Legislature(1993 - 1994)

03/24/1993 01:00 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  HB 168:  CHARITABLE GAMING AMENDMENTS                                        
  Number 469                                                                   
  REPRESENTATIVE CARL MOSES, PRIME SPONSOR of HB 168,                          
  testified that if enacted, his bill would clarify in statute                 
  what activities were permissible and also create a new                       
  charitable gaming permit called a "multiple beneficiary                      
  permit."  Two to six qualified organizations would be                        
  allowed to apply jointly for a multiple beneficiary permit,                  
  he stated.  The organizations could then conduct as many                     
  games and sessions as allowed by law for each permittee,                     
  multiplied by the number of holders of the multiple                          
  beneficiary permit.                                                          
  Number 501                                                                   
  COMMITTEE, outlined the components of a draft committee                      
  substitute, dated March 24, 1993.  She said that the draft                   
  committee substitute was identical to the original HB 168,                   
  except for three additional sections.  The first additional                  
  language appeared in section 6, on page 2 of the bill, she                   
  said.  She said that John Hansen, from the Department of                     
  Commerce and Economic Development (DCED) would explain the                   
  new language and its effect later.                                           
  MS. HORETSKI commented that sections 7 and 9 were also new                   
  additions to HB 168.  She said that the new language would                   
  require 40% of the adjusted gross income from a pull-tab                     
  activity be provided to the sponsoring charity.  Conversely,                 
  the bill held that the total amount of authorized expenses                   
  could not exceed 60% of the adjusted gross income.  She                      
  deferred to Mr. Hansen to explain the practical effect of                    
  that new language.                                                           
  Number 538                                                                   
  REPRESENTATIVE GAIL PHILLIPS noted that the changes to the                   
  body of HB 168 would require a title change.                                 
  Number 539                                                                   
  MS. HORETSKI replied that the title of the draft committee                   
  substitute reflected the changes made in the body of HB 168.                 
  Number 543                                                                   
  REPRESENTATIVE GREEN asked Ms. Horetski a question regarding                 
  the language on page 3, section 7, line 12, of the draft                     
  committee substitute.                                                        
  Number 549                                                                   
  MS. HORETSKI said that, in her understanding, at least 40%                   
  of the adjusted gross income from pull-tab activities, or at                 
  least 15% of the adjusted gross income from gaming                           
  activities other than pull-tabs had to be provided to the                    
  sponsoring charity.                                                          
  Number 555                                                                   
  REPRESENTATIVE GREEN expressed concern with the language.                    
  He asked what would happen in the event that an operator ran                 
  gaming activities consisting of both pull-tabs and other                     
  types of games.                                                              
  Number 562                                                                   
  MS. HORETSKI stated that if an operator ran both pull-tab                    
  and other gaming operations, he or she would apply one                       
  percentage rule to the pull-tab activity and another                         
  percentage rule to the other activity.                                       
  Number 569                                                                   
  JOHN HANSEN, GAMING AMANGER, DCED, said that the amendments                  
  included in the draft committee substitute required two                      
  separate expense limitations.  Specifically, he said that                    
  pull-tab expenses would be limited to 60% of adjusted gross                  
  income, or net income.  Other activities, he said, would                     
  have to have at least 15% of adjusted gross income for net                   
  proceeds.  Under current law, he said that operators were                    
  required to pay 15% of adjusted gross income for all gaming                  
  activities within two consecutive quarters.                                  
  MR. HANSEN said that currently, an operator could incur a                    
  loss in one quarter and pay no net proceeds.  In the                         
  following quarter, he said, the operator could pay the 15%                   
  minimum and be in compliance with the law.  Therefore, he                    
  said, although current law required that charities receive                   
  15% of adjusted gross income, in reality they sometimes                      
  received substantially less than that.                                       
  Number 597                                                                   
  REPRESENTATIVE GREEN asked Mr. Hansen to address a situation                 
  in which an operator ran both pull-tab and other gaming                      
  Number 601                                                                   
  MR. HANSEN replied that each activity would stand on its                     
  own, in terms of expenses.  He stated that under current                     
  law, an operator could offset bingo or pull-tab expenses                     
  with other types of gaming activity.  House Bill 168,                        
  however, would separate pull-tab activity from other                         
  CHAIRMAN PORTER asked if an operator running both pull-tab                   
  and other gaming activities would have to keep expenses and                  
  revenues separate.                                                           
  Number 618                                                                   
  MR. HANSEN responded that under current law, that separation                 
  was already required.  On both financial statements and                      
  quarterly reports, he said, each activity's income and                       
  expenses were separately identified.  However, he said that                  
  when the finances of those two activities were combined on                   
  the front of the financial statement, they became a joint                    
  net income, where one could offset the other.  House Bill                    
  168, he said, would isolate pull-tabs from other types of                    
  gaming activity and set percentages which would end up as                    
  net proceeds.                                                                
  Number 628                                                                   
  REPRESENTATIVE GREEN indicated his understanding of the                      
  practical applications of HB 168.                                            
  Number 634                                                                   
  REPRESENTATIVE NORDLUND asked if the 40% threshold would                     
  present any problems for operators or charitable                             
  Number 642                                                                   
  MR. HANSEN stated that the DCED had some financial                           
  statements on file, which were completed under the 40%                       
  requirement that had been imposed via regulation.  He said                   
  that some operations would have to change as a result of HB
  168.  While the 40% requirement was in effect, he said, some                 
  operators said that they had shut down less-profitable                       
  operations.  Other operators had complied with the                           
  regulation, and continued to comply with the regulation,                     
  although it was no longer in effect.                                         
  MR. HANSEN commented that HB 168 would have an effect not                    
  just on operators, but also on organizations that conducted                  
  their own gaming activity.  He said that there were                          
  currently no expense limitations on permittees who ran their                 
  own gaming activities.  He expressed an opinion that the                     
  changes that would result from HB 168 would be positive                      
  Number 667                                                                   
  REPRESENTATIVE KOTT recalled that the regulations had                        
  affected the larger gaming operations.  He asked Mr. Hansen                  
  to elaborate on the effect of the regulations.                               
  Number 674                                                                   
  MR. HANSEN replied that the Alaska gaming industry had seen                  
  substantial changes over the last several years.  Most of                    
  the changes that resulted in operators going out of                          
  business, he said, had nothing to do with the regulations.                   
  He stated that today, there was only one operator left out                   
  of the six largest operators doing business in 1990.  He                     
  mentioned that prior to the regulations going into effect,                   
  there were 26 operators in Alaska.  Today, there were almost                 
  40, he added.                                                                
  JIM FISK testified via teleconference from Kodiak in support                 
  of charitable organizations and the Charitable Gaming Reform                 
  Act of 1988.  He said that the goal of that act was to put                   
  the money in the hands of the charitable organizations.                      
  That, he stated, had not happened.  He said that his                         
  organization, the Bayside Fire Department, and other Kodiak                  
  charitable organizations, strongly supported the 60%                         
  expenses/40% charities break-out.  He also urged support for                 
  a forthcoming bill which related to gaming agents                            
  representing charitable organizations.  He said that                         
  permittees needed to get more money from charitable gaming.                  
  TAPE 93-41, SIDE A                                                           
  Number 000                                                                   
  RON PAGENKOPF said that he was a gaming operator and had                     
  gone into the business one year earlier to support youth                     
  athletics in Juneau.  He said that in several days, he was                   
  going to turn his business over to the charities that he had                 
  been representing.  He noted that under current law, it was                  
  very complicated to turn his operation over to the five                      
  MR. PAGENKOPF mentioned that HB 168 would allow the process                  
  that he was currently going through to be expedited.                         
  Additionally, he said that the bill would put less of a                      
  burden on charities when it came to auditing.  He indicated                  
  his strong support for HB 168.  He did not see any negative                  
  aspects of the bill, even for operators.  He said that the                   
  bill would allow those charities that had the time and                       
  expertise to run gaming operations the ability to reap                       
  maximum profits.                                                             
  Number 079                                                                   
  REPRESENTATIVE NORDLUND asked Mr. Pagenkopf how HB 168 would                 
  change the way in which operators currently did business.                    
  MR. PAGENKOPF understood that HB 168 would allow several                     
  charities to share a location, have volume purchasing power,                 
  and file a single report with the DCED.                                      
  Number 117                                                                   
  MR. HANSEN stated that HB 168 would allow for up to six                      
  organizations to conduct gaming activity at a single                         
  location, under a single permit.  Under current regulations,                 
  he said, this was already allowed, to some extent.  He                       
  commented that when the 1988 reform act was passed, pull-                    
  tabs were legalized, and operators were recognized as                        
  another class of licensee.  He said that particularly for                    
  large gaming operations, the law was more likely to                          
  recognize a licensed operator.                                               
  MR. HANSEN mentioned that the DCED had gone as far as it                     
  could, through the regulatory process, to allow multiple                     
  organizations to band together and conduct gaming operations                 
  without a licensed operator.  He said that HB 168 would                      
  recognize a new class of licensee:  a group of permittees                    
  that operated out of a single facility and had a blanket                     
  license for that activity.  He said that the bill would                      
  result in greater purchasing power, fewer reporting                          
  requirements, and economies of scale for labor.                              
  Number 170                                                                   
  REPRESENTATIVE NORDLUND asked Mr. Hansen if the charitable                   
  organizations would share the gaming proceeds equally.                       
  MR. HANSEN replied that organizations with a multiple-                       
  beneficiary permit could allocate the proceeds any way they                  
  Number 205                                                                   
  ASSOCIATION, testified via teleconference from Kodiak in                     
  support of HB 168.  He favored the 60/40 split.  He                          
  commented that the bill would allow non-profit organizations                 
  not currently involved in charitable gaming to become                        
  Number 233                                                                   
  SAM KITO made a statement on behalf of Dimitri Philemonof,                   
  Executive Director of the Aleutian/Pribilof Association.  He                 
  said that that organization operated Lucky Strike Bingo in                   
  Anchorage, and had requested the introduction of HB 168, so                  
  that multiple permittees could operate gaming activities in                  
  a single location.  He said that the bill would allow the                    
  organizations to use a single permit and distribute net                      
  income as they saw fit.                                                      
  MR. KITO mentioned that the 60/40 split would create                         
  problems for some organizations, including Lucky Strike                      
  Bingo.  He said that HB 168 would result in a 73% reduction                  
  in the amount of money that would go to the charities, due                   
  to non-consolidated federal business income taxes.                           
  Number 324                                                                   
  BILL BISHOP, from the AMERICAN LEGION, testified in support                  
  of HB 168 via teleconference from Kodiak.  He said that his                  
  organization relied heavily on the proceeds from charitable                  
  gaming activities to fund community service projects.  He                    
  supported the 60/40 split.                                                   
  Number 355                                                                   
  HOUSTON and a permit-holder, testified via teleconference.                   
  She said that in 1992, her organization had used an                          
  operator, received 15% of the adjusted gross income, and                     
  paid taxes on that 15%.  She strongly endorsed the 60/40                     
  split.  She asked Mr. Hansen if her organization were to                     
  become part of a multiple-beneficiary pull-tab permit, would                 
  it be prohibited from solely holding a bingo permit.                         
  Number 382                                                                   
  MR. HANSEN understood that the holder of a multiple-                         
  beneficiary permit would not be allowed to hold another                      
  gaming permit.  He said that gaming laws were designed to                    
  spread the wealth among many organizations, by limiting                      
  annual prize amounts.  He stated that the DCED would likely                  
  not oppose an amendment allowing a participant in a                          
  multiple-beneficiary permit to also be involved in a                         
  different gaming activity at a different location.                           
  MS. O'BRYAN asked Mr. Hansen about prize limitations for                     
  multiple-beneficiary gaming operations.                                      
  MR. HANSEN stated that under a multiple-beneficiary permit,                  
  the $1 million prize limitation would be multiplied by the                   
  number of organizations conducting gaming activities at a                    
  single location.                                                             
  Number 437                                                                   
  MS. O'BRYAN responded that it was her interpretation that                    
  HB 168 would allow her organization to double its potential                  
  income from charitable gaming, by getting involved in a                      
  multiple-beneficiary operation, and not utilizing an                         
  Number 441                                                                   
  MR. HANSEN concurred.  He added that under current law, a                    
  self-directed charitable organization was allowed a $1                       
  million prize limitation.                                                    
  Number 447                                                                   
  MS. O'BRYAN indicated her organization's strong support of                   
  HB 168, saying that it provided charities with options.  She                 
  stated that the amendments incorporated into the Judiciary                   
  Committee's draft committee substitute were positive changes                 
  to HB 168.                                                                   
  Number 463                                                                   
  REPRESENTATIVE KOTT asked Mr. Hansen to elaborate on his                     
  earlier comment that the DCED would not likely oppose an                     
  amendment allowing participants in a multiple-beneficiary                    
  venture to hold another gaming permit for a different type                   
  of gaming activity.                                                          
  Number 467                                                                   
  MR. HANSEN called the members' attention to section 8 of the                 
  draft committee substitute, which held that a participant in                 
  a multiple-beneficiary gaming operation could not hold                       
  another gaming permit.  He stated that the DCED would not                    
  object to changing that provision of the bill, provided that                 
  a charity still adhered to its $1 million prize limitation                   
  Number 492                                                                   
  REPRESENTATIVE NORDLUND asked who had requested the changes                  
  that appeared in the draft committee substitute.                             
  Number 497                                                                   
  MR. HANSEN replied that the amendment relating to the 60/40                  
  split had been drafted by the DCED, and embodied the essence                 
  of the Hickel administration's stance on charitable gaming.                  
  Regarding the second amendment, he mentioned that under                      
  current law, an operator and a permittee entered into a                      
  contract, which had to be submitted to the DCED within 15                    
  days.  He said that under current law, the DCED had no                       
  rights to approve or disapprove contracts.  The Mid-Valley                   
  Seniors had had contract problems, he said, and had                          
  requested some sort of legislative fix to ensure that                        
  contracts complied with the law and were approved by the                     
  MR. HANSEN added that under the bill's provisions a contract                 
  would set out the amount of compensation that an operator                    
  and a permittee would receive.                                               
  Number 537                                                                   
  REPRESENTATIVE NORDLUND asked the Chairman to consider                       
  holding HB 168 in committee until Friday.  He wanted to hear                 
  from additional gaming operators in the Anchorage area, to                   
  find out their opinions on the bill.  He mentioned that he                   
  had heard that some gaming operators ran their bingo games                   
  at a deficit, and used pull-tab proceeds to make up for that                 
  deficit.  He expressed concern about the effects of HB 168                   
  on those types of gaming operations and the charities which                  
  benefited from them.                                                         
  CHAIRMAN PORTER commented that the committee had heard from                  
  operators, the DCED, and charitable organizations, and                       
  stated that no one had mentioned the concern raised by                       
  Representative Nordlund.                                                     
  Number 574                                                                   
  REPRESENTATIVE JAMES was comfortable with moving HB 168 out                  
  of committee.                                                                
  Number 577                                                                   
  MR. HANSEN stated that Anchorage bingo games were often                      
  operated as a "loss leader," to get people in the door of a                  
  gaming facility to play pull-tabs.  If a gaming operation                    
  had no adjusted gross income, there would be no expense                      
  report to file, he said.  He mentioned that it was up to                     
  operators to set prize amounts.  He stated that some bingo                   
  facilities paid out enormous prizes, because of competition.                 
  He said that HB 168 might force gaming operators to adjust                   
  their prize pay-offs to be more profitable.                                  
  MR. HANSEN commented that committee members would hear that                  
  HB 168 would have a big impact.  He admitted that the bill                   
  would have an impact, but said that the impact would be                      
  positive, because it would be across the board.                              
  Number 601                                                                   
  REPRESENTATIVE NORDLUND hoped to achieve a higher comfort                    
  level with regard to HB 168.  He again requested that the                    
  Chairman hold the bill in committee until Friday.                            
  CHAIRMAN PORTER stated that because the bill had a House                     
  Finance Committee referral, he was inclined to pass the bill                 
  out of committee today.  He said that if Representative                      
  Nordlund's research turned up serious concerns with the                      
  bill, they could be addressed in the House Finance                           
  Number 616                                                                   
  REPRESENTATIVE JAMES made a MOTION to MOVE CSHB 168 (JUD)                    
  out of committee, with individual recommendations and                        
  attached fiscal note.                                                        
  Number 621                                                                   
  REPRESENTATIVE KOTT OBJECTED.  He questioned whether the                     
  committee had adopted the draft committee substitute.                        
  (JUD) out of committee.  She made a new MOTION to ADOPT                      
  CSHB 168 (JUD), dated March 24, 1993.  There being no                        
  objection, IT WAS SO ORDERED.                                                
  Number 634                                                                   
  REPRESENTATIVE JAMES made a MOTION to MOVE CSHB 168 (JUD)                    
  out of committee with individual recommendations and                         
  attached fiscal note.                                                        
  Number 638                                                                   
  REPRESENTATIVE NORDLUND said that he would not object to the                 
  motion.  He added that he would bring his concerns before                    
  the House Finance Committee.                                                 
  There being no objection to Representative James' motion,                    
  CSHB 168 (JUD) MOVED out of committee.                                       
  CHAIRMAN PORTER adjourned the meeting at 3:14 p.m.                           

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