The New York legislature has given final approval to a measure to increase the share of video lottery terminal revenue for racetracks, as well as jump-start the long-stalled VLT casinos at Aqueduct and Yonkers Raceway.The issue may not be resolved, however, because negotiators for Gov. George Pataki have told legislative aides the measure is unconstitutional. The governor, in closed-door talks, has pushed an alternative plan, and talks are ongoing despite passage of the new VLT measure March 31 as part of a state budget.The legislative plan provides more money to tracks than Pataki is proposing. It also gives a higher percentage of revenue to smaller tracks, and lowers the percentage of VLT share that would go to Aqueduct and Yonkers.Still, the agreement, if approved, would provide more than enough money and provide legal protections to ensure Aqueduct and Yonkers, expected to generate the most VLT revenue in the state, would be able to start construction this year on their long-stalled VLT parlors.The legislation is intended as a "fix" to deal with an appeals court decision last year that struck down as unconstitutional a 2001 law that permitted VLT proceeds to be used for purses and breeding funds. The court said any gambling revenue from VLTs must go to education, with the exception of money for tracks that serve as vendors for the state Lottery Division, which runs the VLT program.The new bill is silent on VLT revenue for purses and breeding funds; however, tracks are expected, as part of their licensing, to secure deals with horsemen's groups for purse sharing. By contrast, the plan being pushed by Pataki would pay horsemen and breeding accounts out of the state's general fund; sources said the governor believes his plan better addresses the concerns the appeals court raised about how purses and breeding funds are paid.Tracks have been supportive of the legislative plan because it gives them more money. They also have raised questions about the general fund being a less reliable source of predictable purse revenue from year to year.Under current law, 29% of VLT revenue, after payouts to bettors and the state, goes to tracks. A portion of that money, on a sliding scale, goes to purses and breeding funds.Under the new deal, tracks would get 32% of the first $50 million in annual VLT revenue, 29% on the next $100 million, and 26% on anything above that amount. In addition, lawmakers added a new "marketing and promotional" payment that would provide an additional 8% on the first $100 million in VLT revenue, and 5% on everything over that figure.For Aqueduct and Yonkers, the fund for "marketing, promotion, and associated costs" of VLT operations would be capped at 4% of all VLT revenue. The additional 4%, sources said, could be worth at least $10 million for each of the tracks.Money for purses and breeding funds would then come out of the track's VLT proceeds, subject to separate deals between tracks, horsemen, and breeders. Legislators said the bill would be worth about $1 billion more in revenue for the state.For the New York Racing Association, the measure also ensures that its VLT partner, MGM Mirage, would remain as Aqueduct's VLT operator even if NYRA loses its franchise, which expires at the end of 2007. MGM has refused to move on the VLT casino unless it was guaranteed to remain as the operator beyond the end of 2007.Questions have been raised, sources said, about the contract between NYRA and MGM and whether the process followed state contract procedures. The new legislation doesn't address the contract.NYRA president Charles Hayward said internal talks have begun about starting up the VLT construction process at Aqueduct, but no formal moves can begin until the issue is resolved between the legislature and Pataki.Hayward said the racing industry supports the legislative plan. "It allows us to have enough money to operate the facility given the assumptions we've made, and allows payments for purses and breeding funds," he said.NYRA recently reach a memorandum of understanding on an earlier version of the legislative plan. Hayward said NYRA is now discussing with horsemen and breeding fund representatives to alter the earlier memorandum of understand. "We're confident that will be done in the next 24 or 48 hours," he said April 1.Hayward said it's his understanding top state officials last year acknowledged the NYRA contract with MGM and urged the VLT project to proceed. "They're in place and ready to go," Hayward said of MGM.Depending on the permitting process, Hayward said the Aqueduct VLT parlor could be open in a year once the issue is resolved in the state capital.The new bill also extends the VLT law, now set to expire at the beginning of 2014, until the end of 2017.