During the ongoing controversy in Kentucky over the legalization of slot machines (aka video lottery terminals), people inside and outside of the horse racing and breeding businesses have pondered how a responsible state government could stand by while its flagship industry is left to deteriorate—and cause the loss of thousands of jobs, tax revenues, and tourist dollars. It certainly is a modern example of Nero fiddling while Rome is burning.

One does not have to look very far to find the explanation. The hard evidence is contained in a recent document titled “America’s Top States for Business 2010—A CNBC Special Report.” Following is CNBC’s methodology:

“We scored all 50 states—using publicly available data—on 40 different measures of competitiveness. States received points based on their rankings in each metric. Then, we separated those metrics into the ten broad categories, with input from business groups including the National Association of Manufacturers. We weighted the categories based on how frequently each is cited in state economic development marketing materials.

Here are the ten categories ranked in our study: cost of doing business; workforce; quality of life; economy; transportation & infrastructure; technology & innovation; education; business friendliness; access to capital; cost of living.”

Overall, in 2010, Kentucky ranked 40 out of 50 states, making it one of the most inhospitable jurisdictions to do business. Moreover, the Commonwealth is getting worse rather than improving: it ranked 34th in 2009. While Kentucky did very well on three criteria (cost of doing business, transportation & infrastructure, and cost of living), it ranked mediocre to poorly in the other seven categories.

According to CNBC, Kentucky has an unemployment rate of 10.4 percent, a projected 2011 budget deficit of $780 million, and ranks 37th in education. Kentucky’s elected leaders’ answer to this predicament is apparently to become even more anti-business: On CNBC’s criterion of “business friendliness,” the Commonwealth ranked 39th of 50 states, down from 31st in 2009. The CNBC study defined business friendliness as “the perceived ‘friendliness’ of [a state's] legal and regulatory frameworks to business.”

It is of little solace to people in the Kentucky horse racing and breeding industry to know that they are not alone in the way state government has treated them—the state’s elected officials, as a group, are hostile to business per se. They are largely inhibitors and destroyers of economic activity, job killers rather than job creators. Reminds me of Green Bay Packers’ right tackle Henry Jordan’s quip about legendary Coach Vince Lombardi: ”He’s fair, he treats us all the same–like dogs.”

Senate President David Williams has been getting too much credit/blame for his antipathy toward racing. Although Williams is culpable, he evidently has plenty of vocal and silent co-conspirators in Kentucky government from both political parties. He did not make Kentucky so anti-business by himself and this kind of negative climate has been generations in the making. Kentucky should have had racetrack slots many years ago, so there is a lot of blame to go around to current and former elected officials in Frankfort. In my research, I can find no other case of where a state government worked against the economic interests of its signature industry.

No doubt the spin out of Frankfort will be that the CNBC report is flawed. Judge for yourself the next time you see that a Kentucky racetrack has cut purses, or read of a trainer moving his or her stable to a racino venue, or see that a stallion is being relocated from Lexington to another state with better incentives.

By the way, two other historically prominent but currently troubled racing states–New York and California—rank 45th and 49th, respectively, on “business friendliness.”

Copyright © 2010 Horse Racing Business