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We always knew the Preakness was second rate, but this?

Stephenie Steitzer reports:

Versions of a proposed constitutional amendment on expanded gambling that would’ve guaranteed some of the casino licenses to horse tracks appear to have died in the House.

Instead, a proposal backed by Speaker Jody Richards, which would allow nine casinos with no guarantees the horse tracks would get any, appears to be the bill with the best shot of making it out of a House committee at this point.

I recommended the following in October:

If [Beshear is] serious about serving taxpayers, Beshear will insist on the following conditions for expanded gambling:

1. A strict limit on the number of casino licenses to be awarded.
2. A time limit on the validity of each license. Two years, for example.
3. Every hopeful licensee must bid for licenses at auction with no special treatment for any bidder or industry.

In essence, the winning bidder will pay rent for the privilege of owning a casino license. The value of the licenses will largely be a function of their scarcity and the revenues that the casinos can generate.

Unfortunately, Mr. Beshear’s commitment to do right by Kentucky taxpayers in pushing for expanded gambling is in question.

In August, Mr. Beshear told the Lane Report, “It would be a licensed approach where the state would create so many licenses and then, for instance, some of the racetracks would be able to have a license and there would be competition for licenses for any free-standing locations.”

Mr. Beshear appears to understand the value of creating an auction process for handing out casino licenses, but he’s less clear on whether racetracks will have to pay the same price when auction time arrives. Mr. Beshear needs to clarify sooner rather than later that expanded gambling will not result in a massive giveaway to Churchill Downs or other racetracks.

It seems clear that Beshear’s bill was crafted with the profits of racetracks in mind. The one offered by Jody Richards, while I think nine is perhaps too many licenses to maximize revenue, at least recognizes that the purpose of casino gambling is to get revenue in the door rather than to bail out a small subset of Kentucky’s “signature industry.”

Sadly, any added revenue provided by gambling won’t be used to execute the “best case scenario”: retire state debt, ease the pain of the inevitable privatization of state pensions or reduce taxes for Kentuckians. Like a credit card in the hands of an irresponsible teenager, that added revenue might put Kentucky’s finances in worse shape.

Steve Beshear will not raise $500-million with his plans for (gulp!) 12 casinos in Kentucky. The licenses for the first (gulp!) seven casinos will essentially be given away. The C-J’s Stephenie Steitzer has more:

His proposal calls for seven casinos operated by horse tracks — either at the tracks or elsewhere in the respective counties — and five free-standing casinos.

The five free-standing casinos could be in Daviess County, Christian County, Kenton or Campbell counties, Boyd or Greenup counties and Laurel or Whitley counties. Those casinos would be subject to a local referendum in the city or county where they would be located.

Beshear said $500 million could be raised through the sale of the casino licenses.

What’s happened is this: Gov. Beshear has agreed to give race tracks exclusive market area for the casinos that they will own. Why else would casinos owned by non-racetracks be barred from existing in Jefferson (Louisville), Fayette (Lexington) or Boone counties?

Exclusive market area would raise the value of the licenses, but there’s no clear evidence that the tracks would pay any substantial sum for the licenses they’d receive.

But read the casino amendment carefully:

“Are you in favor of increasing state financial support for elementary and secondary education, expanding health care for senior citizens, children and others, support for local governments, and combating drug and alcohol abuse and other important programs by permitting the General Assembly to authorize up to five casinos subject to approval of the voters in the city or county where the casino is located; and up to seven casinos licenses for existing horse racing associations, all of which will be subject to the approval of a state agency created to oversee casino gaming?”

Did you catch that? The casinos that would be run by racetracks would face no local option. The casinos run by other operators would have to negotiate local elections. It’s also likely that racetracks would dump money into local campaigns opposing the operation of these competing casinos.

Nonetheless, local communities would not be able to prohibit their local neighborhood racetrack from starting up a casino. That’s not necessarily bad. After all, I wouldn’t want my local government to decide that restauranteurs couldn’t sell their patrons a beer with their meals and … oh wait, local governments do exactly that every day. And it’s not (entirely) unreasonable.

So why do casinos allow state governments to overrule local governments in this one case, especially when community standards are so clearly implicated? That’s a good question for Steve Beshear.

So why won’t he raise the promised $500-million? Because after you’ve given away licenses for seven casinos to be operated by racetracks that won’t have to overcome local opposition, the remaining five casino licenses are severely limited in their location. Also, those casinos will have to overcome some local opposition. Admittedly, it might not be much opposition given the counties named.

It’s hard to get away from the idea that this is a big giveaway to a particular industry. That’s pretty disappointing.

Steve Beshear wants to give the horse industry many many many millions of dollars:

(Herald-Leader, Feb. 12, 2008) He said earlier in the day that his proposal will set up different licensing provisions for Kentucky-based racetracks and casino companies, a move that suggests operators of free-standing casinos might be required to pay heftier licensing fees.

“It’s certainly possible,” Beshear said.

He also indicated that the licensing of racetrack-based casinos could move more swiftly, something that would allow the fees to be put toward the state budget sooner.

Beshear said that tracks would have a designated number of casinos but other operators would probably face a bidding process, “and that will take longer to determine the winner.”

What does that mean? It means that Beshear will essentially give race tracks casino licenses by allowing to avoid an auction process. Rather than maximizing revenues by pitting tracks against casino operators in an open auction process, Beshear basically is giving away the first few licenses, which reduces the value of licenses that would be auctioned.

I said Beshear might do exactly this before he was even elected.

It seems that Churchill Downs’ much publicized exemption to Louisville’s smoking ban is a goner.

The council exempted facilities leased, owned or operated by the Kentucky Horse Racing Authority. A group of business owners, the Metro Louisville Hospitality Coalition, filed a lawsuit challenging Churchill Downs’ exemption and asking that the ban be overturned as arbitrary and vague.

…

Mike Hatzell, the attorney for the businesses that sued, said the ruling validates their claim that the exemption — and possibly the entire ban — is unconstitutional. Hatzell hopes Louisville’s metro council will reconsider the ban and, if it allows smoking at Churchill Downs, it will also allow smoking at some restaurants and bars.

Insert your own tortured scream of “What about the children! Won’t someone please think about the CHILDREN!” here.

My op-ed is up at the Courier-Journal web site.

I could be behind the curve here (I don’t actually live in Kentucky anymore), but in Steve Beshear’s appearance on KET’s “One-to-One” program, he responded this way to a suggestion that the state actually own the casinos Mr. Beshear is hoping to establish in Kentucky (transcription and emphasis mine):

What does the state of Kentucky know about running a casino? You know, I think you need to have these franchises out there. We’re gonna strictly control it and strictly regulate it so that everything is above board. Who gets these things is not gonna be a back room deal.  I mean, it’s gonna be all up front. It’s gonna be open and people are gonna have to be the high bidder in order to get these things. But I really think probably the best way to go is outsourcing this. You’re going to get the revenue from it, but you’re gonna put people that understand this business and know how to run these places in charge.

Two points on this. First, Mr. Beshear appears to be endorsing a Bluegrass Institute suggestion from earlier this year that if the state must go into the gambling business that it simply auction off a strictly limited number of licenses to maximize revenues. Let the casinos bid against each other to reveal their preferences and let Kentucky taxpayers reap the gains. If Mr. Beshear is endorsing that idea, then he truly understands at least the basics of supply and demand. I applaud him for it.

If Beshear is serious about requiring that competitors bid against each other for these licenses, then Churchill Downs should definitely not receive any preferential treatment when it comes time for casinos to locate. Reporters need to ask Mr. Beshear to clarify what he means by “high bidder.” I’m sure Churchill Downs would be interested in a clarification as much as anyone.

My other thought is this: If Mr. Beshear were to magically be governor in a Kentucky that already had casinos that were owned by the state, should we interpret his statement to mean that he would privatize those casinos? After all, what does the state of Kentucky know about operating a casino?