financially.”

HHR was put into its deepest peril on Jan. 21, when the Kentucky Supreme Court denied a petition for rehearing an earlier 7-0 judgment that called into question the legality of HHR because it didn't amount to “pari-mutuel wagering.”

SB 120 was designed to make HHR compliant with that Supreme Court ruling by defining “pari-mutuel” for the first time within state statutes. The proposed fix was achieved by including “previously run” races within the definition. Kentucky's constitution only allows for pari-mutuel betting, the state-run lottery, and charitable gaming.

That measure passed the Senate 22-15 on Feb. 9, and on Thursday, the House began its 2 p.m. session by voting in a series of unrelated bills that had little or no opposition. Prior to the highly anticipated vote on SB 120 however, the House went into an unexpected recess that lasted well over an hour.

As the delay stretched to the 5 p.m. mark, speculation began to mount on social media that Republican leaders were calling upon individual members to ascertain that the House had enough votes to favorably carry the HHR measure, which had been considered an iffy proposition in that chamber.

When the session resumed around 5 p.m., the House first detoured to take up HB 226, whose title pertains to charitable gaming. The key points of the measure would 1) Triple the excise tax on advance deposit wagering (ADW) from 0.5 to 1.5%, and 2) Put the Kentucky Horse Racing Commission under executive branch ethics rules, a move that Kentucky transparency advocates have called for in previous legislative sessions.

House Speaker David Osborne (R-Prospect) explained how the ADW taxation in reality pertained more germanely to SB 120. But because Kentucky stipulates that any revenue-related measures have to originate in the House and not the Senate, those issues were taken up in HB 226. Osborne said the increased tax would generate approximately $6 million in revenue for Kentucky.

But Osborne also added that the purpose of hitting the tracks with a higher tax also served as a “motivating factor.” Although he did not explain what he meant by that term, presumably he was referring to a way to politically incentivize revenue-conscious, on-the-fence House members to vote in favor of SB 120.

HB 226 then passed 73-15, advancing to the Senate for consideration.

When debate on SB 120 finally began, Rep. Adam Koenig (R-Erlanger), continued on the theme of the legislature needing to clarify and adjust the confusing system of taxes related to horse race betting by pointing out that a task force is slated to be created next week to more fully explore the tax structure on HHR.

Koenig then continued Koch's line of reasoning (outlined above) about how legislators needed to look beyond the immediate perils of not voting for HHR, urging fellow representatives to think about the bigger picture.

“It's easy to point to the direct jobs and the direct money,” Koenig said. “But there's so many other jobs that come from this. But if you don't have [a racing industry] left to tax, you lose it all. And some of it will be immediate, and the rest will come slowly. But we will see it reflected in our budgets. We will see it reflected on the farms.”

Opponents however, continued to chip away at what they believed was the unconstitutionality of letting HHR operate.

Rep. James Tipton (R-Taylorsville) asked if bill was written to conform to the way HHR is being conducted or if was written to conform to the Supreme Court's ruling on what constituted pari-mutuel wagering.

“I'm going to make one prediction: Should this legislation pass, there will be litigation,” Tipton said.

Rep. Jennifer Decker (R-Waddy) said that defining pari-mutuel in a way that the Supreme Court has already defined as being illegal is “hard to take in a nation built on the rule of law.”

Decker recited an old Abe Lincoln anecdote to underscore her point about how you can't change reality simply by redefining it. She said Lincoln once asked rhetorically, “How many legs does a dog have if you call a tail a leg? Four. Because calling a tail a leg does not make it a leg.”

Several amendments were proposed on the floor. A couple got shot down for constitutional reasons. One that came up for a vote but failed, 49-36, would have attached a new level of transparency to the bill by mandating “that communication between the racing commission and licensees shall not be considered confidential and shall be subject to” Kentucky open records laws.

Several legislators, including Rep. Mary Lou Marzian (D-Louisville), whose district includes Churchill Downs, said that she wants to hold the tracks to their word that they are “committed” to making tax changes to HHR.

INDUSTRY STATEMENTS FOR PASSING LEGISLATION TO SAVE HHR:

KEEP
The Kentucky Equine Education Project (KEEP), Kentucky's equine economic advocate, released the following statement today following the Senate's passage of Senate Bill 120:

“Thank you to our representatives in the House for acting in Kentuckians' best interests and passing critical legislation to keep historical horse racing in the commonwealth. This is great news for the 1,400 people employed directly by historical horse racing and the tens of thousands more who rely on the horse industry to provide for their families.

“The Supreme Court's ruling on HHR last year brought major uncertainty to our employees, local businesses, communities and our industry as a whole. We applaud the General Assembly for acting swiftly to maintain the status quo of historical horse racing that the Kentucky has known for the last 10 years. With the passage of SB 120, we are confident about the future of Kentucky racing and our ability to continue bringing new jobs and economic growth to our communities across the commonwealth.

“Gov. Beshear has been vocal in his support of historical horse racing and its positive impacts on our state, and we look forward to seeing SB 120 signed into law.”

KENTUCKY TRACKS: CHURCHILL DOWNS, KEENELAND, ELLIS, RED MILE, KENTUCKY DOWNS
“On behalf of our team members, our horsemen and all of the citizens of the Commonwealth who earn their pay checks directly or indirectly from the horse industry, we applaud the Kentucky House of Representatives for the passage today of SB 120. The future of the Commonwealth's signature industry and those who support it is secure. We had extensive discussions with Governor Beshear and given his longstanding and unwavering support of the horse industry, we anticipate that he will sign SB 120 into law.

“We express our profound gratitude to bill sponsor Senator Schickel, President Stivers and Minority Leader McGarvey of the Kentucky Senate and Speaker Osbourne and Minority Leader Jenkins of the Kentucky House of Representatives for their leadership in securing SB 120's passage in the General Assembly.

“On behalf of the Commonwealth's race tracks, we also confirm and reiterate our discussions with Governor Beshear, Minority Leader McGarvey and Minority Leader Jenkins that we will work constructively to revise and raise the tax structure on historical racing machines, including consideration of a fair and equitable graduated tax structure. We look forward to those discussions in the near term and confirm our commitment to the Commonwealth to build on our tax and job base through sound capital investments and good corporate citizenship.”

J DAVID RICHARDSON, BILL LANDES, DELL HANCOCK, DOUG HENDRICKSON, BRAXTON LYNCH, POPE MCLEAN JR. & BEN HUFFMAN
“We commend the tireless effort and professionalism of the KTA-KTOB's Director, Chauncey Morris, in helping secure the passage of Historical Horse through racing remediation in both the Kentucky State Senate and the Kentucky House of Representatives. Chauncey has worked effectively in mobilizing his Board members to work with other industry representatives to educate about the vital importance of HHR. We look forward to his continued service in the years to come.”

CHURCHILL DOWNS INC. CEO BILL CARSTANJEN
“I commend the House for their action today that keeps historical horse racing in Kentucky, preserves the strength of our state's signature industry and protects thousands of jobs that are dependent upon it. With the passage of Senate Bill 120 in the Senate and now the House, our legislators have made clear their support of historical horse racing in the Commonwealth.

“I wish to personally thank Governor Beshear for his unwavering support of the horse industry and the leadership of bill sponsor Senator Schickel, President Stivers, Majority Leader Thayer and Minority Leader McGarvey, of the Kentucky Senate as well as Speaker Osbourne and Minority Leader Jenkins of the Kentucky House of Representatives in securing SB 120's passage in the General Assembly today. We, of course, look forward to Governor Beshear's signage of SB 120, which he has stated publicly he will do.

“Tens of thousands of Kentuckians have contributed to the growth and success of our racing circuit and equine industry. I am thankful not only for the important work they do each day to keep our industry moving forward, but for taking the time to reach out to their legislators on this critical issue. Your voices truly made a difference in the effort to keep HHR in Kentucky.

“Following discussions today with Governor Beshear, Minority Leader McGarvey and Minority Leader Jenkins, I reiterate our commitment to working constructively to revise and raise the tax structure on historical racing machines, including consideration of a fair and equitable graduated tax structure. Additionally, I reaffirm our commitment, upon SB 120 becoming law, to immediately reengage on our capital investment project planning in Kentucky which, in turn, when implemented will create millions of dollars in economic impact and hundreds of construction and permanent jobs in the Commonwealth.

“I look forward to moving on from the uncertainty our industry has faced over the past several months and to our continued investment in the Commonwealth of Kentucky.”

KENTUCKY HORSEMEN'S BENEVOLENT & PROTECTIVE ASSOCIATION
“Horsemen across Kentucky, and those across the nation who race in the Commonwealth, should be so proud of the Republican and Democratic leadership in the Kentucky House for shepherding passage of SB 120. As Rep. Adam Koenig and others so eloquently expressed, Sen. John Schickel's bill is imperative to securing the future for a signature Kentucky industry and the tens of thousands of jobs and billions of dollars it preserves and creates in economic development, agribusiness and tourism for our state.

With this clarification of what constitutes parimutuel wagering and resulting protection for Historical Horse Racing, Kentucky racing can continue its upward trajectory as America's premier racing circuit–and thanks to SB 120 we will have a strong year-round circuit. Passage of this bill not only protects the livelihoods of countless Kentuckians, but also avoids what would be a devastating loss in business to the thousands of small business owners and vendors who directly and indirectly benefit from the horse and racing industries.”