After over 13 hours of debate, the House voted to advance to final action a comprehensive expanded gambling bill Friday. The debate, which ended at nearly 2:30 a.m. early Saturday morning, was on an amendment offered to a bill that did nothing more than extend the life of the Kansas Lottery, which is scheduled to sunset July 1, 2008. The amendment was over 100 pages in length and had never had a hearing in committee, so only those who had been working behind closed doors on the proposal knew exactly what was in the bill. In fact, at a caucus called to discuss the proposal, even the carrier of the amendment was unable to answer many questions raised by legislative members. Nevertheless, there were a block of about 65 votes that had been lined up among Democrats and moderate Republicans sufficient to pass the measure and fight off dozens of amendments aimed at improving the proposal from the standpoint of good public policy.
Gambling interests and their lobbyists claimed they had picked up between 8-10 pro-gambling legislators as a result of the November election and they appear to have been right. The bill, which will be on final action this morning in the House, would then go to the Senate, where its fate is uncertain since the Senate composition hasn’t changed since it last voted down expanded gambling.
The bill would allow destination casinos in Wyandotte Co., one in either Sedgwick or Sumner Counties and one in either Cherokee or Crawford Counties in Southeast Kansas, subject to a vote of the residents in those counties only. While expanded gaming substantially affects contiguous counties, they would be denied a voice. Minimum investment in the destination casinos would be $225M, although an amendment added to the bill would allow a casino in Ford County with as little as a $50M investment. The entities getting the casino management contracts would have to pay an up-front privilege fee of $25M for each location, with the Ford County privilege fee being $5M. Slot machines would be allowed at the racetracks at the Woodlands in Wyandotte County, the Wichita Greyhound Park and at Camptown racetrack, near Pittsburg, which has been closed for some time.
In my opinion and the opinion of other attorney members of the Legislature, the proposal is unconstitutional. In 1986 the voters approved a constitutional amendment allowing for a state owned and operated lottery. Voters also approved the regulation, licensing and taxation of horse and dog racing and pari-mutuel wagering. The tracks are state regulated but not state owned and operated. The lottery, however, must be state owned and operated. The expanded gambling proposal attempts to expand the state lottery to allow casinos but language in the bill makes it obvious that the state would not be operating the casinos. The state would enter into management contracts with casino operators. This would be in direct violation of the constitutional requirement that lottery-type games be both owned and operated by the state. A 1994 Attorney General’s Opinion made it clear that the word “operate” is the same as the word “manage” and that a state owned and operated lottery or casino must be owned as well as directly controlled or managed by the state. If the bill passes there will certainly be a legal challenge.

The big news in Topeka this past week, at least as far as Hutchinson and Reno Co. is concerned, was the overwhelming approval and passage of the Eaton Corp. job retention package. SB 164, which passed the Senate earlier in the session, easily passed in the House and is on its way to the Governor, who has announced she will sign the bill. The measure utilizes a percentage of the state income tax withheld from Eaton employee pay and allows it to be used to further upgrade the plant in the expectation that a newer, better product line will be made in Hutchinson leading to the long term success of the plant. Total state assistance is capped at $2M over ten years. In order to reach the $2M boost over 10 years, Eaton will have to maintain an average of $12.9M in payroll or nearly $130M over 10 years. Not only does the state have no out-of-pocket cost or risk, the state comes out ahead by 10% of taxes the first 3 years and 60% of taxes the last 7 years.
Other news of significant import for the state was passage in the House of the mega appropriations bill for FY 2007 and 2008. House Republicans were successful in holding off dozens of amendments calculated to inflate the amount of state spending. Of the overall state budget of $5.9B, only a little more than a net $1M was added to the State General Fund spending. Key votes on the mega bill included one eliminating $2M in funding for a presidential preference primary. Another key vote, important to central and western Kansas health care, would require approval by the Wichita Center for Graduate Medical Education before the proposed Kansas Medical Center St. Lukes Hospital affiliation is allowed to go through. We added $1.2M for newborn health screening and $2M for domestic violence and sexual assault outreach services, another important vote for rural Kansas. Another $1.6M was added to expand the HeadStart program, funded exclusively with tobacco settlement funds. The Senate appropriations bill will probably be debated this week and then a joint conference committee will work out the differences in anticipation of the Omnibus appropriations bill coming out during the wrap-up session, after the final consensus revenue estimates for the session are released in early April.
Those supporting expanded gaming in Kansas are still hard at work on a bill to debate in the closing days of the 2007 session. However, statistics show that live pari-mutuel racing is a dying industry throughout America and Kansas. The live handle at Kansas tracks has decreased from $273M in 1990 to $20M in 2005, an average 15% decrease per year. In fact, revenue has decreased so much that the state tax on wagers no longer covers the state’s cost to regulate the industry!
Economists say slot machines have had little impact on halting declining attendance at pari-mutuel racetracks in other states. Putting casinos at racetracks does nothing but prop up an ailing industry and line the pockets of track owners. Over 75% of regional casino revenues would come from the home county and surrounding contiguous counties. At the same time, social costs imposed on local governments by the casino would be at least 25% of revenues. Nevertheless, the proposed House bill provides only 3% to the home county and home city, while providing 24% to the state.

The 2007 Kansas legislative session is fast approaching first adjournment. The House and Senate reached agreement last week on the final calendar for the year. The legislature will reach first adjournment April 3 this year. Committees will meet until March 23. The House and Senate will then wrap up work on non-exempt bills March 28. Conference committees will meet to work out differences between House and Senate versions of bills on March 29th and 30th and the House and Senate will return on April 2nd and 3rd to work final conference committee reports. The Legislature will then recess until April 25 for what is expected to be a 4 day wrap-up session. If all goes according to plan, this year’s session will be only 86 days.
House Republicans last week released our expanded health insurance initiative, utilizing federal funding flexibility and waivers. The basics of the plan include reducing insurance mandates, expanding private-sector offerings of health insurance through reduced regulation of insurers, Medicaid reform and incenting charitable health care for the poor. Unique to the House plan is individually owned health insurance policies which employees can take with them when they change jobs. Availability, affordability and portability are the key components to the plan. The House plan would also expand so-called “Section 125” health plans that allow individuals to use pre-tax dollars to pay for health insurance, which could save individual policyholders, whose premiums aren’t paid by employers, up to 15% of the cost of buying health insurance with after-tax dollars.
The House Select Committee on State Employee Pay has recommended a plan on state pay. The plan includes a 1% base pay increase, a 5% targeted increase for classified employees who are paid more than 25% below private market levels, a $1,450 bonus which would be excluded from retirement calculations and $150 to match employee contributions to a pension plan. The cost of $44.3M is the same as the Governor’s spending proposal for a 2.5% step movement and 1.5% base salary adjustment plus longevity bonuses, but the key to the House proposal is the fact that the bonus provision would not be included in retirement calculations. This lowers the total annual cost of the bonus by millions of dollars. The 5% targeted increase would go to at least 1,533 state employees whose jobs pay at least 25% less than similar jobs in the private sector.
Work continues on the House Mega Appropriations bill for the year. The base bill was passed out of committee last week and should be worked sometime this week on the House floor. The committee added some $160M of spending to the bill, which was still some $50M less than the proposed spending in the Governor’s budget. In addition to the state pay plan funding, the committee added $28M in social services spending, including replacement of lost Medicaid funds. A total of $10M was restored to the Regents operating grants and $7.6M of additional funding was provided for re-entry and day reporting, parole and post-release supervision. Another $5.1M was added for offender education and training programs in the Department of Corrections.

As we enter the second half of this year’s legislative session we continue to receive positive economic news. The State’s tax-only revenues were $21.5M above estimates for February, putting the state $83.2M above the amount upon which the Governor based her FY 2008 budget. The February increases were mainly from individual income tax receipts (28.4% above estimates or an additional $14.2M) Corporate income tax receipts were a whopping 131% above the latest $2M estimate and sales tax receipts were nearly $8M above estimates. There was a significant decline in the cigarette tax receipts, $2.6M below the $9.5M estimate, but many would say this is actually good news since it translates to lower consumption and perhaps lower overall health care costs in the long run.
After a relatively slow January revenue-wise, the beefed up February numbers bode well for finishing the session and the fiscal year in good economic shape. The income tax receipts, in particular, are putting us in a position to provide some significant tax relief this legislative session. In addition to trimming or completely eliminating the state’s franchise tax and reducing significantly the unemployment tax, the House this week is also considering elimination of the state income tax on social security benefits for the elderly. The House is trying to muster support in the Senate for at least $60M in tax relief, not counting the unemployment tax cut which simply draws down the balance in the unemployment trust fund and does not affect the State General Fund.
The House Economic Development Committee held its hearing on the Eaton job protection legislation this week and we had a positive reception. The measure has already passed the Senate and we’re optimistic the House will also approve the measure, providing the final financial piece of the incentive package to retain the Eaton plant jobs.
In the coming couple of weeks, look for the House to announce its health care reform initiative and a plan to address the state universities’ and community colleges’ deferred maintenance needs. Ticket and tuition surcharges are on the table for negotiation in addition to other funding proposals.
The House Federal & State Affairs Committee will start holding hearings next week on one or more gaming proposals. The Governor is pushing expanding gaming in the state and trying to garner support by tying revenues to several projects, such as pay raises for state employees, COLA’s for retirees, deferred maintenance and more. Unfortunately, the expected additional revenue wouldn’t completely fund any particular initiative, especially on an ongoing basis, and probably only represents a redistribution of the same revenue dollars. There has been no credible data that expanding gaming in the state would attract a significant amount of out-of-state dollars. Kansans would, instead, be spending their disposable money on expanded gaming and not for other goods and services. A mere redistribution of income away from existing Kansas merchants to expanded gambling interests is probably not the way to grow the Kansas economy. Nevertheless, a good deal of time will be spent again this year debating the subject.