District judge upholds Kansas’ expanded gambling law

? A law allowing four state-owned resort casinos and slot machines at dog and horse tracks was upheld Friday by a district judge, but Attorney General Stephen Six said the state Supreme Court will have the final word.

Shawnee County District Judge Charles Andrews’ ruling was an important step toward resolving legal questions about the law enacted last year, but both sides said from the outset the case would go to the state’s highest court.

Millions of dollars in profits for casino managers and tax revenues for state government are at stake.

The Kansas Lottery is negotiating with 13 prospective casino developers, as well as the owners of dog and horse tracks in Kansas City and Frontenac, where slots would be placed. However, the developers could still pull out if the Supreme Court rules against the expanded gambling.

“There are a lot of companies looking to get involved, and I think they are definitely eager to be in the market,” said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas. “I think once the legal questions are cleared up, the companies will be a lot more eager to invest. They may be a little tentative now.”

Gov. Kathleen Sebelius had asked the attorney general to file a “friendly” lawsuit so legal questions surrounding the law could be resolved. She told reporters the ruling “sets a good framework to move forward.”

The Supreme Court has no deadline to act.

“Due to the business interests and economic development at stake here, we will also request the court to expedite the appeal,” Six said in a written statement.

In his ruling, Andrews noted the question is not whether the new law is allowed by the Kansas Constitution but whether it is prohibited by the limitation on gambling in the constitution.

“That limitation is a state-owned and operated lottery,” Andrews wrote in his 41-page opinion.

The law says the Kansas Lottery is the owner and operator of the new gambling, even though it will pick developers that must pay for the buildings and equipment. Eleven states have nontribal resort casinos, but Kansas is the first to have state-owned and operated ones.

The attorney general argued the Lottery would regulate – not own and operate – the new casinos. The Lottery said the state has ownership and can exercise whatever control it needs.

Andrews concluded the Lottery would have “complete power” over the casino manager – from selecting a manager to controlling that manager’s daily activities.

“The state has preserved for itself the decision making and functional control over the important aspects of gaming ownership and operation,” Andrews wrote. “Nowhere in the act is the Kansas Lottery prohibited from taking all of the necessary actions needed to exercise ownership and control of the casino.”

But Steve Ortiz, chairman of the Prairie Band Potawatomi tribe, said the state’s only real involvement in the gambling will be “to receive a cut.” The Potawatomi operate a casino north of Topeka, one of four tribal casinos in northeast Kansas.

Mark Kahrs, chairman of Stand Up for Kansas antigambling group, said, “We agree with the attorney general’s decision to appeal and look forward to a new review in front of the Supreme Court.”

The law allows casinos in Cherokee, Ford, Sumner and Wyandotte counties and slots at dog and horse tracks in Kansas City and Frontenac. The state hopes to collect at least $200 million a year from the new gambling.

Some legislators reacted with relief, while others expressed disappointment. The gambling bill barely passed last year, and if the law is struck down, some lawmakers doubt another bill could pass this year.

“When Kansas voted for the lottery some 20 years ago, they were not voting for slot machines and blackjack,” said House Speaker Melvin Neufeld, an Ingalls Republican who opposed last year’s legislation.

However, Neufeld said he was pleased the judge ruled before the Legislature got too far into shaping the next state budget.

Sebelius proposed a budget for the fiscal year beginning July 1 that assumes the state will have more than $81 million in gambling revenues to spend. Those dollars allowed her to propose new spending, including pay raises for state workers and pension increases for government retirees.

“It certainly makes our lives less complicated,” said Senate Minority Leader Anthony Hensley, a Topeka Democrat. “It’s a huge hurdle to have been able to go over.”

A 1986 constitutional amendment says the Legislature may provide for a state-owned and operated lottery. In 1994, the Supreme Court declared the term “lottery” was broad enough to cover slot machines and other casino games.

The Lottery has until the end of March to complete negotiations with the 13 applicants for the four casinos. It can enter into contracts with as many applicants as it wants and forward them to the Lottery Gaming Facility Review Board, which makes the final selection by the end of May. The selected casino developer must pass a background check by the Kansas Racing and Gaming Commission.

“There were deadlines set forth in the statute, and there wasn’t a clause that said, ‘Unless there’s litigation filed,”‘ Director Ed Van Petten said.