04/14/2004 03:28 PM House L&C
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= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 14, 2004
3:28 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Carl Gatto, Vice Chair
Representative Nancy Dahlstrom
Representative Bob Lynn
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 540
"An Act relating to workers' compensation insurance rates; and
providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 545
"An Act relating to the extension under the State Procurement
Code of terms for leases for real estate and certain terms for
certain state contracts for goods and services; and providing
for an effective date."
- HEARD AND HELD
CS FOR SENATE BILL NO. 102(L&C) am(efd fld)
"An Act increasing the amount of revenue received by the state
from charitable gaming activities, and relating to taxes on
pull-tabs."
- TABLED
PREVIOUS COMMITTEE ACTION
BILL: HB 540
SHORT TITLE: WORKERS' COMPENSATION INSURANCE RATES
SPONSOR(S): LABOR & COMMERCE
03/22/04 (H) READ THE FIRST TIME - REFERRALS
03/22/04 (H) L&C
03/31/04 (H) L&C AT 3:15 PM CAPITOL 17
03/31/04 (H) <Bill Hearing Postponed to Fri. 4/2/04>
04/02/04 (H) L&C AT 3:15 PM CAPITOL 17
04/02/04 (H) Heard & Held
04/02/04 (H) MINUTE(L&C)
04/14/04 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 545
SHORT TITLE: STATE REAL PROPERTY LEASE EXTENSIONS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
03/25/04 (H) READ THE FIRST TIME - REFERRALS
03/25/04 (H) L&C, JUD
04/07/04 (H) L&C AT 3:15 PM CAPITOL 17
04/07/04 (H) <Bill Hearing Postponed to 4/14>
04/14/04 (H) L&C AT 3:15 PM CAPITOL 17
BILL: SB 102
SHORT TITLE: CHARITABLE GAMING REVENUE/TAXES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
03/06/03 (S) READ THE FIRST TIME - REFERRALS
03/06/03 (S) L&C, FIN
03/13/03 (S) L&C AT 1:30 PM BELTZ 211
03/13/03 (S) Heard & Held
03/13/03 (S) MINUTE(L&C)
04/24/03 (S) L&C AT 1:30 PM BELTZ 211
04/24/03 (S) Heard & Held
04/24/03 (S) MINUTE(L&C)
04/29/03 (S) L&C AT 1:30 PM BELTZ 211
04/29/03 (S) Heard & Held
04/29/03 (S) MINUTE(L&C)
05/06/03 (S) L&C AT 1:30 PM BELTZ 211
05/06/03 (S) Moved CSSB 102(L&C) Out of Committee
05/06/03 (S) MINUTE(L&C)
05/07/03 (S) L&C RPT CS 2DP 1DNP 2NR NEW TITLE
05/07/03 (S) DP: BUNDE, SEEKINS; DNP: FRENCH;
05/07/03 (S) NR: DAVIS, STEVENS G
05/09/03 (S) FIN AT 9:00 AM SENATE FINANCE 532
05/09/03 (S) Heard & Held
05/09/03 (S) MINUTE(FIN)
05/13/03 (S) FIN RPT CS(L&C) 3DP 2DNP 2AM
05/13/03 (S) DP: GREEN, WILKEN, STEVENS B;
05/13/03 (S) DNP: HOFFMAN, OLSON;
05/13/03 (S) AM: TAYLOR, BUNDE
05/13/03 (H) FIN AT 8:00 AM SENATE FINANCE 532
05/13/03 (S) Moved Out of Committee
05/13/03 (S) MINUTE(FIN)
05/16/03 (S) TRANSMITTED TO (H)
05/16/03 (S) VERSION: CSSB 102(L&C) AM(EFD FLD)
05/16/03 (H) READ THE FIRST TIME - REFERRALS
05/16/03 (H) FIN
05/17/03 (H) FIN AT 10:00 AM HOUSE FINANCE 519
05/17/03 (H) Scheduled But Not Heard
05/18/03 (H) FIN AT 10:30 AM HOUSE FINANCE 519
05/18/03 (H) Bill Postponed
05/19/03 (H) RULES TO CALENDAR PENDING REPORT
05/19/03 (H) MOVED TO BOTTOM OF CALENDAR
05/19/03 (H) IN FINANCE
01/15/04 (H) FIN AT 1:30 PM HOUSE FINANCE 519
01/15/04 (H) Heard & Held
01/15/04 (H) MINUTE(FIN)
01/28/04 (H) L&C REFERRAL ADDED BEFORE FIN
04/05/04 (H) L&C AT 3:15 PM CAPITOL 17
04/05/04 (H) -- Meeting Postponed to 04/06/04 --
04/06/04 (H) L&C AT 3:15 PM CAPITOL 17
04/06/04 (H) -- Meeting Canceled --
04/14/04 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
LINDA HALL, Director
Division of Insurance
Department of Community & Economic Development (DCED)
Juneau, Alaska
POSITION STATEMENT: Characterized the timelines in HB 540 as a
step backwards and requested time to allow the division to work
on its proposal.
CRAIG NOOTTVEDT
Alaska National Insurance Company
Seattle, Washington
POSITION STATEMENT: Testified that he is amenable to Ms. Hall's
proposal for HB 540, but expressed the need to have time to work
on a compromise.
VERN JONES, Chief Procurement Officer
Division of General Services
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Presented HB 545 and answered questions.
LARRY MEYERS, Deputy Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Presented SB 102 on behalf of the governor.
DAVID SANDEN, Manager
Hidden Treasures, MBP
Juneau, Alaska
POSITION STATEMENT: During discussion of SB 102, explained his
proposal.
BOB LOESCHER, President
Juneau Tlingit & Haida Community Council;
Advisor, Alaska Native Brother Grand Camp
Juneau, Alaska
POSITION STATEMENT: During discussion of SB 102, testified that
gaming is a matter for the state to address rather than local
municipalities.
GEORGE WRIGHT, Pull-Tab Operator
Juneau, Alaska
POSITION STATEMENT: During discussion of SB 102, disagreed with
the proposed 15 percent tax and Mr. Sanden's proposal.
MAC MEINERS
Juneau Gun Club;
Juneau Ski Club;
United Fishermen of Alaska
Juneau, Alaska
POSITION STATEMENT: During discussion of SB 102, suggested that
the pull-tab industry be allowed to flourish.
CLARK GRUENING, Lobbyist
City & Borough of Juneau
Juneau, Alaska
POSITION STATEMENT: During discussion of SB 102, testified to
the need for the state to be able to gather some additional
revenue while allowing the municipalities that presently tax the
ability to preserve the rate of taxation they have.
GERALD DORSHER, Legislative Officer
Veterans of Foreign Wars (VFW)
Department of Alaska
Juneau, Alaska
POSITION STATEMENT: Urged the committee to vote down HCS CSSB
102, Version U.
ALLYN YANISH
C&A Distributors
Fairbanks, Alaska
POSITION STATEMENT: Expressed concerns with SB 102.
LAYNE ST. JOHN
Yukon Quest International Sled Dog Race
Fairbanks, Alaska
POSITION STATEMENT: Urged the committee to kill SB 102.
DAVID LAMBERT, Pull-Tab Operator
Fairbanks, Alaska
POSITION STATEMENT: Testified that had SB 102 been in place
last year, he would've been out of business.
TJ ROGERS
Downtown Bingo
Fairbanks, Alaska
POSITION STATEMENT: Testified that SB 102 would take money away
from the nonprofit organizations, which would in turn result in
loss of their services to the communities.
FRED RICHARDSON, Western District Commander
American Legion
(No address provided)
POSITION STATEMENT: Urged the committee not to pass SB 102.
WILL KING
YMCA - Alaska, Armed Services
(No address provided)
POSITION STATEMENT: Expressed concerns with SB 102 and offered
alternative solutions.
ED MOEGLEIN
Alaska Non-profit Charitable Organization
Kenai, Alaska
POSITION STATEMENT: Testified in opposition to SB 102.
GEORGE BRIGGS, Executive Director
Chamber of Commerce
City of Dillingham
Dillingham, Alaska
POSITION STATEMENT: Testified in opposition to SB 102.
CELENA BROWN, Gaming Manager
Senior Center
City of Dillingham
Dillingham, Alaska
POSITION STATEMENT: Read a letter from Lauralee Mitchell,
Director, Senior Center, City of Dillingham.
JOHN LANDERFELT
Laborers Local 341
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to SB 102.
LYNN REESE
Lynn's Pull-Tabs
Anchorage, Alaska
POSITION STATEMENT: Urged the committee not to pass SB 102
without looking for alternative resources within the gaming
community.
JIM PEOT, General Manager
Whaler Casino Supply
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HCS CSSB 102,
Version U.
ACTION NARRATIVE
TAPE 04-41, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 3:28 p.m. Representatives
Anderson, Gatto, Dahlstrom, Lynn, Rokeberg, Crawford, and
Guttenberg were present at the call to order.
HB 540-WORKERS' COMPENSATION INSURANCE RATES
CHAIR ANDERSON announced that the first order of business would
be HOUSE BILL NO. 540, "An Act relating to workers' compensation
insurance rates; and providing for an effective date."
Number 0057
LINDA HALL, Director, Division of Insurance, Department of
Community & Economic Development (DCED), informed the committee
that the timeline in the current legislation doesn't meet what
she believes "we should be doing for our consumers." She opined
that the timelines are a step backwards in the rate approval
process. This year the division diligently tried to have rate
approvals in sufficient time for employers to access the impacts
of rate changes. This year the division was able to provide
approximately two months advance notice. Under the scenario in
the current legislation, rate approval couldn't occur until
December 1, which she didn't believe was sufficient notice for
employers to plan. Ms. Hall related that she doesn't intend to
stop the legislation. Although the process is fine, it needs to
work for all the stakeholders.
MS. HALL informed the committee that the division has a proposal
that maintains the spirit of HB 540 in that it allows the
hearings. However, the division's proposal does change the
timeframes. She requested that the committee provide her the
time to work on the proposal so that with the sponsor and the
division can develop legislation that will work for everyone.
Number 0288
CRAIG NOOTTVEDT, Alaska National Insurance Company, stated that
he is amenable to the proposal by Ms. Hall, although he has some
concerns. He noted his agreement that Ms. Hall's proposal
attempts to meet the change in the system. The hope is to have
a day to work on this with Ms. Hall in order to negotiate a
quality piece of legislation.
CHAIR ANDERSON announced that HB 540 would be held over in order
for the parties to work on a compromise.
HB 545-STATE REAL PROPERTY LEASE EXTENSIONS
CHAIR ANDERSON announced that the next order of business would
be HOUSE BILL NO. 545, "An Act relating to the extension under
the State Procurement Code of terms for leases for real estate
and certain terms for certain state contracts for goods and
services; and providing for an effective date."
Number 0417
VERN JONES, Chief Procurement Officer, Division of General
Services, Department of Administration, explained that currently
the procurement code allows the [division] to negotiate
extensions of office space leases for up to 10 years in exchange
for rent reductions. This legislation would increase the
state's ability to negotiate such by changing the current
required threshold from a 10 to 15 percent reduction off the
existing lease rate to a 5 percent reduction from the current
market rate for the area. Mr. Jones informed the committee that
existing statutory restrictions on the negotiations have
hampered [the division's] ability to negotiate lease extensions
with the lessors. "The increase in the real estate market in
Alaska combined with the way we structure our leases, often
makes a 15 percent reduction from existing rental rates
unattainable," he explained. Therefore, tying the reduced rate
to a percentage of the current market is a more reasonable
approach that he believes will allow the negotiation of reduced
rates more frequently while avoiding the lengthy and expensive
re-procurement process. Such an approach will avoid the costs
and disruption of moving state offices and large numbers of
state employees.
MR. JONES turned attention to a chart, which illustrated that
lease costs consist of several elements, including lessor
profit, ongoing lessor costs, and the upfront construction and
tenant improvement costs. He explained that the upfront
construction and tenant improvement costs are generally financed
and amortized over the initial firm term period of a lease. The
lessor is afforded an opportunity to bid a different price
during the option periods of a lease. Generally, there is a
dramatic decrease in prices after the initial firm period is
over. A rate below the already-reduced option year cost is
often unattainable [to the division] as opposed to a percentage
below a market rate, which many more lessors are willing to
negotiate. Mr. Jones said that the more often these submarket
rates can be negotiated and avoid the costs of re-procurement
and moving expenses the more the state saves. Mr. Jones
mentioned that HB 545 would also allow extensions for other
nonlease contracts.
Number 0652
REPRESENTATIVE ROKEBERG commented that the changes in the market
have driven the need for some modification to this successful
program. He inquired as to the methodology that would be used
in order to establish the prevailing market rates.
MR. JONES answered that in the large metropolitan area of
Anchorage there are independent third-party market watch
services available. However, the difficulty is in regard to the
rural areas for which the bill isn't specific. Mr. Jones
related that the intent is to develop as many "comps" as
available in order to determine what the market would be in that
area. In some cases, [the state] is the only lessor in an area,
which means that [the state] may set the market.
REPRESENTATIVE ROKEBERG pointed out that in area such as
Anchorage one can utilize a broker's opinion of value (BOV) as
opposed to an appraisal done by a licensed real estate
appraiser, which is the more costly of the two. However, he
acknowledged that an appraisal by a licensed real estate
appraiser lessens the ability for any mischief. Representative
Rokeberg said that he was concerned with regard to accomplishing
a baseline. A 5 percent reduction isn't a large margin, he
noted. The existing statute is clear because there is a
baseline of the existing rental rate. However, he recognized
that the market conditions in an up market don't allow for
"those types of things typically" unless the landlord has the
"sunk" costs recovered or amortized costs of the tenant
improvement allowances. "Presumably, there would be an
incentive of an existing landlord to bargain for a reduced rate
if he has recovered those costs. Is that not the case
sometimes," he asked.
MR. JONES confirmed that is the case sometimes. However, in a
market such as the current one 15 percent below an existing rate
is often impossible because [the division and the lessors] feel
the existing law is too restrictive.
Number 0868
REPRESENTATIVE ROKEBERG informed the committee that part of the
reason for the aforementioned is the Little Davis-Bacon Act,
which requires any refitting to be done under the prevailing
wage laws. Therefore, the costs to the landlord are increased
such that it's above the prevailing market rate. Representative
Rokeberg asked whether the communications or "CAT 5" type wiring
requirements have any impact on the space acquisition costs.
MR. JONES acknowledged that [the communications requirements]
are a substantial cost. However, he opined that it seems to be
turning into an industry standard.
REPRESENTATIVE ROKEBERG highlighted that recently the
legislature renewed its lease at the Anchorage Legislative
Information Office. In that case, the legislature agreed to
capitalize and pay for the costs [for refitting]. He recalled
that the original performer for the bid was about $180,000,
which, after going out to bid, was lowered to about $125,000.
The aforementioned was merely the cost for rewiring.
Representative Rokeberg reiterated his discomfort with the way
in which the prevailing market rate is established when dynamics
are present that provide the incumbent landlord a significant
advantage.
MR. JONES, in response to Chair Anderson, said that he could
work on addressing Representative Rokeberg's concerns.
REPRESENTATIVE ROKEBERG turned attention to Section 1(a)(2) of
the legislation. He questioned why the [state] would want to
extend a contract for goods or services up to a maximum of five
years "if a minimum cost savings of at least 5 percent can be
achieved on the price of goods or services established in the
contract." He further questioned why the aforementioned would
be chosen rather than go out in the market and re-bid it.
MR. JONES specified that the [language in Section 1(a)(2)] was
included as an additional tool, and he didn't anticipate
widespread use of it. Mr. Jones related that [the division] is
in the process of brainstorming with regard to developing ideas
to reduce the costs of goods and services as well as the leases.
From a procurement standpoint, the first option is always to go
out and obtain competition in the market place. The approach
under discussion would probably only be used when it is felt
that the open market would result in higher costs. Mr. Jones
said that since [the division] doesn't have experience in the
approach [laid out in Section 1(a)(2)], he could only relate
that the ability to negotiate leases will be used much more
often than the ability to negotiate procurement contracts.
REPRESENTATIVE ROKEBERG asked if the typical contract for goods
or services is five years for procurement of materials and
services.
MR. JONES said that often there are long-term contracts for
items such as copiers and fax machines or office supplies.
However, those are shorter contracts and less frequent than are
the leasing contracts.
REPRESENTATIVE ROKEBERG said that he did agree with the
department with regard to the lease premise. However, he
maintained his concern with the other option that must show only
a 5 percent cost savings because of the substantial opportunity
for mischief.
MR. JONES said that it's not the intent to do mischief.
Furthermore, 5 percent was utilized as a reasonable starting
point and [the division] isn't married to it. In fact, the
contract for goods or services is the lesser part of this
legislation. If the committee is uncomfortable with the 5
percent in Section 1(a)(2), the [division] is amenable to
increasing the percentage or removing it altogether.
Number 1216
REPRESENTATIVE ROKEBERG, with regard to the leasing contract,
inquired as to reallocation costs and other costs that would be
incurred. He also asked if there are any examples that
illustrate the 5 percent may have saved the [department] money.
MR. JONES informed the committee that moving costs are generally
estimated at $1 per foot. Tenant improvements and upfront
construction are generally substantial for a large-size lease.
There are also telephone relocations and CAT-5 cables are
expensive. He said he could provide the committee with specific
numbers later. Furthermore, the disruption of a relocation is
difficult to quantify. He noted that there are other things,
such as the changes required for letterhead, business cards, and
signage, that generate costs. With regard to the 5 percent, Mr.
Jones reiterated that it's just an idea and [the division] has
no particular plans for it. In virtually every aspect of the
business in General Services, the division has attempted to
develop ways to cut costs.
Number 1350
REPRESENTATIVE ROKEBERG noted that HB 545 has a House Judiciary
Standing Committee referral. Although there are some savings to
be had with this legislation, he requested that the
administration develop a tighter definition with regard to
establishing the prevailing market rates. He further requested
that the administration review the concept embodied in Section
1(a)(2) in order to develop a better argument for its need.
MR. JONES said that he would have the aforementioned done by
Friday.
CHAIR ANDERSON announced that HB 545 would be held over.
SB 102-CHARITABLE GAMING REVENUE/TAXES
CHAIR ANDERSON announced that the final order of business would
be CS FOR SENATE BILL NO. 102(L&C) am(efd fld), "An Act
increasing the amount of revenue received by the state from
charitable gaming activities, and relating to taxes on pull-
tabs."
Number 1475
REPRESENTATIVE CRAWFORD moved to adopt HCS CSSB 102, Version 23-
GS1131\U, Luckhaupt, 4/5/04, as the working document. There
being no objection, Version U was before the committee.
Number 1492
LARRY MEYERS, Deputy Director, Tax Division, Department of
Revenue, provided the following testimony:
The current bill proposes to increase the tax
collected on pull-tabs from 3 percent to 15 percent.
Pull-tabs account for 77 percent of all legalized
gambling currently done in the state. In 2002, the
state collected $2.1 million in taxes on $60 million
of ideal net, which is gross sales less the prizes
paid out. After expenses, $25 million net proceeds
were available for distribution for qualified uses in
the state. Charitable gaming in Alaska is a heavily
regulated industry. In order to stay in compliance in
pull-tabs, expenses cannot exceed 70 percent of gross
sales less prizes or, as it is known in the industry,
adjusted gross. The proposed tax increase is one of
those expenses. In order to stay within the 70
percent expense limit and distribute the same amount
of net proceeds to qualified organizations, one of two
things or a combination must happen under the proposed
tax increase. One, the prize payout must ... decrease
from the current average level of 78 percent. Or,
two, expenses must be reduced.
The bill before you attempts to help the qualified
organizations who are currently paying local sales
taxes by prohibiting any sales tax. Currently, there
are 16 cities paying a sales tax on pull-tabs ranging
from 2.5 percent to 5 percent. Most notably, are
Juneau at 5 percent, Palmer at 3 percent, Nome at 4
percent, Wasilla and Seward at 2.5 percent. All told,
approximately 18 percent of gross pull-tab receipts
are subject to a sales tax.
MR. MEYERS, in response to Chair Anderson, said that he has seen
the newest version of the legislation. With regard to
concurring with the grandfathering [provision], Mr. Meyers said
that he just reviewed the legislation and would pass that on [to
the governor].
Number 1603
CHAIR ANDERSON related that under Version U, the state would
impose a 15 percent tax on the ideal net proceeds from pull-
tabs. However, the state tax wouldn't apply to pull-tabs sold
in a municipality currently levying a use tax on pull-tabs.
Chair Anderson explained that the committee must weigh the
impact of the proposed tax as well as [its impact] in
conjunction with other pull-tab taxation and the position of
charities who don't want to be taxed. Version U is a partial
compromise in that it helps municipalities by grandfathering
them in. Version U would allow only those municipalities
currently levying taxes [on pull-tabs] to tax on a gross receipt
basis or an ideal net basis. Therefore, pull-tab operations
would be taxed by either the state or one or more grandfathered
municipalities.
REPRESENTATIVE GUTTENBERG asked if Mr. Meyers has done an
analysis regarding what a 15 percent tax would do to the pull-
tab industry.
Number 1699
MR. MEYERS answered that a 15 percent tax in a community that
already has a sales tax would be detrimental to the pull-tab
industry. With Juneau's 5 percent sales tax a $1,000 game would
amount to $50 in sales tax and the current tax of 3 percent
would amount to $6.60 on an average game, which totals $56.60.
However, a business in Anchorage paying the same game under the
current 3 percent tax only pays the $6.60. Therefore, a
community such as Juneau is at about a $50 disadvantage. Mr.
Meyers said that under the 15 percent proposal there would be
some operations that couldn't make it, although he expected the
majority would be able to comply.
REPRESENTATIVE GUTTENBERG asked if any analysis has been done
with regard to the loss of revenue to the nonprofits.
MR. MEYERS related that the goal with this [tax increase] is to
ensure that the charitable and nonprofit organizations aren't
the entities that absorb the increased tax. The hope is that
the same amount of money would continue to be distributed to the
community. Therefore, the [pull-tab industry] must get a better
handle on the expenses or the prize payout would have to be
reduced. Currently, the average state payout is about 78
percent. The calculations show that if the prize payout dropped
from 78 to 76 percent with the same amount of gaming, the
charities wouldn't lose any money.
Number 1803
REPRESENTATIVE ROKEBERG asked if fiscal note Number 3 is
applicable to Version U.
MR. MEYERS said that the fiscal note will be impacted by the
"grandfathering" that occurs in Version U. Under Version U, at
least 18 percent of the current projected revenue wouldn't be
available.
REPRESENTATIVE ROKEBERG turned attention to the document
entitled, "SB 102 COMPROMISE PULL TAB TAXATION PROPOSAL." Upon
discussion with the chair, it was indicated that the compromise
pull-tab taxation proposal isn't part of Version U.
Number 1905
DAVID SANDEN, Manager, Hidden Treasures, MBP, remarked that if
the committee decides to go with Version U, it will have to
ensure that one can't launder games. He explained that
currently one doesn't have to report by location, and therefore
games can be purchased in Anchorage and sold in Fairbanks. The
proposal is for one tax. "We think the 15 percent threshold is
fine," he related. Mr. Sanden informed the committee that the
current ideal net in the state is $70,504,867 and with the 1
percent and other state fees the state currently receives about
$2,585,507. Under the governor's request for an additional $2
million, the tax would have to increase for 3 percent to 5.84
percent. Representative Williams suggested a sliding tax, which
averaged 14 percent. However, Mr. Sanden expressed the need to
have one tax at 15 percent that would apply universally to every
community, then split the tax 50:50 with each municipality. The
aforementioned proposal would provide the state with $5,287,865
in comparison with the current take of $2,585,507. Mr. Sanden
highlighted the municipal share of taxation his proposal would
bring by region, which can be found on the bottom of the
document entitled, "SB 102 COMPROMISE PULL TAB TAXATION
PROPOSAL." Under Mr. Sanden's proposal the state would be a
winner because it would receive double what it's receiving now.
The local municipalities currently not taxing gaming are also
winners. The permit holders would be a winner because this
proposal creates a uniform taxation system. However, a partial
loser would be municipalities that are currently taxing.
Although municipalities that are currently taxing would [see a
reduction in their revenue flow], it would create sustainability
for the pull-tab industry in those communities. The largest
losers are the operators, gaming managers, and gaming
administrators because most of the excess in the pull-tab
industry is the administration.
MR. SANDEN highlighted that his proposal is how gambling is
taxed nationwide in that the states and the federal government
seize a portion of the ideal net, which is then distributed as
those entities see fit. In this case, Mr. Sanden is proposing a
50:50 distribution. Mr. Sanden mentioned that currently the
state isn't taking care of addicted gamblers, the local
municipalities bear that burden. Therefore, Mr. Sanden said
that he believes every municipality should receive something
from gambling.
CHAIR ANDERSON thanked Mr. Sanden for his hard work this session
and last and for coming forward in a proactive manner with a
solution.
Number 2066
REPRESENTATIVE ROKEBERG related his understanding that a charity
in Juneau, for instance, can place it's "licenses or ability"
with premises in another municipality and generate revenues in
that other municipality which are returned to the charity in
Juneau.
MR. SANDEN confirmed that the aforementioned is possible and
does happen. However, Hidden Treasures, MBP, which consists of
three nonprofits, only games in Juneau, Alaska. Currently, the
state doesn't regulate where one can or cannot game. Mr. Sanden
related that his organization doesn't feel it would be
appropriate to game in another city and bring the proceeds back
to Juneau. In further response to Representative Rokeberg, Mr.
Sanden explained that if an organization performs gaming in a
town outside of Juneau, Juneau couldn't tax the gaming because
it can only tax gaming in the municipality where it actually
occurs. Therefore, if one games in Anchorage, it would be tax-
free.
Number 2136
REPRESENTATIVE GATTO surmised that the municipal taxation by
region is proportional to the population. Therefore, he
questioned what would happen if a region such as Fairbanks
outlawed gaming. In such a scenario, would Fairbanks still
receive its 15 percent, he asked.
MR. SANDEN replied no, and clarified that his numbers are based
on the Department of Revenue's numbers. He further clarified
that these numbers are based on a Senate Labor and Commerce
Standing Committee interim report. That report specified that
the ideal net is $70 million and the state, with its 3 percent
tax, is receiving $2.1 million as well as a 1 percent net
proceeds fee that amounts to $341,000, and permit licenses bring
in $128,800. He explained that he obtained the state's census
data and broke it out by region and made the assumption that
each region gambles per capita equivalently. Therefore, if
Fairbanks outlawed gambling, it wouldn't generate any revenue
and thus wouldn't receive any revenue. Mr. Sanden highlighted
that under his proposal, one has to report where it's getting
its games, and therefore when the state collects its tax, it
will know how many games are sold to each area. The
aforementioned allows for the proportional split of the tax
revenue. He noted that for unorganized boroughs, for which the
state already "foots the bill for," the state would receive the
entire proceeds.
Number 2225
BOB LOESCHER, President, Juneau Tlingit & Haida Community
Council; Advisor, Alaska Native Brother Grand Camp, informed the
committee that he is representing some of the clubs operated by
the Tlingit & Haida Community Council and the Alaska Native
Brotherhood. Mr. Loescher related that charitable gaming is a
state concern with statutes and regulations, and therefore
should be managed by the state. He said that the organizations
he represents aren't in support of municipalities taxing
charitable gaming. He acknowledged that Version U includes
language specifying that communities with a tax on charitable
gaming would be grandfathered in, which he viewed as
problematic. If the aforementioned is done in Juneau, it would
amount to a 43 percent tax on charitable gaming, which would
result in the organization he is representing immediately going
out of business. A compromise could possibly allow the
grandfathering in of these communities with the caveat that the
tax couldn't be greater than that prescribed in the statute.
Number 2312
MR. LOESCHER turned to the 15 percent adjusted net tax, and
explained that it's collected at the time the box of pull-tabs
is purchased from the distributor. However, the law applies
differently to operators, coops, and self-directed
organizations. Self-directed organizations have to pay the tax
upfront, which, coupled with the tax collected at the time the
pull-tabs are purchased, amounts to a lot of upfront money.
TAPE 04-41, SIDE B
MR. LOESCHER opined that if charitable gaming is taxed, the 15
percent is a bit too high. He suggested that 11 percent would
be a better range, although the sliding scale proposed by the
[House] Finance Committee is even more favorable.
MR. LOESCHER, in response to Representative Rokeberg, explained
that the City & Borough of Juneau has a 5 percent tax on the
gross [receipts]. If that's converted to an equivalent adjusted
ideal net, that 5 percent is equivalent to about 28 percent.
Therefore, the 15 percent plus the 28 percent equivalent totals
43 percent.
Number 2309
GEORGE WRIGHT, Pull-Tab Operator, Operator 84, informed the
committee that he games in Fairbanks, Anchorage, and Juneau. He
stated that he disagrees with the 15 percent tax based on the
same arguments as Mr. Loescher. It's a large burden for some of
the charities to raise 15 percent of the ideal net upfront. He
predicted that this proposed tax will "kill off" many charities.
He, like Mr. Loescher, related that he liked the sliding scale
proposal of Representative Williams. The adjusted gross should
be the only thing that is taxed, he said. Mr. Wright opined
that the municipality shouldn't be able to tax if the state
does. Mr. Wright said that he didn't agree with Mr. Sanden's
proposal, which he viewed as too complicated.
MR. WRIGHT informed the committee that the pull-tabs are
purchased from a registered distributor and those games are
registered to the charities. Where those games are sold and
played is reported when the distributor files his or her report.
Therefore, he didn't believe there was a problem in regard to
knowing what games are being sold in what location. The tax in
Version U will hurt many charities. He noted that he works with
charities throughout the state. "The irony of this is gaming in
locations like the other body was talking about. It's Okay for
a villager to come in for AFN [Alaska Federation of Natives] in
Anchorage and spend their money, but it's not Okay for them to
come into Anchorage and raise money for their kids to stay off
of drugs and play basketball, or hockey, or baseball. I don't
understand that," he said. Mr. Wright noted that the Alaska
Native Brotherhood has opposed the tax [on charitable gaming]
for some time. Although [the Alaska Native Brotherhood] is
surviving the current tax, the additional 15 percent burden on
the adjusted gross is incorrectly calculated because it should
be paid at the end of the year when filing for permits.
Therefore, there could be a 3-4 percent tax when purchasing the
games and the 11 percent could be paid at the end of the year.
Number 2197
REPRESENTATIVE ROKEBERG questioned the difference between
backloading the tax payment versus frontloading it.
MR. WRIGHT specified that the difference is that by backloading
the tax, one has the ability to actually sell the games and earn
the money.
REPRESENTATIVE ROKEBERG related his understanding that these
pull-tab organizations have a revenue stream.
MR. WRIGHT answered that in his 12 years of gaming he hasn't
received any startup money from a charity. He further said that
he didn't know of any charities that provide startup money.
REPRESENTATIVE ROKEBERG inquired as to the cost of a typical box
of pull-tabs.
MR. WRIGHT informed the committee that a popular pull-tab game,
such as Blue Stars CrissCross, has about 2,500 tickets and will
cost $78. The profit on such could be between $150-$300
depending upon the version. Therefore, 15 percent of the $300
profit plus the price of the game results in upfront costs of
$110. The aforementioned is a fairly large burden, especially
when one is purchasing 40 such games to fill a shop. Small
organizations with only a couple of bins of pull-tabs only run
3-4 boxes of games and it takes a long time to sell out those
games. Furthermore, one must take into account dealer errors,
employee theft, and poor cash handling.
Number 2101
MAC MEINERS, Juneau Gun Club; Juneau Ski Club; United Fishermen
of Alaska, informed the committee that he has vendor
relationships for his clubs. He suggested that the committee
think of [pull-tab organizations] as small businesses and the
charities involved in these small businesses do so in order to
generate revenue. When excessive amounts of taxes are placed
[on charitable organizations], they come to the legislature
requesting funds. "So, instead of taxing us out of proportion,
why don't we let it flourish and why don't we all get a little
piece of the action," he suggested. He indicated that he would
like to pay [taxes] to only one [entity]. Mr. Meiners said that
he has gamed throughout the state, mainly outside of [Juneau]
because he makes more money elsewhere. He noted that the money
he paid in taxes to Juneau outweighs the money he makes in other
towns. In fact, he suggested that he is probably one of the
largest taxpayers in town. He related that he doesn't make a
large amount of money [helping these charities].
MR. MEINERS, in response to Chair Anderson, said that in regard
to Mr. Sanden's plan he could see the equitable split, although
he couldn't see so much of the ideal net go. If the state and
municipalities are going to split [the tax], then he suggested a
lower ideal net.
CHAIR ANDERSON asked if Mr. Meiners agreed that if the provision
specifying that the tax wouldn't be collected on pull-tabs
distributed and sold or used in a municipality that is already
levying a sales or use tax on them is necessary, it should have
a cap. With a cap, Chair Anderson surmised that the state would
receive a lesser amount while the cities would remain the same.
MR. MEINERS said that he didn't view giving the state or the
municipality more would really work. If the pull-tab industry
is to flourish and generate revenue, it must be played in the
middle. He explained that pull-tabs flourish on honesty and the
good feeling about where the money is going. He highlighted
that how the taxation and distribution occurs is in the
legislature's hands. However, for this to result in the folding
[of pull-tab establishments] and the [loss to the] charities [is
of concern].
Number 1903
CLARK GRUENING, Lobbyist, City & Borough of Juneau, noted that
although he didn't draft Version U, he was involved with it.
The two communities that worked on the amendments to the
legislation, now Version U, were Nome and Juneau. Mr. Gruening
emphasized that the 15 percent ideal net tax was included in the
legislation as it came over from the Senate, it isn't something
the cities requested. The concept of this legislation is to
protect the taxes the 12 municipalities already levy on pull-
tabs. He noted that the committee packet should include a
document prepared by the Alaska Municipal League, which
specifies who taxes pull-tabs. Version U eliminates the state
tax within those municipalities that already tax the pull-tabs.
Therefore, there wouldn't be any additional tax on top of the
proposed state tax.
MR. GRUENING noted that there is a small error. He also noted
that the Nome rate of taxation is 5 percent of gross. Version U
limits that taxation, and therefore "those that are
grandfathered in can't tax beyond that amount." Additionally,
the state tax wouldn't be on top of it. Mr. Gruening mentioned
that Mr. Sanden has done a lot of work on this matter. Although
the City & Borough of Juneau hasn't closed the door on reviewing
its rate, given the fact that most state aide has been lost
municipalities need all the revenue that can be obtained.
"There should be a way that both the state can gather some
additional revenue and the municipalities that presently tax can
preserve that rate of taxation they have," he remarked.
Number 1754
REPRESENTATIVE ROKEBERG asked if Version U means that the
municipalities assessing a tax on pull-tabs will be relieved of
any additional state tax burden.
MR. GRUENING related that he has been told that the actual rate
is about 21 percent of the ideal net, which generates $600,000
for Juneau. Surprisingly, it's fairly high for many rural
communities as well.
REPRESENTATIVE ROKEBERG turned to the grandfather provision, and
surmised that the current state tax is being paid [in Juneau].
MR. GRUENING replied yes. He directed attention to page 2 and
the deleted language on lines 1-3. The distributors are
currently collecting 3 percent of an amount equal to 3 percent
of gross receipts less the prizes awarded, which amounts to
about $2 million. However, CSSB 102(L&C)am(efd fld) included a
tax on the ideal net, which results in an additional $10
million. The cities already collecting would be subtracted from
that $10 million, and therefore it would [under Version U]
amount to $7-8 million additional revenues to the state. Mr.
Gruenberg said that [the City & Borough of Juneau] has no
position on whether that's a fair rate of taxation for the
state.
Number 1652
REPRESENTATIVE ROKEBERG returned to Mr. Loescher's notion of a
cap in order to protect the charitable share. He asked if the
City & Borough of Juneau would have any thought on that
particular notion.
MR. GRUENING suggested that the City & Borough of Juneau's view
would be that it's a local decision. If the state is going to
greatly increase its taxation in this area, then it should take
into account the overall impact. [Version U] eliminates the
aforementioned effect in those municipalities [that are already
taxing pull-tabs]. Whether it's too much for another area of
the state is for the legislature to decide.
REPRESENTATIVE ROKEBERG pointed out that Juneau has a tax of 5
percent of the gross, which seems to be the only municipality
with that specific number.
MR. GRUENING informed the committee that Nome now has the same.
REPRESENTATIVE ROKEBERG pointed out that Version U specifies
that rate of taxes of gross receipts can't exceed 5 percent.
Therefore, he questioned whether all those below 5 percent will
be able to raise their tax rates.
MR. GRUENING replied yes.
REPRESENTATIVE ROKEBERG commented, "So, we give them a free
ride, a pass, and then encourage them to raise their taxes. I
don't get."
MR. GRUENING clarified that he isn't advocating that the state
increase its present tax from 3 percent of the gross after
prizes to 15 percent of ideal net. Given the list of those
municipalities that would be grandfathered in, "it's probably
going to be ... not much more than you see on that total on the
list, which totals about $1.8 million."
Number 1516
REPRESENTATIVE LYNN commented on the tremendous differences in
revenue rates and asked if there have been any calculations of
the amount of revenue raised per capita.
CHAIR ANDERSON said that the committee could try to obtain that
information.
Number 1436
GERALD DORSHER, Legislative Officer, Veterans of Foreign Wars
(VFW), Department of Alaska, began by informing the committee
that the VFW and Ladies Auxiliaries are listed as having 34
pull-tab permits. Last year, $270,966 was returned to the
communities. Furthermore, 31,000 hours of community services
came from the VFW and its families. This year, $329,484 has
already been returned to the communities from pull-tabs. The
additional tax embodied in SB 102 would be detrimental to the
process. Mr. Dorsher recalled earlier testimony that the City &
Borough of Juneau gives money from its 5 percent to various
organizations, however it's a very complicated application
process. On the other hand, [the VFW and similar organizations]
see a need and proceed with a donation. He urged the committee
to vote down HCS CSSB 102, Version U.
Number 1308
MR. LOESCHER noted that he may have been in error with regard to
the 5 percent conversion, which may actually be 21.5 percent.
If it is 21.5 percent and to that is added the 3 percent and the
1 percent of the state, it amounts to between 26-28 percent.
Still, when the 15 percent is added it's a lot for a charity to
pay. Mr. Loescher expressed the need to keep in mind equity
when making broad public policy. Therefore, he reiterated that
charitable gaming is a matter of state concern and should be
managed and regulated by the state. If the city is
grandfathered at 21 percent, it's still higher than what the
state might have in whatever comes out of the legislature.
Furthermore, the rates will vary across the state. The question
is in regard to equity and applicability of tax law. Mr.
Loescher related that he would lean toward the notion that there
should be fair taxation on all charities across the state. If
the committee decides to go in the direction of the
grandfathering provision, the municipalities should be
grandfathered but should not be allowed to tax in an amount
greater than the state taxes statewide. Therefore, the City &
Borough of Juneau would have to reduce its tax to 15 percent
under Version U.
CHAIR ANDERSON turned the gavel over to Vice Chair Gatto.
Number 1145
ALLYN YANISH, C&A Distributors, highlighted that this proposed
tax is a 500 percent increase on the charities. Furthermore,
nonprofits using a vendor relationship will experience a
decrease in net pull-tab income ranging from 75-80 percent. Mr.
Yanish also highlighted that he didn't know of any other
industry in the state that has a taxed dollar amount that's
greater than the actual price of the product itself. Mr. Yanish
turned to the Department of Revenue statement that the
difference can be made up with a lower payout game. He provided
the following example:
One of the games popular ... in Southeast - based on
an industry standard in Alaska is about a ... 85
percent payout .... The current price from a
distributor would be about $43 for the ... deal of the
game. ... the net profit of the game is $320 and
currently the tax that that charity spends is $9.60.
The total price to the nonprofit ... would be $52.
But, then if you take the 70:30 split between the bar
or the vendor, which 70 percent goes to the nonprofit
group 30 percent goes to the bar, right now the net
pull-tab income for the nonprofit would be $171.22
basically. That's the price of the game, the profit,
and the split. Under the ... change on SB 102, the
same price on the game, 15 percent tax on that game
would be $48. So, right there is $5 more, just on the
tax, than what the game is worth .... The total price
to the nonprofit would be $91.18 for about a 78
percent decrease in revenue. The net pull-tab income
for the nonprofit, then at the 15 percent, is $132.
Then to tax at the lower payout - I got a game here
that I did numbers on - it has a 28 percent profit or
about a 72 percent payout and you would have about an
80 percent decrease in net revenue to the nonprofit.
Number 0984
REPRESENTATIVE GUTTENBERG turned to Mr. Yanish's calculation of
the decrease in revenue to the nonprofits of between 75 and 80
percent. He related his understanding that the administration
expects that loss to be absorbed by the administration of these
games. He asked if Mr. Yanish could comment.
MR. YANISH informed the committee that under the 15 percent on
the ideal net proposal, he ran an 85 percent payout game and a
72 percent payout game. According to his calculations, there
will be a higher decrease on the lower payout. Players won't
play because they won't be winning, and therefore the games
won't be sold fast enough. He expressed the need to allow those
in the industry and those who know the industry to come together
to develop an equitable solution.
Number 0872
LAYNE ST. JOHN, Yukon Quest International Sled Dog Race,
recommended that the legislation be killed. However, if that's
not to be, then he suggested a more reasonable increase because
a 500 percent increase will be detrimental to every nonprofit in
the community. Mr. St. John turned to the issue of equity and
pointed out that under [Version U] it seems that Juneau would
have no money removed from its community while Fairbanks would
experience a loss of nearly $1 million. Therefore, those
permittees in those areas with a sales tax would actually take a
reduction "in what they're paying" while the remaining
permittees would have to cover it with the increase. Mr. St.
John said that this legislation takes directly from the
nonprofit's coffers. Furthermore, the people receiving the
services from the nonprofits lose.
Number 0759
DAVID LAMBERT, Pull-Tab Operator, informed the committee that he
represents about 20 nonprofits. Mr. Lambert specified that this
legislation would put him out of business and in excess of 20
nonprofits would [receive no funds]. There isn't room for a 12
percent profit in this business, he said. Based on last year's
figures, the proposal in SB 102 would have placed his business
$168,000 in the hole. "What works in Juneau doesn't necessarily
work here," he remarked. Mr. Lambert echoed earlier remarks
that people knowledgeable about gaming should be working on this
issue. He indicated support of the notion of a gaming
commission, although he wasn't supportive of Mr. Sanden being on
it.
Number 0631
TJ ROGERS, Downtown Bingo, informed the committee that Downtown
Bingo is a MBP representing three nonprofit permittees. He
pointed out that all of his permittees, as he imagined is the
case for all in the state, fall under one of the categories of
501(c) tax laws that are tax exempt. However, he noted that the
federal government does tax [the pull-tab industry] minimally.
Up to this point, Mr. Rogers said he thought the state was "in
line" with the aforementioned and taxed the industry at a rate
[commiserate] with its oversight responsibilities. The entire
notion of tax-exempt nonprofits is due to the community service
they provide, which relieves the state and the federal
government of that burden. However, [this legislation] will
take the money right from the nonprofits and reduce their
ability to provide the services they currently provide.
Furthermore, he didn't believe the state would "pick up the tab"
for those lost services. Mr. Rogers opined that the state
should only collect what is necessary to cover the costs for its
responsibilities and not try to fill the coffers of state
government.
Number 0485
FRED RICHARDSON, Western District Commander, American Legion,
informed the committee that he represents some 24 American
Legion posts and some 7,000 members. Although Mr. Richardson
recognized that the state is in a budget crunch, increasing the
gaming tax to 15 percent isn't the way to [address it]. He
explained that most of the American Legion posts spread out the
gaming. He related that his post sponsors high school baseball
programs for coaches, Veterans in Distress, a local Boy Scout
troop, 4-H programs, junior shooting programs, et cetera. "I
don't think any of the money you wanted to take out and increase
gaming taxes will be used for these community projects, which
means we should have to cut back or drop some of these
worthwhile programs," he remarked. In conclusion, he urged the
committee not to pass SB 102 because it will hurt many people
and many needed community programs.
Number 0321
WILL KING, YMCA - Alaska, Armed Services, informed the committee
that YMCA of Alaska is a 501(c)(3) nonprofit charitable
organization, which provides programs and services for military
members and their families throughout the state. The
organization has a gaming permit and is currently self-directed.
Currently, the organization uses four vendors in Anchorage to
use pull-tabs as a source of revenue for the organization. Mr.
King expressed concern with SB 102 because it increases the
pull-tab tax by 500 percent. The additional expense would be
borne by the pull-tab permittee or charity, and furthermore the
net proceeds would significantly decrease. Mr. King related the
standpoint of his organization as follows. Based on 2003
charitable gaming revenues, a 15 percent pull-tab tax would
amount to a $22,000 decrease in his organizations' ability to
provide programs and services. He noted that for his
organization, charitable gaming represents about 10 percent of
the annual operating budget. There are other charities that
rely more heavily on gaming revenues, he highlighted.
MR. KING expressed concern that only the pull-tab permittees are
being taxed. Although he didn't mind being a part of the
solution for the state budget problems, he suggested that other
areas of the industry should be looked at as well. There is no
language in this legislation or any other proposed legislation
that would increase fees on pull-tab manufacturers, operators,
bingo raffles, or other lottery activities. "This bill simply
applies to taxing permittees who vend pull-tabs and directly
takes money out of the pocket of the nonprofit charitable
organizations gaming was designed to help," he pointed out.
Therefore, he proposed returning "charitable" back to charitable
gaming statutes by not penalizing an entity with a 500 percent
increase in taxes. Mr. King echoed earlier testimony that under
this legislation, the tax on the pull-tabs would amount to more
than the cost of the pull-tab games.
[Vice Chair Gatto returned the gavel to Representative
Anderson.]
Number 0023
MR. KING pointed out that the original legislation proposed by
the governor in SB 102 and HB 169 proposed a 5 percent tax,
which has now grown to 15 percent.
TAPE 04-2, SIDE A
MR. KING suggested that perhaps gaming fee permits, which
currently range from $20-$100, could be increased. Similarly,
perhaps vendor permits, currently $50, could be increased. He
also suggested that there could be an increase in permit or
license fees for the manufacturers, distributors, and operators.
Number 0119
ED MOEGLEIN, Alaska Non-profit Charitable Organization, informed
the committee that the aforementioned organization is a member
of a local charitable organizations of the VFW, the American
Legion, and Vets Elks and Eagles. The aforementioned
organizations have united to protect the organizations' ability
to raise revenue for the organizations, members, programs, and
services. He opined that collecting revenue for the state from
charitable gaming would be more harmful to all Alaska
communities than could any funds to help the state's revenue
shortfalls. Mr. Moeglein highlighted that the members of the
community service organizations volunteer their own time and
money to support their communities, local charities, and people
who need support that isn't provided by any other agency. Mr.
Moeglein requested the committee's support against any
legislation that would take away any volunteer effort or revenue
from any [charitable organization]. In conclusion, Mr. Moeglein
requested that the committee defeat SB 102 and all other
legislation that would be harmful to all volunteer efforts.
Number 0287
GEORGE BRIGGS, Executive Director, Chamber of Commerce, City of
Dillingham, opined that SB 102 doesn't do any gaming association
any good. Mr. Briggs noted that the City of Dillingham has a
sales tax of 6 percent. Therefore, he assumed that under
[Version U] the City of Dillingham would be grandfathered in and
decrease its [rate of tax on gross receipts] to 5 percent. In
the aforementioned scenario, he questioned how that would impact
the 3 percent on ideal net. He asked if the 3 percent on ideal
net would be paid as well as the 5 or 6 percent sales tax.
CHAIR ANDERSON answered that he didn't believe so.
MR. BRIGGS related that even so, he isn't in favor of SB 102.
However, if there's going to be a tax, somewhere between 3-6
percent of ideal net would be a good compromise.
Number 0430
CELENA BROWN, Gaming Manager, Senior Center, City of Dillingham,
read a letter from Lauralee Mitchell, Director, Senior Center,
City of Dillingham, as follows:
The City of Dillingham Senior Center is a nonprofit
organization. Seniors in Dillingham and 32
surrounding villages and Bristol Bay benefit from our
services and programs. The NTS grant that drives our
program was cut more than $200,000 for FY 04. Our
pull-tab operation has helped us supplement a larger
percentage of the most needed of services in Bristol
Bay. Others have been dropped. Our association with
the City of Dillingham has many benefits in the form
of lower prices in gas, heating fuel, propane, and
freight. The city extends in-kind services to us in
the form of building maintenance, snow removal,
vehicle maintenance, ... personal services, and
volunteers. The City of Dillingham takes an active
role in our program as well as programs in the school.
And we would like to see them to continue to grow for
our seniors and the future of our children. The tax
that the city charges on pull-tabs goes into our
general fund, which is distributed to various
departments to run our city, one of which is our
school district ... [with] a budget of $6.6 million a
year and which the city provides $1.1 million from our
general fund.
MS. BROWN [speaking for herself] opined that she didn't believe
the committee understood the impact this legislation would have
on the smaller communities. Without [charitable gaming] many
seniors will have to go to the state and request money.
Number 0563
JOHN LANDERFELT, Laborers Local 341, began by relating Laborers
Local 341's opposition to SB 102. He explained that SB 102
would result in undue harm to an industry that provides Laborers
Local 341 with funds that it distributes to a large number of
charities. The charities include youth sport teams, educational
charities, scholarships, and medical charities.
Number 0626
LYNN REESE, Lynn's Pull-Tabs, Operator 77, informed the
committee that she contracts with the American Red Cross, the
American Lung Association, the Alzheimer Association, Blood bank
of Alaska, and Community Schools. "Quite simply, SB 102 shuts
my doors and throws me and the aforementioned out on the
street," she said. She opined that if SB 102 shuts her down, it
will also cause other small operators and programs to close.
She noted her agreement with the economics of this legislation
on the industry as presented by Mr. Yanish and Mr. Lambert.
MS. REESE highlighted that currently bingo paper, a form of
charitable gaming, isn't being taxed. She suggested that the
state could collect, in conservative terms, approximately $2
million. Unlike pull-tabs, a tax on bingo paper cold be passed
on to the consumer for a nominal cost. These taxes could be
collected at the distributor level. Ms. Reese said she would
happily prepare a written proposal based on the 2002 Annual
Gaming Report. Ms. Reese urged the committee not to pass SB 102
without looking for alternative resources within the gaming
community.
Number 0719
JIM PEOT, General Manager, Whaler Casino Supply, informed the
committee that he has been involved with charitable gaming for
over two years. Mr. Peot said that he is opposed to the current
form of the legislation, HCS CSSB 102, Version U. Mr. Peot
paraphrased from a September 28, 2003, letter he drafted to
Senators Wilken as follows:
This letter is initiated in opposition to the current
form of ... SB 102 ..., which raises the gaming tax
from 3 to 15 percent of the ideal net profits. Whaler
Casino Supply is a distributor of pull-tabs and other
gaming supplies throughout the state. Currently, our
business collects and pays the state department of
gaming ... up to $50,000 per month of gaming tax.
This equates roughly to 14 to 20 percent of our
monthly company gross sales. If the tax were
increased 15 percent - that's a 500 percent increase -
we'd be collecting and paying to the state an
estimated 50 percent, and that's going to be anywhere
from $100-$200,000 per month of our monthly gross
sales to the state. This proposed increase in the tax
will place the burden and liable of tax collection on
the distributors. If this proposed bill passes in its
current form, we can change our current business model
from being a premier supplier of pull-tabs and gaming
supplies to primarily being tax collectors for the
state. And that's why providing gaming supplies would
be our secondary business. I do not believe
distributors should primarily be in the business of
[tax] collectors for the state while assuming
considerable financial risk. It should be the state's
responsibility to collect these monies ....
MR. PEOT paraphrased a later paragraph in the aforementioned
letter as follows:
I strongly believe that such a drastic tax increase
will have a profound effect on the state's gaming
industry. Raising the gaming tax 500 percent will
most likely result in the collapse of many charities
that participate in gaming as a source of revenue,
collapse of many operators, and insolvency for many of
us distributors. ... it's unfair, there needs to be
some ... protection measures to protect the
distributors for slow payers or no payers. That is
quite a tall order for the state to pass on to the
distributors, is to raise that tax up to 500 percent.
If we were to miss a few payments, we really have no
recourse. Any of the charities are not bonded, the
operators are the only ones that are bonded and their
bond is not even applicable if they pay their
distributor. And what we have found in many cases is
that some of these charities refuse to pay the state,
the state will suspend their license. But there's
really no recourse for the distributors because we
can't really go after anything because what are you
going after. You're going after an entity that has no
assets and really has no tangible things connected to
it. ... if we were to pass this bill, and I just
think that we should re-look ... at the amount of tax.
Do a study to see if that's the right thing and put in
some "protectionary" measures to protect the
distributors. Now also speaking from the
distributor's point of view, I'd say that we're kind
of at the hub of the industry. We see stuff coming
from the manufacturers and we really have our ...
finger on the pulse because we ... deal with all
different shapes, sizes ... of all the different
charities. And from the people I've spoke with,
including Ms. Reese ..., she's pretty indicative ...
of a typical person. Now the big players, I would say
they will be able to absorb this new cost, but many of
these people that have high costs -- they're really
going to take a hit. And if the state is proposing to
raise this ... tax, going from $2 million up to $10
million, that $8 million is ... basically you're going
to be taxing the charities, that's who's going to be
paying for it.
CHAIR ANDERSON commented that he didn't enjoy taxing pull-tabs.
He further commented that the state needs an overall fiscal
plan, but he said he didn't believe this is the way to do it.
Moreover, this [legislation] won't solve [the state's fiscal]
problem. However, he expressed the desire for continued debate
and dialogue on this matter. Chair Anderson informed the
committee that there was a request to send SB 102 to the House
Labor and Commerce Standing Committee in order to have more
testimony and review the impact this legislation would have on
municipalities. He said he felt that the aforementioned has
been accomplished with the work [the committee has done] with
the municipal league and the cities that have testified.
Although he felt that the cities have come to somewhat of an
agreement with [Version U], he opined that the charities still
have a point with regard to the level of taxation and
unfairness. Therefore, he expressed the need to continue the
dialogue in the House Finance Committee. He mentioned his
desire for the House Finance Committee to work with the
charities to amend the legislation to a reduced rate. He
concluded by announcing his desire for the committee to move the
legislation on [to the House Finance Committee].
Number 1070
REPRESENTATIVE LYNN said that he wants to support the charities
and not kill them with this tax. He expressed the need to act
with great caution. Representative Lynn expressed concern with
this attempt to remedy the state's fiscal situation with
"patchwork" taxes. He stressed the need to have a long-term
fiscal plan that may include a tax and a reduction in spending.
REPRESENTATIVE LYNN informed the committee that every evening he
tries to contact five or so constituents and ask if they have
any questions, complaints, or concerns. Although the
constituents address a host of issues, the conversation usually
boils down to the need to address the state's fiscal situation.
Representative Lynn opined that the legislature is debating this
small tax bites to small segments of Alaska, while evading the
larger issue. "I'm very uncomfortable with the way this thing
is going," he said.
Number 1224
REPRESENTATIVE CRAWFORD stated that he is opposed to legalized
gambling, which he believes takes the money from many and places
in the hands of a few. He further stated that he is opposed to
the state depending on gambling money. Recalling the testimony
regarding how this legislation will hurt the charities and the
operators, Representative Crawford suggested that the only
entity this legislation helps is the coffers of the state. He
stressed that he didn't want the state to obtain more money from
gambling. Furthermore, he said he didn't like grandfathering in
municipalities because of the inequity it cases. Therefore, he
felt that the state would be better served with the status quo.
Number 1323
REPRESENTATIVE CRAWFORD moved that the committee table HCS CSSB
102, Version U. He requested a roll call vote.
CHAIR ANDERSON objected and directed attention to his earlier
statements that this is the governor's legislation and the
dialogue should continue in order to develop an equitable plan.
A roll call vote was taken. Representatives Crawford,
Guttenberg, Gatto, Dahlstrom, and Lynn voted in favor of tabling
HCS CSSB 102, Version U. Representative Anderson voted against
it. Therefore, HCS CSSB 102, Version U, was tabled by a vote of
5-1.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:25 p.m.
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