The big news yesterday and today is that state Senate leadership has proposed two constitutional amendments to be considered during the coming legislative session.
While the Kentucky Club for Growth generally ignores this issue, we thought we'd offer our analysis of this particular proposal from a perspective of economic liberty.
The proposal put forward has two parts. The first part is an amendment from Sen. Damon Thayer that would allow casinos in each of the seven counties with racetracks.:
His proposal calls for allowing video lottery terminals in each of the seven counties that currently have live racing. The gaming would be administered by the state lottery, and the seven gaming licenses would be put to bid.
Thayer's proposal calls for putting the constitutional amendment on the November 2010 ballot. It also requires a local option, so voters in each county would have to approve gaming if the amendment passes.
The constitutional amendment would require 25 percent (or at least $100 million) of gaming revenue be dedicated to the Kentucky Equine Excellence Program (KEEP), and 25 percent to the gaming operator. The remaining 50 percent would go to the Building Kentucky's Future Fund to pay for capital projects and pay off debt.
Revenue from license fees would be distributed 50/50 to KEEP and to the Building Kentucky's Future Fund.
The second part is an amendment from Senate President David Williams that would subject any expansion of gambling to a statewide popular vote on the issue.
Let's examine the elements of Thayer's proposal:
A constitutional amendment is certainly a vehicle that allows Kentucky's voters to have their say on the issue.
Limiting VLTs to the seven counties that already have live racing is certainly a limitation on the effectiveness of the VLTs. Numerous studies suggest that expanded gambling is generally a net economic loss for a state as local commerce is displaced. However, the loss can be replaced by commerce generated by tourism if travel to the gaming establishments is sufficiently high. Two of the more obvious locations to generate tourism -- north of Nashville and Ashland -- are not included in the seven counties that currently host live racing.
Allowing the state lottery to administer the VLTs makes some sense, but the commission will need to expand and require significantly greater transparency and stricter ethics requirements.
Putting the seven licenses to bid is the proper way to distribute new licenses. It allows the state to maximize the benefit to the taxpayer and allows fair competition to offer the new entertainment services.
Requiring a local option allows local constituencies to reject the casinos. This would seem a necessary part of any expansion. The local governments should be guaranteed some portion of revenues from the local VLTs, however.
The 75% tax on revenues is extremely high, much higher than any other state. The way it is constructed, with 25% to KEEP almost guarantees that only members of KEEP would be able to operate VLTs successfully, thus mitigating the benefit of bidding the licenses originally by limiting the field of interested bidders. The overall tax rate would also seem to limit the competitiveness of Kentucky casinos versus surrounding states, who are allowed more of their revenues to invest in their products and services.
That's our quick free-market analysis. Send us an email if you think we've missed anything.