By John David Dyche
Kentucky's so-called "signature industries," bourbon and horses, are doing alright during these torpid economic times. With some political help they could be doing even better, creating more jobs, and producing more revenue for stressed state coffers.
Bourbon has boomed despite recession and tepid recovery. Production is way up, retail sales topped $4.5 billion last year, and a half-million people visited state distilleries.
A Kentucky Distillers' Association-sponsored study last year showed that Kentucky's bourbon business directly employed 3,100 people and contributed to 6,000 related jobs. Annual payroll approaches a quarter billion dollars, and the industry contributes about $2 billion annually to gross state product.
More barrels of bourbon are aging in Kentucky than there are people and horses in the commonwealth. Bourbon (along with its inferior cousin Tennessee whiskey) is the biggest export among American distilled spirits.
Eric Gregory, president of the KDA says craft distilleries "are popping up everywhere." This renaissance includes downtown Louisville, where new facilities in renovated buildings will complement the flourishing Urban Bourbon Trail of bars.
Central Kentucky's rural distilleries are some of the state's most peaceful and picturesque places. The Kentucky Bourbon Festival in Bardstown next week is one of the state's great events.
But about 60 percent of the cost of every bottle of bourbon goes to taxes or fees. There are seven different taxes on bourbon, including a tax on barrels for each year one ages.
Kentucky's U. S. Senators, Mitch McConnell and Rand Paul, both Republicans, have introduced the Aged Distilled Spirits Competitiveness Act (S. 1457). GOP Representative Andy Barr of Lexington and his colleagues in the commonwealth's congressional delegation have introduced a companion House measure (H.R. 2312).
The bill would let distillers deduct interest expenses on bourbon in the year incurred instead of making them wait until product aging is complete. This would level the playing field for bourbon against other spirits and help it compete abroad.
A recent University of Kentucky study in conjunction with the Kentucky Horse Council reported that Kentucky's equine industry has an annual economic impact of $3 billion, including $1.78 billion in direct economic output. Racing's share is estimated at $1.3 billion and breeding's at $710 million.
The horse business produces 32,000 Kentucky jobs directly, and 8,000 more indirectly. It yields $134 million in tax revenue.
Keeneland's September yearling sale has been quite successful. Several specimens have sold for more than a million dollars, including a $2.2 million filly and a $2.5 million colt.
Churchill Downs, Inc. recently set revenue and earnings records bolstered by its gaming activities in other states. But the company's earnings from racing operations increased $3.1 million over the same period last year primarily on the strength of $5.8 million from Kentucky Derby week.
The Louisville racetrack is expanding, and its first-ever separate September meet started strong with stakes races for two year-old Derby and Oaks hopefuls. The session's daily purses average $400,000 in an economically risky attempt to keep quality horses, trainers, and star-power jockeys like Rosie Napravnik in the state year round.
The Kentucky Supreme Court recently heard oral arguments in a case challenging instant racing games that let people wager on old races via a slot-like video screen. Instant racing's financial results were underwhelming at Henderson's Ellis Park's summer meet, but are helping Franklin's Kentucky Downs offer hefty purses in its short, all-turf September running.
In 2007, candidate Steve Beshear promised expanded gambling. Six years later, Governor Steve Beshear still has not produced. He says that Kentucky could soon find itself the former horse capital of the world if we do not support purses and breeding incentives with proceeds from liberalized gaming.
Beshear can no longer blame his failure on David Williams, the Republican whom he beat in 2011 and then appointed to a judgeship to get him out of the Senate President post. That excuse was always flimsy, especially after Democratic supporters did not even get all their members present to vote on a pro-casino constitutional amendment last year.
Divisions within the horse industry reportedly de-railed another effort earlier this year. Some racetracks apparently want either a guaranteed gaming license, an area monopoly or both. Beshear is running out of time, and fulfilling his pledge will take more leadership skill than he has shown so far.
Moderation is appropriate in drinking and gambling. Keeping Kentucky's vital bourbon and horse industries growing and prosperous will require extreme effort.
John David Dyche is a Louisville attorney and political commentator for WDRB.com. His e-mail is email@example.com.