Legislature(1993 - 1994)
03/24/1993 01:00 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 GAYLE HORETSKI, COMMITTEE COUNSEL, HOUSE JUDICIARY 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 activities. 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 activities. 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 organizations. 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 changes. 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 permittees. 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 desired. Number 205 GARRY LANGILLE, PRESIDENT, KODIAK LIQUOR LICENSE 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 involved. 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 ELSIE O'BRYAN, PROJECT DIRECTOR, MID-VALLEY SENIORS IN 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 operator. 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 requirement. 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 DCED. 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 Committee. 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. REPRESENTATIVE JAMES WITHDREW her MOTION to MOVE CSHB 168 (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. ADJOURNMENT CHAIRMAN PORTER adjourned the meeting at 3:14 p.m.