Division of the Budget
Landon State Office Building Phone: (785) 296-2436
900 SW Jackson Street, Room 504 larry.campbell@ks.gov
Topeka, KS 66612 Division of the Budget http://budget.kansas.gov
Larry L. Campbell, Director Laura Kelly, Governor

February 20, 2019


The Honorable Sean Tarwater, Chairperson
House Committee on Commerce, Labor and Economic Development
Statehouse, Room 151-S
Topeka, Kansas 66612
Dear Representative Tarwater:
SUBJECT: Fiscal Note for HB 2280 by House Committee on Commerce, Labor and
Economic Development
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2280 is
respectfully submitted to your committee.
HB 2280 would amend the state’s Expanded Lottery Act. Current law allows for the first
2,200 electronic gaming machines to be allocated and then a bidding process to place the remaining
600 machines occurs at a later date. The current bidding process allows lottery gaming facility
managers to bid to prevent the placement of additional machines at racetrack gaming facilities.
The bill would allow the Kansas Lottery to allocate the entire 2,800 authorized electronic gaming
machines to be placed at racetrack gaming facilities; however, each racetrack gaming facility
would be required to have at least 400 machines and no more than 1,200 machines. Each horse or
greyhound racetrack would be required to conduct a minimum number of races in order to operate
electronic gaming machines. The gaming facility located in the northeast gaming zone would no
longer be required to conduct greyhound racing, but it still would be required to conduct horse
racing before it could operate electronic gaming machines.
The bill would change the distribution of net electronic gaming machine revenue from the
racetrack gaming facility located in the northeast gaming zone. The amount of revenue distributed
to the racetrack gaming facility manager would increase from 25.0 percent to 61.5 percent in the
first and second year of operation, 59.5 percent in the third year of operation, and to 57.5 percent
in the fourth year and future years of operation. The amount of revenue that goes to the Live Horse
Racing Purse Supplement Fund would increase from 7.0 percent to 10.0 percent in the first and
second year of operation, 12.0 percent in the third year of operation, and to 14.0 percent in the
fourth year and future years of operation. The amount of revenue that goes to the Kansas Horse
Fair Racing Benefit Fund would increase from 1.0 percent to 2.0 percent. The bill would also
create the Kansas Horse Council Fund and provide 0.5 percent of the revenues for the
development, promotion, and representation of the equine industry in Kansas.
To balance out these increases, a corresponding reduction in revenues is in the bill. The
state’s share in the Expanded Lottery Act Revenues Fund would be reduced from 40.0 to 22.0
The Honorable Sean Tarwater, Chairperson
Page 2—HB 2280

percent; the share going to the Problem Gambling and Addictions Grant Fund would be reduced
from 2.0 percent to 1.0 percent; the 7.0 percent share going to the Live Greyhound Racing Purse
Supplement Fund would be eliminated; and the 15.0 percent share of gaming revenues that is to
be used for gaming expenses of the racetrack gaming facility manager would also be eliminated.
Under current law, the 15.0 percent share of revenues can be used for any gaming expenses, subject
to the agreement between the Kansas Lottery and the facility manager. The current 3.0 percent
share that is shared by the city and county would remain unchanged.
The bill would also remove the earning caps on the Live Horse Racing Purse Supplement
Fund in the northeast gaming zone. Under current law, the amount of electronic gaming machine
revenue that is to be transferred to this fund is limited to an average of $3,750 per machine. This
earnings cap would remain at the other gaming zones. The bill would eliminate some of the
restrictions on simulcasting and would allow county fair associations to operate simulcasting for
additional days. The bill would also require gaming facility managers to pay for the gaming related
expenses of the Kansas Lottery and would make other technical corrections to the Kansas
Expanded Lottery Act.
HB 2280 would not require additional staffing or expenditures by the Kansas Racing and
Gaming Commission, the Kansas Lottery, or any other state agency unless a contract with a
racetrack gaming facility manager is approved by the Kansas Lottery and a background
investigation is approved by the Kansas Racing and Gaming Commission. Racetracks would first
be required to obtain a parimutuel license from the Kansas Racing and Gaming Commission before
they could negotiate with the Kansas Lottery for a contract to operate electronic gaming machines.
The proposed changes to the distribution of gaming facility revenue could provide an incentive for
the Woodlands Racetrack in Kansas City to negotiate a contract with the Kansas Lottery in order
to reopen that facility with electronic gaming machines.
The Attorney General’s Office indicates the bill has the potential to significantly increase
litigation costs starting in FY 2020. However, the Office did not provide an estimate of the
additional litigation costs or how long the estimated litigation costs would continue from
enactment from the bill, or if the bill would require the hiring of outside counsel.
The Kansas Lottery indicates that existing casino managers may file lawsuits claiming that
the bill infringes on their rights under the terms of the original Kansas Expanded Lottery Act and
their contracts with the State of Kansas. Casino managers entered into a contract with the state to
manage the casinos under a certain set of statutorily and contractual terms. To have those terms
changed mid-contract may result in litigation from casino managers to possibly recover damages
or other losses from the state. Litigation would likely be decided by the courts. The amount of
monetary damages that could be awarded by the courts is unknown. It is also unknown if any
possible damages would include the refunding of $61.0 million in privilege fees that has already
been collected from the four selected casino managers or if the damages would include any interest
payments.
The Kansas Lottery indicates that it would need to hire between two and three new
employees for each new gaming facility that would open as a result of this bill. However, without
knowing the size of the proposed facility and when the facility would open, the Kansas Lottery is
unable to make a precise estimate of its gaming related expenses. The Kansas Lottery indicates
that when it has negotiated contracts with gaming facility managers, it has required that all of its
The Honorable Sean Tarwater, Chairperson
Page 3—HB 2280

gaming related expenses be reimbursed by the manager. Direct gaming expenses are billed directly
to the specific gaming facility manager and indirect expenses are prorated to all managers.
The Kansas Racing and Gaming Commission indicates it would need approximately $1.8
million and 21.00 FTE positions for each parimutuel racetrack that reopens for the annual costs to
regulate both the racing and gaming activities. Start-up costs of approximately $450,000 per
facility would also be needed for expenses, such as background investigations, licensing
equipment, software licenses, computer equipment, furniture and supplies, and other expenses that
would be associated with reopening each facility. Funding for regulating racing activities has
primarily come from the transfer of parimutuel tax receipts to the State Racing Fund. The
appropriations bill each year provides the authority for the Kansas Racing and Gaming
Commission to bill each facility for all costs related to regulating racing activity. Current law
requires the racetrack gaming facility manager to be responsible for the Commission’s costs for
regulating gaming activity at each racetrack.
The Department for Aging and Disability Services indicates that additional gaming
facilities would likely increase demand for services provided by its Problem Gambling Program.
The Department indicates that the amount of additional spending would be dependent on the
number of additional gaming facilities and would be proportional to current spending levels for
problem gambling and addiction services. The Department also has concerns that additional
gaming facilities and changes to the share of gaming facility revenues that is distributed to the
Problem Gambling and Addictions Grant Fund would not provide adequate funding to support its
Problem Gambling Program.
A reliable estimate of the gaming facility revenue that might be generated as a result of HB
2280 cannot be made without a detailed market study, which would include an estimate as to when
the gaming facility would be operational, the location of the gaming facility, the size of the gaming
facility, and if the new gaming facility would impact revenues from existing gaming facilities.
Any fiscal effect associated with HB 2280 is not reflected in The FY 2020 Governor’s Budget
Report.


Sincerely,

Larry L. Campbell
Director of the Budget

cc: Stephen Durrell, Lottery
Brandi White, Racing & Gaming Commission
Cody Gwaltney, Aging & Disability Services
Willie Prescott, Office of the Attorney General


Statutes affected:
As introduced: 74-8741, 74-8744, 74-8746, 74-8747, 74-8836