Brief ⁽¹⁾

The bill would authorize the Kansas Lottery to conduct games on "electronic gaming machines" at qualified parimutuel racetracks. The bill would earmark all revenue from those games and establish an oversight framework involving both the State Lottery and the Racing and Gaming Commission. Major provisions of the bill include the following.

• The bill would require the executive director of the Lottery to enter into contracts with qualified parimutuel licensees for the operation and management of electronic gaming machines at racetracks.
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  • The contracts could not limit the days or hours of operation or the number of the gaming machines.
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  • The contracts would be for the term of the existence of the Lottery and would renew automatically with each extension of the Lottery.
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  • The gaming machines could not include any casino table games.
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  • Progressive games would be permitted.
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• Voters in the county in which the racetracks are located would have to approve the question of allowing electronic gaming machines.
• • The question could be placed on the ballot by the County Commission or as a result of a petition signed by at least 10 percent of the voters who voted for Secretary of State at the last election for that office.
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• Oversight and regulation of the electronic gaming operations would be provided by both the Lottery and Racing and Gaming Commission.
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  • The Lottery and Racing and Gaming Commission would be authorized to examine the books, papers, and other documents, and inspect machines and facilities to determine compliance with the act.
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  • Any person providing electronic gaming equipment or services would have to be licensed by the Racing and Gaming Commission.
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  • The Racing and Gaming Commission would have to require an annual audit of each operator contracting with the Kansas Lottery. The audit would have to be conducted by a licensed accounting firm approved by the Commission at the expense of the operator.
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  • Three years after electronic gaming machines begin operating at each track the Racing Commission would be required to prepare an economic impact report for the Legislature. That report would have to:
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The cost of the report would be financed from the Electronic Gaming Machine Operation and Regulatory Fund.

• The Lottery would hold the license for all software programs utilized for the games. The track owner/manager would be the sublicensee.
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• The Lottery would approve the type of gaming machines used. The Racing and Gaming Commission would be required to issue a certificate of authority for each machine before it could be used.

• Electronic gaming machines would have to pay out an average of at least 87 percent of the amount wagered, be linked to a central communication system, and be on-line and in constant communication with a computer located in an office at the racetrack.
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• Tracks where gaming machines are located would have to meet statutory requirements for live racing.
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• Net machine income (wagers minus winnings) would be distributed as follows:
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  • 1 percent for the Lottery and Racing Commission's regulatory expenses;
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  • ½ percent to the State Gaming Revenues Fund (the fund to which Lottery and Parimutuel revenue are currently credited);
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  • 1½ percent to the county in which the games are conducted;
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  • 3½ percent, or a minimum of $1.6 million per year, for live horse racing purse supplements allocated to quarterhorse and thoroughbred accounts (amounts allocated to each of the accounts would be based on the average of the preceding three years' live race starters in the state);
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  • 3½ percent for purse supplements for live dog racing;
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  • 20 percent to improve access for Kansans to learning and information (that amount is to be allocated via appropriation to Regents Universities, Washburn University, community colleges, local libraries, and school districts); and
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  • the balance to the track owner/managers.
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• The bill would create a competitive grant program administered by the Department of Social and Rehabilitation Services for pathological gamblers (the same provision was in HB 2013 as passed by the Senate).
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• Electronic gaming machine games would be exempt from sales tax.
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• No taxes, fees, charges, transfers, or distributions could be made or levied against net machine income, except as provided by the act.
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• County home rule power would be limited regarding electronic gaming devices.
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• Statutory authority for the Kansas Lottery would be extended until July 1, 2007.
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Background

The bill was requested for introduction by Senator Vidricksen. Major proponents of the bill are the licensed parimutuel track owner/managers with facilities in Kansas City, Wichita, and Frontenac. At the hearing before the Senate Committee on Federal and State Affairs, testimony in favor of the bill was presented by representatives of: Kansas Racing, L.L.C.; Kansas Greyhound Association; Kansas Thoroughbred Association; and the Kansas National Education Association. The Kansas Chamber of Commerce and Industry presented testimony in support of allowing parimutuel facilities to operate electronic games of chance, but expressed concern about the potential impact on revenue going to the State Gaming Revenues Fund. Written testimony in favor of the bill was presented by the Kansas AFL-CIO.

Opposition to the bill was presented at the Senate Committee hearing by representatives of: the American Legion, Stand Up for Kansas' Kansas Clubs and Associates; Thoroughbred Owners for Improved Racing; Kansas Bowling Proprietors Association; and Kansans for PariMutual Racing.

The major proponents of the bill presented proposed amendments to the Senate Committee. Those amendments were adopted by the Committee and include the following:

• Excluding table games and video lottery machines (as defined in existing law) from the definition of electronic gaming machines, thereby preventing those games from being conducted under the bill;
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• A definition of "progressive game" allowed under the bill;
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• Eliminating the requirement that the central computer for the electronic gaming machines be located in a Lottery Commission office at the track;
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• Increasing the number of live dog races by one race per day, from 12 to 13, and increasing from 52 to 60 the number of days of live horse racing required at those tracks where electronic gaming machines are located;
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• Specifying the minimum number of live thoroughbred and quarterhorse races required per day;
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• Earmarking 20 percent of moneys in the new Live Horse Racing Purse Supplement Fund for transfer to the existing Horse Breeding Development Fund and requiring that the balance in the new fund be expended upon recommendation of the thoroughbred and quarterhorse breed organizations with the approval of the Racing and Gaming Commission;
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• Requiring transfer to the State Gaming Revenue Fund of amounts in excess of those required to cover Lottery and Racing Commission regulatory costs;
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• Eliminating the allocation of revenue to problem gambler programs in lieu of allocating ½ percent of net revenue to the State Gaming Revenues Fund;
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• Authorizing, but not requiring, use of moneys in the State Gaming Revenues Fund for the problem gambling grant fund;
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• Including provisions from HB 2013 regarding the problem gambling grant program;
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• Requiring fingerprinting of owners, officers, and employees of applicants for licensure as electronic gaming machine equipment or services providers;
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• Adding conviction of two or more acts of violence in the last five years as grounds for denial of an electronic gaming machine equipment or services license; and
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• Making revocation, suspension, or denial of an occupation or gaming license grounds for denial of a license to be an electronic gaming machine equipment or services provider.
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In addition, the Committee amended the bill to require an annual audit of the electronic gaming machine operations of each track contracting with the Kansas Lottery and an economic impact report for each track where electronic games are operated after the games have been in operation for three years.

The Division of the Budget's fiscal note for the introduced version of the bill states that the Kansas Lottery estimates that approximately $213.7 million in revenue would go to the Electronic Gaming Machine Fund each year. That amount of net machine revenue would result in the following distribution:

• $2,137,200 to the Electronic Gaming Machine Operations and Regulatory Fund (to finance Lottery and Racing Commission regulatory expenses including the economic impact study);
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• $1,068,600 to the problem gambler program (changed by Committee amendments to go to the State Gaming Revenues Fund);
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• $3,205,800 to counties in which tracks are located;
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• $7,480,200 to the Live Horse Racing Purse Supplement Fund;
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• $7,480,200 to the Live Dog Racing Purse Supplement Fund;
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• $42,744 to the Kansas Education Enhancement Fund; and
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• $149,604,000 to the track owner/managers.
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According to the Division's fiscal note, the Lottery estimates expenditures of $185,087 annually to operate the electronic gaming machine games. Those expenditures would be financed from the Electronic Gaming Machine Operations and Regulatory Fund. The Racing and Gaming Commission estimates expenditure of $1,886,386 from the Regulatory Fund during the first year the games are in operation and $1.8 million annually during the second and subsequent years. The estimate of annual operating costs of the Racing and Gaming Commission does not include the cost of the economic impact report that would be required by the Senate Committee amendment to the bill after the third year of operation of the electronic games.

Committee amendments provide that any amount in excess of the amount required by the Lottery and the Racing and Gaming Commission would be transferred to the State Gaming Revenues Fund. The Budget Division's fiscal note states that the excess in the Regulatory Fund in FY 2001 is estimated to be $64,727. Under current law when receipts to the State Gaming Revenues Fund exceed $50 million, the excess is transferred to the State General Fund.

A different approach to authorizing the Lottery to conduct video lottery games at licensed racetracks is contained in HB 3047. That bill had not been heard in the House Committee on Federal and State Affairs at the time the Senate Committee acted on SB 667.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html