Kentucky Mulls Gambling Expansion To Solve Pension Crisis

With state after state seemingly hopping aboard the sports betting train in the wake of the Supreme Court’s decision in Murphy v. NCAA, lawmakers and residents of Kentucky have been thinking about following in their wake. The latest proposal comes from Kentucky Attorney General Andy Beshear (D) who recommends legalizing not just betting on sports, but also commercial casinos, fantasy sports and eventually online poker.

Gambling to Solve Pension Woes?

AG Beshear sees taxes from a larger gambling market as a way of funding Kentucky’s pension arrangements, which are in dire financial straits. The shortfall in cash needed to pay outstanding obligations to teachers, cops, firefighters and other personnel over the next 30 years is estimated at between $39 billion and $70 billion.

In a letter to legislators dated Nov. 26, Beshear urged them to implement gambling expansion as the surest means of paying for the pensions that the state owes. Part of the letter states:

“The solution is not to cut legally promised benefits, but to create a new and dedicated stream of revenue solely for pensions that does not raise any Kentuckian’s taxes. The answer is simple – expanded gaming, including casino, fantasy sports, and sports gaming, as well as preparing for the eventual legalization of online poker.”

Current Kentucky Gaming Environment

There are not very many outlets for gambling within the Bluegrass State. The main betting activity is pari-mutuel wagering on horse races. Unlike in many other states, however, racetracks have not generally been allowed to add slots machines and table games in order to become “racinos.”

Nevertheless, state leaders have been slowly adding to the menu of permitted real money activities at the tracks. In 2010, for instance, a couple of locations debuted what are called historical racing machines. These games appear to function identically to slot machines, but they have been carefully programmed to utilize the results of past horse races in a pari-mutuel fashion to remain compliant with the law. These historical racing machines have drawn considerable criticism from gambling opponents, but a court decision in October 2018 has confirmed their legality.

A brand new racetrack is subsequently scheduled to be built in Oak Grove by Churchill Downs and Keeneland Association, with the development having been given the go-ahead to proceed by the Kentucky Horse Racing Commission in November 2018. The plan is to install more than a thousand historical racing machines at the new track. We can see that Kentucky authorities have already approved of a gambling industry expansion in recent years, although they prefer to have plausible justifications for why new types of gaming are really just extensions of existing products.

Beyond betting on the ponies, limited forms of charitable gaming, like bingo and raffles, are allowed, and a lottery was established in 1989. There are no casinos, either commercial or tribal, within Kentucky’s borders.

Money Currently Being Shipped Elsewhere

As Attorney General Beshear noted in his letter, a few of the states bordering Kentucky already have casinos: Indiana, Illinois, West Virginia, Missouri and Ohio. One of these states, West Virginia, has recently implemented licensed sports betting as well.

Kentucky residents who enjoy casino wagering and sportsbook fun therefore already have places to go, but their home state doesn’t get to collect any revenue from this betting. Beshear contends that Kentuckians spend more than $1 billion per year at gaming parlors in neighboring states. “Go to any of these operations,” he says, ”and you will find their parking lots full of Kentucky license plates.” The attorney general estimates that regulated casinos could bring in about $546 million in taxes, while sportsbooks could be worth up to $30 million annually to the state treasury.

Politics at Play

AG Beshear has announced that he will be running for governor in 2019 against incumbent Matt Bevin (R). Governor Bevin is against casinos in Kentucky and has already signed a bill that supposedly fixes the pension shortfall by using money from newly hired teachers’ 401(k) plans in place of state-funded pensions. However, Beshear has joined with several public unions to file a lawsuit against Bevin’s plans, claiming that they break the contracts between the state and its employees.

Critics of Beshear’s intended gambling expansion feel that his program is short on specifics and is unlikely to come to fruition. They think that he is merely grandstanding in the run-up to the gubernatorial election in order to secure extra votes for himself.

Sports Betting Bill Already Filed

State Representative Dennis Keene has already pre-filed a bill, BR15, that would allow sportsbooks to appear under the management of the Kentucky Lottery Corporation. They would be able to accept bets at racetracks, simulcast facilities and lottery retailers. Keene’s bill will be ready to proceed when the next legislative session opens on Jan. 8, 2019.

Putting the sports betting industry in Kentucky under the control of the lottery is likely an attempt to circumvent the ban on gambling contained in the state constitution. There’s already a constitutional exemption for the Kentucky Lottery, and so placing sportsbooks within the remit of the Lottery bolsters the argument that no further constitutional amendments are required to bring sports betting to the state.