TITLE: CONCERNING AMENDMENTS TO THE EXISTING STATUTORY DISTRIBUTION FORMULA FOR GROSS RECEIPTS DERIVED FROM PARI-MUTUEL WAGERING ON GREYHOUND RACES.

Under current law, a licensee for the racing of greyhounds or an operator of an in-state simulcast facility that receives simulcast races of greyhounds is entitled to retain 17.5 percent of the gross receipts of the pari-mutuel wagering on the live races or the simulcast races. This amount is commonly referred to as the “takeout”. The bill would increase the takeout to 19.5 percent. The licensee currently pays four percent of gross receipts as purses to the kennels. The bill would increase the purse to five percent of gross receipts. It is believed that an increase in the takeout would have a negative effect on total wagers made, resulting in a reduction in state pari-mutuel tax collections from greyhound racing, as well as the city tax based on gross receipts. Therefore, the bill is assessed as having a state and local fiscal impact. The bill would become effective July 1, 1998, and would apply to the proceeds of pari-mutuel wagering conducted on or after that date.

STATE FISCAL IMPACT SUMMARY	FY 1998/99	FY 1999/2000
State Revenues General Fund (reduction) Other Fund	($236,567)	($236,567)
State Expenditures General Fund Other Fund
FTE Position Change	None	None
Local Government Impact — A reduction in gross receipts from pari-mutuel wagering on live races and simulcast races will reduce tax receipts for the city of Commerce City since the tax is based on a percentage of gross receipts.

A report released by Richard Thalheimer of the University of Louisville Department of Equine Administration in the College of Business and Public Administration in August 1994 examines the effect of changes in the price of straight (single horse or dog) and exotic (multiple horse or dog) wagers on pari-mutuel handle and revenue resulting from that handle. The study, which examined three racetracks, indicates that an increase in the price of wagering for both straight and exotic wagers leads to a decline in their respective handles. For these racetracks, the demand was found to be elastic, meaning that as the price of the product is increased, the quantity demanded of that product will decrease. Conversely, if the price of the product is decreased, the quantity demanded will increase. The elasticity of total (straight plus exotic) handle ranged from -1.63 to -1.86. These results were consistent with the results of 11 prior studies on the price elasticity of demand at racetracks around the country.

The study stated that demand for wagering is affected by changes in the takeout rate in the same manner that the demand for other products are affected by changes in their price. That is, an increase in the takeout rate, holding constant changes in other factors which affect the demand for wagering, results in a decrease in handle and a decrease in the takeout rate would result in an increase in the handle.

Increasing the takeout derived from pari-mutuel wagering on greyhound races in the Colorado from 17.5 percent to 19.5 percent will decrease the amount of money available to distribute to winning bettors by two percent. Assuming a constant pool of bettors, it is reasonable to expect that this reduction will reduce the gross amount of wagers on greyhound racing over time. In 1997, the total handle from greyhound racing, including in-state, out-of-state, and off-track betting, amounted to $196,450,662.

Due to the elasticity of demand, it is reasonable to expect that increasing the takeout derived from pari-mutuel wagering on greyhound races in the state from 17.5 percent to 19.5 percent will reduce the total amount bet on greyhound races. Assuming all other factors being constant, an increase in the takeout of 2.0 percent, and an elasticity of demand of -1.75 percent results in a reduction in gross receipts of 3.5 percent annually. In 1997, total tax receipts from greyhound racing was $6,759,046. A 3.5 percent reduction in tax receipts would reduce state General Fund revenue by $236,567 annually beginning in FY 1998-99.

Section 20 of Article X of the Colorado Constitution, limits the maximum annual percentage increase in state fiscal year spending. Once total state revenue from all sources that are not specifically excluded from fiscal year spending exceeds these limits for the fiscal year, the state constitution requires that the excess shall be refunded in the next fiscal year unless voters approve a revenue change as an offset. Based on the current Legislative Council economic forecast, it is projected that the state will be in a TABOR refund position during each of the next five fiscal years. Any increase or decrease in state revenue from changes in fees, fines, licenses, or other revenue sources will affect the amount of the state revenue to be refunded.

A reduction in gross receipts from pari-mutuel wagering on live races and simulcast races will reduce tax receipts for the city of Commerce City since the tax is based on a percentage of gross receipts.

The fiscal note would imply that no appropriations or spending authority are required in FY 1998-99 to implement the provisions of the bill.