Legislature(1997 - 1998)

06/25/1997 01:30 PM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                      MINUTES{PRIVATE }                                      
                     SENATE FINANCE COMMITTEE                                
                            25 June 1997                                     
                             1:30 p.m.                                       
                                                                             
TAPES                                                                      
                                                                             
SFC-97, Tape 153, Sides A and B                                                
SFC-97, Tape 154, Sides A and B                                                
                                                                               
CALL TO ORDER                                                              
                                                                               
Senator  Bert Sharp,  Co-chair,  convened the  meeting at  the                 
Alaska Legislative  Information Office, Anchorage,  Alaska, at                 
approximately 1:45 p.m.                                                        
                                                                               
PRESENT                                                                    
                                                                               
In addition to  Co-chair Sharp, Senators Phillips,  Adams, and                 
Parnell were present.                                                          
                                                                               
ALSO ATTENDING:                                                            
                                                                               
Representative  Terry  Martin;  Tom Williams,  Staff,  Senator                 
Bert  Sharp; Deborah  Vogt,  Deputy  Commissioner,  Department                 
of   Revenue;   Dennis   Poshard,    Director,   Division   of                 
Charitable  Gaming, Department  of Revenue;  Larry E.  Meyers,                 
Director,  Division  of Income  and Excise  Audit,  Department                 
of Revenue.                                                                    
                                                                               
SUMMARY INFORMATION                                                        
                                                                               
SB 273    CHARITABLE GAMING                                                    
                                                                               
          Work Draft for SB 273, Version "H" (6/20/97) was                     
          discussed at the interim meeting.                                    
                                                                               
TESTIFIERS:                                                                
                                                                               
The  following   individuals  testified   in  person   or  via                 
teleconference   regarding  the  gaming  issue:   John  Lopez,                 
Operations  Manager,  Alaska  Bingo   Supply,  Anchorage;  Joe                 
Nyquist,  Operator, Fairbanks  and Anchorage;  Randy  Koelsch,                 
Operator,  Fairbanks; Jack  Powers,  Operator, Anchorage;  Bob                 
Wolting,  Fairbanks; Ann  McElrea, Soldotna;  Earl  Mickelson,                 
Commander,    American    Legion     Post,    Kodiak;    Larry                 
Hackenmiller,  Vendor,  Fairbanks; Kent  Hartzberg,  Executive                 
Director,   Boniface    Bingo,   Anchorage;    Tom   Dewhirst,                 
Anchorage;  George  Wright,  Member-in-Charge,  Alaska  Native                 
Brotherhood,  Juneau; Don  Skewis, Vendor,  Anchorage;  Ashley                 
Reed,  Charitable  Gaming Association  of  Alaska,  Anchorage;                 
and  Dave  Hammock,  General  Manager,  Public  Radio  Station                 
KBBI, Homer.                                                                   
                                                                               
Co-chair  Sharp  explained that  the  purpose  of the  meeting                 
was to  discuss draft  legislation [for  SB 273, version  "H"]                 
that  had not  been introduced  in  order to  gather  opinions                 
from the  department and participants  in the gaming  industry                 
in Alaska.  He pointed out that  the meeting would  be limited                 
to  the   proposals   included  in   the  draft   legislation,                 
principally  the   simplification  of  gaming   accounting  by                 
basing  the charitable  share  on  gross receipts  instead  of                 
net  proceeds. He  added  that other  gaming  issues would  be                 
addressed by  other legislation,  other committees,  and other                 
meetings.                                                                      
                                                                               
Co-chair  Sharp  reported  that the  percentages  included  in                 
the  draft  legislation  were for  discussion  purposes  only;                 
the numbers  would be  subject to change.  He emphasized  that                 
the  desire of  the committee  was  that the  legislation  not                 
change  the  flow  of any  dollars  from  the  direction  they                 
currently  went, as far  as the  state, charities,  operators,                 
and permit  holders. He  stated that  the committee wanted  to                 
come up  with percentages  that resulted  in the same  flow of                 
money from the operation of gaming in the state of Alaska.                     
                                                                               
Co-chair  Sharp noted that  there would  be a presentation  by                 
his staff,  followed by  a presentation  by the Department  of                 
Revenue  (DOR). He  added  that comments  and  recommendations                 
regarding  the proposed  legislation would  be made  available                 
to   those   directly    involved   in   charitable    gaming,                 
specifically  the   charity's  multi-beneficiary   permittees,                 
gaming  operator   vendors,  and  pull-tab  distributors.   He                 
noted that  when legislation was  introduced at the  beginning                 
of  the  session,   there  would  be  ample  opportunity   for                 
additional  public  comment  as the  provision  moved  through                 
the committee process in both the Senate and the House.                        
                                                                               
Co-chair  Sharp  pointed  out that  the  draft  version  being                 
used  in  the hearing  was  the  "H" version.  He  noted  past                 
promises  made  to DOR  to simplify  the  auditing  procedures                 
related to  gaming and the efforts  required by operators  and                 
permittees.                                                                    
                                                                               
TOM WILLIAMS,  STAFF, SENATOR BERT  SHARP, explained  that the                 
Senate   Finance   Committee    subcommittee   for   DOR   had                 
considered  various  alternatives for  savings,  one of  which                 
was  to consolidate  the Division  of Charitable  Gaming  into                 
the Division  of Income  and Excise Audit,  as it had  been in                 
the  1980s.  Various  ways  of  streamlining  the  charitable-                 
gaming process  had been  considered so  that fewer  resources                 
would  be  needed.  The  commissioner  of  DOR  had  expressed                 
interest  in   the  proposal  and   urged  the  committee   to                 
proceed.                                                                       
                                                                               
Mr. Williams  referred to the  sponsor statement,  a sectional                 
analysis of  the work draft ("H"  version dated 6/20/97),  and                 
copies  of   statutes  that  had   either  been  repealed   or                 
repealed   and   re-enacted.   He  read   from   the   sponsor                 
statement:                                                                     
                                                                               
     The  legislation  is intended  to insure  that  charity's                 
     share  of  charitable  gaming   proceeds  will  be  taken                 
     first  off the  top of  every dollar  played. The  public                 
     will  be ensured  that  out of  every  dollar wagered,  a                 
     certain  minimum  portion will  be going  for  charitable                 
     purposes.  At  the  same  time,   it  will  substantially                 
     simplify  the required accounting  for the Department  of                 
     Revenue,   charities,  and   the  operators  of   charity                 
     permits.    Finally,    insofar   as    possible,    this                 
     legislation  is  intended  to  maintain  the  status  quo                 
     with  respect to  the relative  amounts  returned to  the                 
     charities,  the relative amount  that the state  collects                 
     in  fees,  and  the relative  amount  available  for  the                 
     actual  gaming operations. Current  Alaska law  bases the                 
     amount   that  a   permittee  or   permittee's   licensed                 
     operators  must  generate  for  charitable  purposes  and                 
     bases  on adjusted  gross gaming  income (gross  receipts                 
     plus  price  payouts and  taxes).  In addition,  the  law                 
     describes  what a charity  or an  operator can or  cannot                 
     claim   as   an   allowable   operating    expense   when                 
     determining   the  net  proceeds   (the  adjusted   gross                 
     income  less  the  allowable  operating  expenses).  This                 
     requires  the charities that  are operators in  the state                 
     to all  generate, review, and  often audit a  substantial                 
     amount  of accounting  data, specifically  as relates  to                 
     what   is  an   allowable  expense.   For  the   entities                 
     involved  in charitable  gaming,  this is  time-consuming                 
     and  can be expensive.  This legislation  would base  the                 
     amount   required   to  be   dedicated   for   charitable                 
     purposes    (called    "charitable    share"    in    the                 
     legislation)  on  gross gaming  receipts.  It would  also                 
     base  the  state's  fee on  gross  gaming  receipts.  Not                 
     only  would reporting  be substantially  simplified,  the                 
     need  to audit  allowable expenses  would be  eliminated.                 
     The   Department  of   Revenue   strongly  supports   the                 
     concept  behind  the legislation,  which  would  simplify                 
     the   regulatory   oversight  and   regulatory   process,                 
     reducing  the cost  of  processing gaming  reports.  More                 
     importantly,  it  will enable  the department  to  expend                 
     more  of its recently  reduced  charitable gaming  budget                 
     on   auditing    and   the   investigation    of   gaming                 
     activities.                                                               
                                                                               
Mr. Williams  noted that  the bill was  11 pages long  and had                 
a lengthy  and  tight title  because the  legislation was  not                 
intended to  be a "fix-all" for  all charitable gaming's  ills                 
(perceived  or otherwise);  it was intended  to move  to gross                 
receipts and  simplify accounting.  He added that most  of the                 
sections dealt  with replacing the  term "net proceeds"  (used                 
currently)  with the term "charitable  share" (the  percentage                 
of  the gross  receipts  that would  go  to the  charity;  the                 
amount  had to  be used for  charitable  purposes, as  defined                 
currently  under   law).  He  provided  an  overview   of  the                 
sectional analysis:                                                            
                                                                               
   · Section 1: Repeals and re-enacts the section of law                       
     that  determines how  much of  a fee goes  to the  state,                 
     and  puts it in  a percentage  so that  it will  generate                 
     approximately the same amount currently generated.                        
                                                                               
   · Section 2: Substitutes gross receipts for the                             
     references  to  authorized  expenses  net  proceeds,  and                 
     also provides  the authority  to explicitly regulate  the                 
     timing  of the  payment  of charitable  shares  currently                 
     implied  in  Section 11.  Language  is also  expanded  to                 
     make  more  clear who  can  hold  a multiple-beneficiary                  
     permit (MBP).                                                             
                                                                               
   · Sections 3, 4, and 5: Substitute the charitable share                     
     language for net proceeds.                                                
                                                                               
   · Section 6: Updates a reference.                                           
                                                                               
   · Section 7: Deletes the references to expenses and adds                    
     language  that will  explicitly prohibit  a charity  from                 
     paying  any of the  expenses of  an operator, which  will                 
     ensure  that  the charitable  share  is not  directly  or                 
     indirectly reduced.                                                       
                                                                               
Mr.  Williams  noted  that in  the  initial  discussions,  the                 
department  presented  a  series  of  recommendations;   those                 
were  narrowed   down.   He  continued   with  the   sectional                 
analysis:                                                                      
                                                                               
   · Section  9: Repeals  and re-enacts  the provision  of law                 
     that  requires certain  portions  of the  proceeds to  go                 
     to  the  charitable  share  and  defines  the  charitable                 
     share  at  a preliminary  percentage  of  2.5 percent  of                 
     gross  receipts for  bingo, 7 percent  of gross  receipts                 
     for  pull-tabs,  and 10  percent  of gross  proceeds  for                 
     all other  gaming activities  (including fishing  derbies                 
     and raffles).                                                             
                                                                               
   · Section    10:   Amends    statutes   adding    reporting                 
     requirements   for   holders  of   multiple   beneficiary                 
     permits   that   are   consistent   with   the   operator                 
     reporting  requirements.  It  does  not change  when  MBP                 
     holders   are   required   to   make   distributions   to                 
     permittees.                                                               
                                                                               
   · Section  11: Comparable portion  to Section 9  as relates                 
     to MBPs,  setting percentages  of what must be  dedicated                 
     for charitable share.                                                     
                                                                               
   · Section   12:  Substitutes   charitable  share   for  net                 
     proceeds.                                                                 
                                                                               
   · Section  13:  Spells   out  the  amount  of  the  minimum                 
     charitable share.                                                         
                                                                               
Mr. Williams  detailed that while  the minimums stipulated  in                 
Section  13 would  be  the minimum  charitable  shares,  there                 
would  be nothing  that prohibited  an  operator or  permittee                 
from  dedicating  more of  the  gross proceeds  to  charitable                 
uses. Entities  that operated their  own games could  dedicate                 
more. He continued with the sectional analysis:                                
                                                                               
   · Sections  14 and  15:  Substitutes charitable  share  for                 
     net proceeds.                                                             
                                                                               
   · Section  16: Adds a  new section  to statute which  would                 
     authorize  operators  to  pool  gross  receipts,  prizes,                 
     and  door   prizes  by  activity,  which   will  simplify                 
     accounting   but  not   adversely   impact  the   amounts                 
     provided to the charities.                                                
                                                                               
   · Sections  17  and 18:  Substitute  charitable  share  for                 
     net proceeds.                                                             
                                                                               
   · Section  19: Repeals and re-enacts  existing law  to base                 
     gaming  limitations on gross  receipts rather  than prize                 
     payouts,   except  for  bingo.  Bingo  limitations   will                 
     remain  based on prizes, which  will add consistency  and                 
     reduce   required   accounting   without   abandoning   a                 
     workable system for bingo.                                                
                                                                               
   · Section  20: Substitutes  "ideal gross"  for "ideal  net"                 
     and reduces  the percentage  to a level that  will return                 
     approximately  the  same amount  to the  permittee.  (The                 
     terms "ideal  gross" and "ideal  net" deal with  pull-tab                 
     operators.)                                                               
                                                                               
   · Section  21:   Removes  the  ideal  provision   and  more                 
     clearly  describes  the  vendor  payment  process  (works                 
     with Section 20).                                                         
                                                                               
   · Section  22: Redefines  gross receipts  to exclude  local                 
     sales taxes collected.                                                    
                                                                               
   · Section  23: Amends  the definition  of  ideal gross  and                 
     ideal net.                                                                
                                                                               
   · Section 24: Defines charitable share.                                     
                                                                               
   · Section  25:  Repeals  three sections  of  statutes  that                 
     pertain to authorized expenses and net proceeds.                          
                                                                               
   · Section  26: Allows  the department  to proceed with  the                 
     regulatory  process so that  regulations can  take effect                 
     at  the  same   time  that  the  statutory   changes  are                 
     affected.                                                                 
                                                                               
Mr. Williams  explained that  the intended  effect on  DOR was                 
to  simplify  operations  and  to   allow  the  department  to                 
utilize resources  better; the  intended effect on  charities,                 
multiple-beneficiary permittees, game operators, and pull-                     
tab distributors was to hold the status quo (as far as                         
possible).   He  emphasized   that   the  idea   was  not   to                 
redistribute the dollars generated by gaming.                                  
                                                                               
Mr.   Williams  discussed   other   options   that  had   been                 
considered,  including  gaming legislation  by  Representative                 
Terry  Martin heard  in  the House  State  Affairs  Committee,                 
which  discussed   the  option  of  putting  forth   different                 
percentages  for different  types of  operators. The  proposal                 
was not  included in  the version  currently being  discussed,                 
in  order to  keep the  playing field  level  and not  protect                 
certain types  of operations. Entities  would be free  to make                 
their  own decisions  (such  as  what  expenses to  incur)  if                 
everyone was paying off a certain gross.                                       
                                                                               
Mr. Williams  pointed to a handout,  the executive  summary of                 
the  recommendations  of  the  governor's   Charitable  Gaming                 
Task  Force. He  noted that  several of  the recommendations,                  
although  not all, were  addressed by  the current version  of                 
the legislation.                                                               
                                                                               
Senator  Phillips asked  whether  any of  the  recommendations                 
had been implemented since 1995.                                               
                                                                               
DENNIS  POSHARD,  DIRECTOR,  DIVISION  OF  CHARITABLE  GAMING,                 
DEPARTMENT  OF  REVENUE,  replied  that  the  department  took                 
several  steps  in  achieving  some  of  the  recommendations                  
through the  implementation of a  new set of regulations  that                 
the task  force helped to craft.  He noted, however,  that few                 
statutory changes had occurred.                                                
                                                                               
REPRESENTATIVE  TERRY MARTIN  emphasized that  he was  opposed                 
to taxing  the industry.  He asked whether  phrasing  had been                 
included  to protect  certain elements  of  the industry.  Mr.                 
Williams  responded  in  the  negative.  He  said  there  were                 
proposals designed  to change  the charitable share  depending                 
on the  type of  operation. The  differential would  recognize                 
different  costs.  He  admitted  that  the  term  "protection"                 
might  not  be  the  best  word,  and  pointed  out  that  the                 
proposal  had not  been adopted  in the  version. The  current                 
version would  set the percentage  for all different  types of                 
operations  and not  make a  differential  for any  particular                 
one.                                                                           
                                                                               
Representative   Martin   queried   the   phrase   "charitable                 
share." He  asked whether  the total amount  that would  go to                 
the permittee would be lowered. He stated concerns.                            
                                                                               
DEBORAH  VOGT,  DEPUTY COMMISSIONER,  DEPARTMENT  OF  REVENUE,                 
testified  that  the  budget of  the  Division  of  Charitable                 
Gaming  had  been   cut  significantly  during   the  previous                 
legislative  session and  that the  division  had been  merged                 
with  the Division  of Income  and Excise  Audit, directed  by                 
Mr. Meyers.  She  acknowledged the  role of  Mr. Poshard,  the                 
out-going director of the Division of Charitable Gaming.                       
                                                                               
Co-chair Sharp  noted that the  hearing had been scheduled  in                 
order to  get testimony  from Mr. Poshard  before he  left the                 
division.                                                                      
                                                                               
Ms.  Vogt testified  that regulating  the  gaming industry  in                 
Alaska  had been and  would continue  to be  a challenge,  and                 
had  been   made  harder  by   budget  cuts.  The   department                 
intended  to  maintain  a strong  presence  in  the  industry,                 
although  the Division of  Income and Excise  Audit had  a lot                 
of other  duties and  charitable  gaming would  not be at  the                 
top  of  its  agenda.  She  noted  that   the  department  was                 
currently  facing  serious  changes in  the  gaming  industry,                 
including  the  budget  cuts  reducing  the  ability  to  look                 
after  the  industry.   In  addition,  she  noted   disturbing                 
trends  in the  reports filed  with the  department; a  review                 
of  the   1996  reports   had  shown   an  increase   in  non-                 
compliance.   The   information    was   public   information,                 
although  the names of  particular gaming  operations  had not                 
been included  in the  presentation because  the point  was to                 
look at the industry as a whole.                                               
                                                                               
Ms. Vogt  pointed to testimony  that the proposed  legislation                 
was   intended  to   be  revenue   neutral.   She  added   the                 
qualification  that  the goal  was  true  only to  the  extent                 
that  people  complied with  the  percentages  established  by                 
the  legislature.  To  the  extent  that  operations  did  not                 
comply  with current  law, she  hoped  the bill  would not  be                 
revenue  neutral  and  would  have   the  effect  of  bringing                 
people into compliance.                                                        
                                                                               
Ms. Vogt  believed the  legislation would  work to solve  some                 
of the problems  in the industry,  but she did not  believe it                 
would  solve  all the  problems.  She  noted  discussion  with                 
staff  regarding  issues that  were  not addressed  and  added                 
that the  department was supportive  of steps that  were being                 
taken.                                                                         
                                                                               
Mr.  Poshard  provided  a presentation  with  an  overview  of                 
gaming in  the state. He  pointed to a  slide with bar  charts                 
representing  the number of permits  issued, not the  activity                 
in  dollars;  the figures  inside  the  bars  represented  the                 
dollar amounts  of gaming activity  that occurred  during each                 
of  the   years.  He  gave  the   committee  an  overview   of                 
activity:                                                                      
                                                                               
   · When  the activity  began in  1960, there  was no  gaming                 
     division.  When gaming  was legalized  in the state,  the                 
     gaming  program  was within  DOR, which  was  responsible                 
     under  statute  for gaming  activities.  There was  about                 
     $600,000 in gross receipts in gaming activity in 1960.                    
   · In  1984, pull-tabs  were authorized  through  regulation                 
     and  the  department  issued   763  permits;  there  were                 
     gross receipts of approximately $41.6 million.                            
   · In  1988,   operators  were  legalized,   pull-tabs  were                 
     legalized  by  statute, and  the  prize limits  on  pull-                 
     tabs  were increased;  1,026  permits  were issued,  with                 
     gross receipts of about $87.5 million.                                    
   · In  1989,   after  the  legalization  of   pull-tabs  and                 
     operators,   1042  permits   were   issued,  with   gross                 
     receipts  of approximately  $186 million.  Also in  1989,                 
     gaming  was transferred  from  DOR to  the Department  of                 
     Commerce and Economic Development (DCED).                                 
   · In  1993,  MBPs  and  vendors  were  authorized,  minimum                 
     payments  to charities  were  increased,  and gaming  was                 
     elevated  to division  status within  DOR; 1,046  permits                 
     were issued, with a gross of $227 million.                                
   · In  1994,  regulations  were enjoined;  there  was  about                 
     $257  million   in  activity,   with  a  high   of  1,126                 
     permits.                                                                  
   · In  1996, new  regulations  were adopted;  1,056  permits                 
     were   issued,   with  about   $270   million  in   gross                 
     receipts.                                                                 
   · In 1997  (for FY  98), the gaming  division's budget  was                 
     cut by  one-third, the division  was eliminated,  and the                 
     program  transferred  to  the  Income  and  Excise  Audit                 
     Division.                                                                 
                                                                               
Mr. Poshard turned to the next slide, comparing the                            
division budget and the activity that occurred from 1990 to                    
the present. He provided details:                                              
                                                                               
   · The  first  bar  chart  represented  the  gross  receipts                 
     from  gaming.  In 1995,  there  were  approximately  $270                 
     million   in  gross   receipts;   1996   and  1997   were                 
     estimates.                                                                
   · The  second bar chart  represented  the net proceeds,  or                 
     the   amount  of   money  that  actually   went   to  the                 
      charities. In 1995, the amount was $22.3 million.                        
   · The third  bar chart represented  the division's  budget,                 
     which reached  a high in FY  94 of just over  $1 million.                 
     In   FY   98,   the  gaming   budget   was   limited   to                 
     approximately $600,000.                                                   
                                                                               
Mr.  Poshard defined  the  terms  that would  be  used in  the                 
presentation  (statewide  averages; some  operations  returned                 
more  than others  to  the charities).  He  defined the  terms                 
and percentages for pull-tabs:                                                 
                                                                               
   · Average  pull-tab  dollar:  The amount  someone  paid  to               
     play  a pull-tab;  the total  receipts or  gross of  that                 
     gaming  activity, or 100 percent  of the money  taken in.                 
     About  77 percent  of the  gross was paid  out in  prizes                 
     in Alaska, on the average.                                                
   · Ideal net:  An idea unique  to pull-tabs; if  every pull-               
     tab  ticker were  sold  at face  value,  and every  prize                 
     was paid  out in the series  (pull-tabs were bought  in a                 
     series,  where  the  exact ticket  count,  each  ticket's                 
     worth,  and  the  prizes  that  would  be  paid  out  was                 
     known).  The ideal net was  the ideal gross figure  minus                 
     the prizes paid out.                                                      
   · Taxes: About 1 percent of the total pull-tab dollar.                    
   · Adjusted  gross:  The gross  minus prizes and  taxes; the               
     figure   from   which  the   minimum   percentages   were                 
     currently   calculated.   Operators   were  required   to                 
     return  30 percent of  the adjusted  gross income  to the                 
     charities.  The charities  were required  to limit  their                 
     expenses  to  70 percent  of  the adjusted  gross  income                 
     and retain 30 percent.                                                    
   · Expenses:  On the  average,  12 percent  of the  pull-tab               
     gross  went to expenses,  including rent, operator  fees,                 
     light bills, and equipment such as pull-tabs.                             
   · Net  proceeds:  The amount  going  to the  charity,  what               
     was   left   after   subtracting   prizes,   taxes,   and                 
     expenses.  Net proceeds  were the same  as the profit  of                 
     the  gaming activity,  and represented  about 10  percent                 
     of every pull-tab dollar.                                                 
                                                                               
Mr. Poshard next defined the terms and percentages for                         
bingo:                                                                         
                                                                               
   · Average  bingo dollar:  The amount  someone paid  to play               
     bingo;  representing  the  total  receipts  or  gross  of                 
     that  gaming  activity,  or  100  percent  of  the  money                 
     taken  in. About  83 percent  of the gross  got paid  out                 
     in prizes in Alaska, on the average.                                      
   · Taxes: (No taxes on bingo).                                             
   · Adjusted gross: The gross minus prizes.                                 
   · Expenses: On the average, 15 percent of the bingo                       
     gross  going   to  expenses,  including   rent,  operator                 
     fees, light bills, and equipment such as bingo paper.                     
   · Net proceeds: The amount going to the charity, what                     
     was  left  after subtracting  prizes  and  expenses.  Net                 
     proceeds  were  the same  as  the  profit of  the  gaming                 
     activity,  and  represented  about  2  percent  of  every                 
     bingo dollar.                                                             
                                                                               
Mr.  Poshard  emphasized  that  the  figures  were  state-wide                 
averages;  some operations  returned  higher percentages,  and                 
others  returned less.  He  defined other  terms  used in  the                 
industry:                                                                      
                                                                               
   · Gross: The total dollar value of all the amounts                        
     wagered  on  games of  chance  and  skill, or  the  total                 
     amount players put up to participated in the games.                       
   · Ideal net: (Defined above in pull-tab definitions).                     
   · Adjusted gross: The gross less prizes and taxes.                        
     Adjusted  gross was  often  used in  Alaska to  calculate                 
     the minimum percentage that went to charities.                            
   · Net proceeds: The profit of the games, which went to                    
     the charities.                                                            
                                                                               
Mr.  Poshard  reviewed the  basics  of  the charitable-gaming                  
business.   He  explained  that   government  the   government                 
regulated   the  industry   in  order   to  ensure  that   the                 
appropriate  level of public  benefit was  being derived  from                 
the activity.  Public  benefit consisted  of 1)  the money  to                 
the charities, and 2) state revenues.                                          
                                                                               
Mr.  Poshard  addressed  how  the  government  ensured  public                 
benefit from  charitable gaming  in Alaska. He first  reviewed                 
the  money  to  the charities,  detailing  that  at  least  30                 
percent  of  the   adjusted-gross  income  on   operator-owned                 
pull-tabs  had to  go to charities.  Permittees  were held  to                 
the same  standard by limiting  expenses. The net  represented                 
about 10  percent of the total  pull-tab dollar, and  at least                 
10 percent  of the adjusted gross  income on the Copper  River                 
runs,  bingo,  and  all other  gaming  activities  had  to  be                 
returned  to the  charities. The  charities were  held to  the                 
standard  by limiting  expenses  to 90  percent. In  addition,                 
all  profits above  the statutory  minimum  had to  go to  the                 
charities.  The charities  were due  the net  proceeds of  the                 
gaming  activity,  which  could  be something  more  than  the                 
minimums  if   the  expenses  were   less  than  the   maximum                 
expenses.                                                                      
                                                                               
Mr. Poshard  addressed the question  of how tax revenues  were                 
derived  for the  government. He  detailed that  3 percent  of                 
the ideal  net of  every pull-tab  game was  collected by  the                 
distributors  and  remitted  to  DOR  as a  pull-tab  tax.  In                 
addition,  1 percent  was  collected on  the  net proceeds  of                 
activities  of permittees  who made more  than $20,000  in net                 
proceeds  each  year.  Annual permit  and  license  fees  were                 
also collected.                                                                
                                                                               
Mr. Poshard  turned to how Alaska  compared with other  states                 
in per-capita  gaming  expenditures.  He pointed  to a  visual                 
comparing  how much  money  each Alaskan  spent  each year  on                 
pull-tabs and  bingo and emphasized  that Alaskans  were first                 
in  the  nation.   The  numbers  were  taken   from  the  1995                 
National  Association   of  Fundraising  Ticket   Manufacturer                 
report  on  charity  gaming.  Per-capita   bingo  expenditures                 
were roughly  $88, and per-capita  pull-tab expenditures  were                 
$345. The  amounts were  the amount  paid to participate;  the                 
numbers  also  represented  prize  money  turned  back  as  an                 
additional  wager. He  summarized  that the  total  per-capita                 
expenditure in Alaska was $433.                                                
                                                                               
Mr.  Poshard  moved  to  the  next  slide,   illustrating  how                 
Alaska compared  to other  states in  deriving public  benefit                 
from   gaming  activity.   He   stressed   that  the   figures                 
represented  the returns  to the charities  as percentages  of                 
gross, and  not the total dollars  returned to the  charities.                 
States had  different systems;  many states  did not  have the                 
size   of  charitable   gaming   as  Alaska,   and  some   had                 
substantially  more.  He  explained that  there  were  several                 
different   methods  for   deriving  public   benefit.   As  a                 
percentage  of  gross,  Alaska  derived   approximately  80.86                 
percent in  public benefit.  (He noted  that the numbers  were                 
taken  from  the  1995  National  Association  of  Fundraising                 
Ticket Manufacturer report on charity gaming.)                                 
                                                                               
Mr.  Poshard  addressed   policing  expenses   in  Alaska  and                 
elsewhere  and questioned  whether Alaska's  approach was  the                 
best. In  Alaska, amounts were  policed by limiting  profit to                 
30 percent  of the  adjusted gross and  limiting the  expenses                 
to  70  percent.  In  addition,  the  charities  reviewed  the                 
profit of  the gaming activities,  while the state was  put in                 
the position of policing the expenses.                                         
                                                                               
[SFC-97, Tape 153, Side B]                                                     
                                                                               
Mr. Poshard  continued  that the program  focused on  policing                 
the  books and  records  of  individual gaming  operations  to                 
assure  that the profit  went  to the charities  and that  the                 
expenses were  reasonable and necessary. He  stressed that the                 
statutory limitation on expenses  in Alaska required that they                 
be reasonable and necessary.                                                   
                                                                               
Mr.  Poshard turned  to the  results  of the  system. In  many                 
cases, expenses  expanded to consume nearly  every profit over                 
the minimum amount, which created  slow-moving and contentious                 
audits of charities  and operators. The department  was put in                 
the position  of making  very subjective determinations  about                 
how  reasonable  and  necessary  a  given  expense  was  to  a                 
particular activity. As a result,  fights between the division                 
and the operators and charities occurred regularly.                            
                                                                               
Mr. Poshard  stated that  in the  final analysis,  little more                 
than the  statutory floor  was obtained  for the charities  at                 
considerable  cost in money  and goodwill.  He noted  that the                 
state  had used  a substantial  amount of  resource trying  to                 
chase down expenses.                                                           
                                                                               
Mr. Poshard  addressed the  question of  how other  states and                 
provinces  dealt  with  the  issue.  He  explained  that  some                 
governments established  a minimum percentage of  gross rather                 
than  adjusted  gross  and did  not  concern  themselves  with                 
policing  expense to  determine  reasonableness;  they took  a                 
percentage of the gross figure.  Some governments set a higher                 
amount to go to charities.                                                     
                                                                               
Mr.  Poshard   turned  to  a  slide  dealing   with  multiple-                 
beneficiary permittees  (MBP) and operator activities  in 1995                 
and 1996. He addressed a trend  the department had observed in                 
charitable gaming  over the past  few years. He stated  that a                 
substantial  amount of  the non-compliance  was the result  of                 
the MBPs.                                                                      
                                                                               
Mr. Poshard  explained the  difference between  an MBP  and an                 
operator.  An  operator  was  an  individual  who  decided  to                 
conduct  gaming  activity  for   profit  and  contracted  with                 
charities in order  to do so. First, the operator  had to come                 
to  the  state,  take  a  test, post  a  bond  of  $25,000  to                 
$100,000, obtain a  license, and conform to  a strict standard                 
of 30  percent of  10 percent  of the  adjusted gross  income.                 
Failure  to do  so  resulted in  the  department revoking  the                 
right  to   participate.  The  statutes  stipulate   that  the                 
department "shall revoke  the license of an  operator who does                 
not  meet  the  minimums."  The operator  also  made  all  the                 
capital   investment  necessary   to  open   a  facility   and                 
contracted with charities to run the games.                                    
                                                                               
Mr. Poshard continued  that an MBP, in contrast,  consisted of                 
two to  six charities  that got  together and  decided to  run                 
their  own  activities  for   themselves.  The  mechanism  was                 
developed  to  encourage charities  to  run their  own  games;                 
however,  one charity  would often  not  want to  take on  the                 
significant  expense  (including  capital  start-up  costs  to                 
lease  a  facility  and  purchase  supplies,  and  to  hire  a                 
manager,  bookkeeper, and  employees  to run  the games).  The                 
problem was  that the MBP option  had become a  loop-hole that                 
people used to avoid being an  operator. Instead, they got two                 
to six charities  to form an MBP and hired them  as a manager.                 
Then,  when the  charities  wound up  out  of compliance,  the                 
division's  recourse   was  to  revoke  the   permits  of  the                 
charities involved, and the manager  of the MBP needed only to                 
get more charities and do the whole thing again.                               
                                                                               
Mr. Poshard directed attention  to the charts representing the                 
entire MBP  and operator  activity for 1995  and 1996  for the                 
entire  state. He  pointed  to a  row  representing the  gross                 
receipts from the gaming activity.  The second row represented                 
the  adjusted-gross  income;  the next  listed  the  allowable                 
expenses (what  the expenses  would be  limited to  by holding                 
the  expenses  to  the  70  percent  and  90  percent  expense                 
limitations required by statute  and multiplying the 70 and 90                 
percent  by  the adjusted  gross).  The  next row  showed  the                 
actual  expenses   reported  on  the  1995   and  1996  annual                 
financial statements  filed with the department.  The next row                 
represented the minimum statutory  net proceeds, or the amount                 
of money the  charity should have gotten if  they had received                 
the full 30 and 10 percent. The  next row had the reported net                 
proceeds,  which  was  what  they  reported  on  their  annual                 
financial  statement,  determined  by deducting  the  expenses                 
from the  adjusted gross.  Then there  were the payments  from                 
permittees,  or  the amount  that  actually  got paid  to  the                 
charities,  which was  sometimes very  different from  the net                 
proceeds.                                                                      
                                                                               
Mr. Poshard noted that the figures  on the chart were compiled                 
from the  1995 and  1996 annual  financial statement  and were                 
not audited figures.  They did not necessarily  balance in all                 
instances,  but were the  figures reported.  He stressed  that                 
the  figures  in  red  denoted  expenses,  net  proceeds,  and                 
payments  to permittees  that  were out  of  compliance by  an                 
amount greater  than 1 percent.  There were  several instances                 
of  non-compliance that  were negligible  amounts; those  were                 
not depicted in red.                                                           
                                                                               
Mr.  Poshard  detailed that  the  figures  on the  first  page                 
listed  six  operators  in the  Anchorage  area.  The  minimum                 
statutory  net proceeds  on  the first  one  was $12,698;  the                 
reported  net proceeds  was $15,330.  The  expenses were  less                 
than the 70 percent. The payments  to permittees were $12,779.                 
In the  example, the operator  paid the minimum  statutory net                 
proceeds,  but  paid  something  less than  the  reported  net                 
proceeds.                                                                      
                                                                               
Mr. Poshard suggested that the  committee pay attention to the                 
comparison  of  operators  and  MBPs  and  instances  of  non-                 
compliance.  He turned  to  MBPs in  the  Anchorage area,  and                 
pointed  to  one that  was  out  of  compliance by  $700.  For                 
another,  the minimum  statutory  net  proceeds the  charities                 
should have gotten was $378,000;  the charities received about                 
$298,000, and the MBP was out  of compliance at about $80,000.                 
For  another  MBP,  the charities  should  have  received  net                 
proceeds of $514,000, but received about $377,000.                             
                                                                               
Mr. Poshard provided  comparisons for several  other MBPs. One                 
MBP  had an  adjusted gross  of $986,000  on a  gross of  $6.9                 
million;  expenses should  have been limited  to $719,000  but                 
were  $982,000; minimum  statutory  net  proceeds should  have                 
been $267,000  to the  charities, but  the charities  received                 
just over $11,000 for 1996.                                                    
                                                                               
Mr. Poshard pointed to other  locations. In 1995, one operator                 
represented  the  same location  as  two  MBPs; for  1995  the                 
operator  was substantially  in compliance,  and in 1996,  the                 
MBP  activities included  actual expenses  of $579,000,  about                 
$140,000 more than the statutory  limitation. Charities should                 
have received about  $188,000, but got just  under $50,000. In                 
another   instance,  the   charities   should  have   received                 
$316,000, but received only $172,000.                                          
                                                                               
Mr.  Poshard   noted  that  the   trend  continued   in  other                 
locations. He pointed  to operators in Fairbanks,  who were in                 
compliance; the  first MBP was  a non-filer for  1996, another                 
was less  than the  reported net  proceeds  but more than  the                 
minimum.  He underlined  another  MBP example  in Juneau.  The                 
minimum statutory net proceeds  that the charities should have                 
gotten (had  the MBP stayed  with the expense  limitation) was                 
$287,000, but  the charity got only approximately  $64,000. He                 
noted  an operator  who was  out  of compliance  in 1996;  the                 
operator's license had been revoked.                                           
                                                                               
Mr. Poshard pointed  to operators all over the  state who were                 
substantially in  compliance except for an operator  in Valdez                 
that underpaid the charities by about $4,000.                                  
                                                                               
Mr. Poshard  addressed the  recommendations of  the governor's                 
task force. In  1995, Governor Knowles appointed  a Charitable                 
Gaming Task Force  that reviewed all statutes  and regulations                 
associated   with  charitable   gaming   and   came  up   with                 
recommendations. He highlighted three:                                         
                                                                               
   1. It was the clear intent of the legislature that                          
     operators  and MBPs meet  the same standards  for returns                 
     to the permittees; therefore,  the task force unanimously                 
     recommended  the  division  take  steps  to  ensure  that                 
     happened.                                                                 
   2. The task force strongly recommended that all                             
     requirements  for  conducting  and  reporting  should  be                 
     clearly and simply spelled out and enforced.                              
   3. The task force unanimously recommended that immediate                    
     steps be taken to establish  a level playing field in the                 
     gaming  industry  where   all  market  participants  were                 
     required  to meet  the same minimum  net percentages  for                 
     like activities.                                                          
                                                                               
Mr. Poshard  noted that  the division  supported the  bill but                 
had  a list of  things that  were not  in the  bill. The  bill                 
would  address the  first recommendation  in establishing  the                 
same percentages. The bill would  also simplify the accounting                 
and  auditing and  simplify reporting  requirements. The  bill                 
would take steps towards leveling  the playing field, although                 
the division believed additional things could be done.                         
                                                                               
Mr.  Poshard  surveyed  common complaints  about  the  current                 
gaming program:                                                                
                                                                               
   · The division had to police permittees and operators.                      
   · Audits were slow and contentious.                                         
   · Accounting  for  gaming   activities  was  difficult  and                 
     financial reports were complex.                                           
   · There  was  no  incentive for  efficiency  for  operators                 
     because the charities paid all the expenses.                              
   · Prohibitive  financial   interest  requirements  intruded                 
     into the business affairs of those involved in gaming.                    
     Requirements necessitated the division looking into                       
     personal lives.                                                           
   · There was  an uneven playing field between  operators and                 
     self-directed gaming.                                                     
   · Often,  the  department's only  enforcement  tool was  to                 
     suspend or revoke a charity's permit, even though the                     
     charity was not responsible for the instance of non-                      
     compliance.                                                               
                                                                               
Mr. Poshard believed  the larger objective of  the legislation                 
would be to  change the way the public benefited  from gaming.                 
He listed  attributes of the  provision, maintaining  that the                 
bill intended to:                                                              
                                                                               
   · Be a revenue-neutral bill;                                                
   · Simplify  reporting by  basing the  charity's share  on a                 
     percentage of gross instead of net proceeds;                              
   · Allow  the department to  maintain its  current oversight                 
     with a reduced budget;                                                    
   · Help  ensure  charities  consistently receive  what  they                 
     should;                                                                   
   · Provide profit incentives for operators;                                  
   · Remove the need for  prohibitive financial intersections;                 
     and                                                                       
   · Provide  for revocation of  gaming participants  who fail                 
     to meet minimum percent of gross requirements.                            
                                                                               
Mr. Poshard added that the bill  would also allow operators to                 
pool. He provided  more information about  pooling. Currently,                 
a hypothetical  operator that contracted with  eight charities                 
to  sell  pull-tabs  and  run  bingo  games  on  their  behalf                 
committed  to a substantial  amount of  accounting work.  Each                 
pull-tab  game bought  was expensed to  a particular  charity;                 
all  the profits  of the  game were  due to  the charity.  The                 
operator  had  to  account  for  every  ticket  sold  for  the                 
particular  game  and  allocate  a  portion  of  the  expenses                 
associated  with the  sale of  the game to  the charity.  Each                 
different  session of  a  bingo game  was  often conducted  on                 
behalf  of a  different charity,  so  each session  had to  be                 
accounted  for  separately. A  bad  night  could result  in  a                 
charity getting  nothing; a  good night  could result  in more                 
than the minimum.                                                              
                                                                               
Mr. Poshard continued with how  the proposed legislation would                 
affect  pooling.  An  operator  would account  for  the  total                 
operation, total  sales, total  expenses, and  would apportion                 
equal expenses  based upon the  gross amount apportioned  to a                 
particular  organization. Net  proceeds would  be paid  to the                 
charity accordingly. The accounting  burden would be eased and                 
simplified.                                                                    
                                                                               
Mr. Poshard  noted that  other percentages-of-gross  proposals                 
had come  before the legislature.  In the past,  arguments had                 
been used  against some of  the bills.  He listed some  of the                 
arguments that had been made, along with responses:                            
                                                                               
   · Argument  1: The current 30  and 10 percentages  were too               
     high  and too  difficult  to achieve.  The percentage  of                 
     gross  was higher and  would not  work because  there was                 
     not enough profit left for an operator.                                   
   · Response:  The bill  was intended  to be  revenue-neutral               
     and to preserve the status quo.                                           
                                                                               
   · Argument  2:  Elasticity.  Increasing  the money  to  the               
     charities  and  the money  to  the  state would  force  a                 
     decrease  in prizes  to  the players,  which would  cause                 
     people not to play and kill the gaming industry.                          
   · Response:  Charitable gaming  was  not the  only form  of               
     gaming  in Alaska.  There was  no competition from  other                 
     types of  gaming such as casinos or  horse-racing. Alaska                 
     was  already 5  percent  above the  national average  for                 
     prize tabs.  The bill was intended to  be revenue-neutral                 
     and should not affect prize pay-offs.                                     
                                                                               
   · Argument  3: The playing field  was not level;  it should               
     be and the proposed bill would not do it.                                 
   · Response:  The  proposed bill  would  help  to level  the               
     playing field  by establishing the same  requirements for                 
     all gaming  entities and provide for revocation  of those                 
     who were not in compliance.                                               
                                                                               
   · Argument  4: The  state  should not  be  using gaming  to               
     increase revenues.                                                        
   · Response:  The bill  was intended  to be revenue  neutral               
     and not derive more money for the state.                                  
                                                                               
   · Argument 5: Net proceeds should not be increased because                
     that  would put operators  out of business  and charities                 
     would suffer.                                                             
  · Response: The bill was intended to be revenue neutral.                   
                                                                               
   · Argument 6: Statutory penalties were needed for failure                 
     to make or pay minimum net proceeds.                                      
   · Response: The bill would establish easily-applicable                    
     penalties  for charities  that did  not meet the  minimum                 
     requirements  by providing for revocation.  The charities                 
     would  be given new  tools to  monitor MBP activities  by                 
     requiring monthly  reports to the charities  for MBPs and                 
     operators. The  amount due could be easily  calculated by                 
     multiplying  by  the   correct  percentage,  rather  than                 
     having  to look  at the  expenses  and determine  whether                 
     they were reasonable and necessary.                                       
                                                                               
Mr.  Poshard concluded  that  the proposed  legislation  would                 
make  needed programmatic  changes  to  simplify oversight  of                 
gaming by simplifying accounting  and audits and making them a                 
percentage of gross. The bill  would also allow the department                 
to  administer   the  gaming  program  more   efficiently.  He                 
underlined that the department strongly supported the bill.                    
                                                                               
Senator Parnell questioned  how much the state  derived in tax                 
revenues  from gaming.  Mr. Poshard responded  that the  state                 
derived approximately $2 million  per year. The amount in 1996                 
was just under $2.2 million.                                                   
                                                                               
Senator  Parnell queried  the FY  98 budget  for policing  and                 
regulating the  gaming industry. Mr. Poshard  replied that the                 
FY 98  budget had been cut  to just over $600,000.  The budget                 
the year prior had been $913,000.                                              
                                                                               
Senator Parnell pointed  out that the state  spent $913,000 to                 
bring  in $2  million.  He asked  what  direction tax  revenue                 
would  go  if no  statutory  changes  were made.  He  wondered                 
whether tax revenue  as well as revenue to  charities would be                 
lost because  of the reduced  ability to police  the industry.                 
Mr. Poshard  responded that the  state would bring  in roughly                 
the  same amount  whether the  legislation passed  or not.  He                 
detailed that  a substantial portion  of the $2.1  million [in                 
tax revenue] was derived from  the 3 percent tax on pull-tabs.                 
He reminded  the committee that  the tax was collected  by the                 
distributors when  the pull-tabs were  sold. A little  over 20                 
distributors  remitted monthly  payments to  the state;  there                 
was not  a problem with distributors.  The rest of  the amount                 
collected by  the state was  through permit and  license fees;                 
he did  not think those amounts  would change much  either. He                 
opined that  the net-proceeds  fee might change  slightly, but                 
that amount represented only about $170,000 of the total.                      
                                                                               
Senator  Parnell  questioned  why the  legislation  should  be                 
passed  if  the  state  would  receive  the  same  amount.  He                 
wondered whether the charities  would receive the same amounts                 
as well.  Mr. Poshard responded  that the current  system used                 
to  monitor  activities  was cumbersome  and  contentious.  He                 
pointed  to  an  increasing  trend  of  non-compliance,  which                 
required more  and more  resource to police.  In light  of the                 
recent budget cuts, which had  reduced staff from 13 to 7, the                 
department  believed it  was necessary  to take  the steps  to                 
simplify the accounting and auditing  in order to maintain the                 
current level of oversight.                                                    
                                                                               
Mr. Williams (?)  added that he did not view  the program as a                 
tax  program; it  would bring  in  a little  revenue, but  the                 
state's primary  involvement was  to protect the  interests of                 
the  charities and  ensure gaming  as  a charitable  operation                 
rather  than  gambling  for   profit.  He  believed  the  bill                 
addressed the issues.                                                          
                                                                               
Senator Parnell asked  whether the bill would  allow the state                 
to   protect  the   charities  because   of  increasing   non-                 
compliance.  Mr. Williams  thought there  could be a  stronger                 
likelihood of maintaining the  status quo rather than fighting                 
the trend of increasing non-compliance.                                        
                                                                               
Senator Parnell  queried the relationship  between enforcement                 
costs and  tax revenue  in other states.  Mr. Poshard  did not                 
have  the   information  but  offered  to   prepare  something                 
comparing  the  cost  of  regulation   versus  the  amount  of                 
activity.                                                                      
                                                                               
Co-chair  Sharp commented  that  the state's  revenue did  not                 
come from  the operations, but  the charities depended  on the                 
operations and  were affected ten-fold  by a dollar  loss. Mr.                 
Williams agreed.                                                               
                                                                               
Representative  Martin pointed out  that the materials  showed                 
that pull-tabs currently contributed  10 percent. He expressed                 
concerns about how little charity  received in Alaska compared                 
to other states. Mr. Williams  noted that the amount shown was                 
the average.  In Alaska,  there were also  bar owners  who ran                 
games on  behalf of charities;  they paid a  higher percentage                 
(70  percent  of  the  ideal net).  In  addition,  there  were                 
organizations   that  paid   more   than   the  minimums.   He                 
anticipated that there would be  much debate about the correct                 
percentages.                                                                   
                                                                               
Representative  Martin   questioned  the  ability   to  remain                 
revenue neutral,  which might  not be  fair to charities.  Mr.                 
Poshard believed the intent of  the bill was not to change the                 
amount of money going to the  charities, the state, prizes, or                 
participants;  the intent  was to  change the  system used  to                 
derive the portions of the pie.                                                
                                                                               
Representative Martin  argued that one of the  purposes was to                 
raise revenue for  the department to oversee  the program. Mr.                 
Poshard responded  that the department  was not  advocating an                 
increase  in  state  revenues,  although  public  benefit  was                 
derived from the gaming system.                                                
                                                                               
Co-chair Sharp opened public testimony.                                        
                                                                               
JOHN   LOPEZ,  OPERATIONS   MANAGER,   ALASKA  BINGO   SUPPLY,                 
ANCHORAGE,   stated   concerns   about   the   revenue-neutral                 
proposal. He  thought the actual  percentages were  lower than                 
the  percentages   shown   in  the  proposal   and  that   the                 
percentages  were too high  in certain  sections of the  bill.                 
He  opined  that the  numbers  were  off  by one  or  one-half                 
point;   operations   were   run  by   dollar   amounts,   not                 
percentages.  He  questioned  how  many  operations  would  be                 
rendered out  of compliance if  the percentages were  applied.                 
He also  protested the  annual fee that  would be required  on                 
gaming activity,  which would not  be revenue-neutral  for his                 
organization.                                                                  
                                                                               
Mr. Lopez  referred to another  chart showing that  Alaska was                 
first  or  second in  the  nation  as far  as  actual  dollars                 
returned  per-capita  for  charity  in  net.  He  thought  the                 
issue  could  be  viewed  from  different   angles.  He  noted                 
correspondence  related  to  elasticity  of  dollars  and  the                 
percentage-of-gross  concept   that  included  warnings  about                 
the  difficulty of  management  and enforcement.  He  referred                 
to an  increase put  on state  tax of gross  receipts in  1993                 
in North  Dakota that  had resulted  in an  8 percent drop  in                 
gross-receipt  activity. The  net affect  had been less  money                 
to the charities.                                                              
                                                                               
Mr. Lopez  recommended  more study and  research. He  referred                 
to   "playbacks"   in  pull-tabs;   when   profitability   was                 
increased,  the payback  factor was  lost and  the result  was                 
less participation in gaming.                                                  
                                                                               
JOE  NYQUIST,  OPERATOR,  FAIRBANKS  AND  ANCHORAGE,  reported                 
that he had  the first operator  license issued in  Alaska and                 
had  seen many  changes  in  regulations  over the  years.  He                 
testified  that he supported  the concept  of simplifying  and                 
leveling the  playing field but  had concerns about  the pull-                 
tab percentages.  He pointed  out that he  had spent a  lot of                 
money  to come  up with  a computer  system to  adjust to  the                 
current  requirements.   He  noted  that  he   paid  over  the                 
percentage back on his gross.                                                  
                                                                               
Co-chair  Sharp asked  about bingo.  Mr.  Nyquist thought  the                 
return  on  bingo  was  high  because  donated  buildings  and                 
lower overhead created an unfair advantage.                                    
                                                                               
RANDY KOELSCH,  OPERATOR, FAIRBANKS,  spoke in support  of the                 
enforcement  of   any  rules  adopted.  He  stated   that  the                 
percentages  appeared  reasonable,  but  the  problem  was  in                 
setting  percentages  of  ideal  gross and  not  allowing  for                 
changes that evolved in gaming.                                                
                                                                               
[SFC-97, Tape 154, Side A]                                                     
                                                                               
JACK  POWERS, OPERATOR,  ANCHORAGE,  testified  in support  of                 
charitable  gaming and described  the operations and  players.                 
He thought  the  activity was  good indoor  entertainment.  He                 
spoke  to the community  aspects  of bingo  and noted that  he                 
had raised  hundreds of  thousands of  dollars for  non-profit                 
organizations.   He   referred  to   charts   that  had   been                 
presented  and  opined that  there  was a  difference  between                 
operators  and operations.  He thought the  MBPs were  the big                 
problem  because  the playing  field  was  not level.  He  was                 
experienced  in  the  industry  and  noted that  he  had  five                 
bingo  halls in  Anchorage  and  employees with  benefits.  He                 
expressed  upset over  a statement  that had  been made  about                 
his accounting  as "legal  but unorthodox."  He stressed  that                 
he was in  compliance and was  sad that the department  budget                 
had  been  cut.   He  supported  policing  and   fairness.  He                 
described  the percentage  of gross he  thought he could  live                 
with:  6 percent on  pull-tabs  and 1.5 percent  on bingo.  He                 
thought  the playing  field  had to  be leveled  if the  state                 
wanted  a  higher  percentage.  He  believed  competition  was                 
using  grant money  to  augment losses.  He  wanted more  non-                 
profits to be involved.                                                        
                                                                               
Mr.  Powers argued  that percentage-of-gross  could  not be  a                 
"magic   number"   state-wide   because   circumstances   were                 
different  in different  places.  He told  the committee  that                 
he  sold a  bingo sheet  for  50 cents  because  one group  in                 
Anchorage had  decided to lower  to price to 50 cents  because                 
they  had help  paying  the rent  and  employees  and did  not                 
need  to make  a profit.  On the  other hand,  the same  bingo                 
sheets were  sold elsewhere in  Fairbanks for $3.00,  while he                 
still got only 50 cents.                                                       
                                                                               
Co-chair Sharp  maintained that  the committee wanted  as much                 
information as possible before introducing the bill.                           
                                                                               
BOB WOLTING,  FAIRBANKS, spoke in  support of the  legislation                 
and thought  it was  time for  change in  the regulations.  He                 
informed  the committee  that he  was the  executive  director                 
of  a  bingo  operation.   He  provided  his   credentials  in                 
government  and management.  The operation  was  re-organizing                 
and wanted  to bring  in recipients  of the  funds as  members                 
of the board of directors.                                                     
                                                                               
ANN  MCELREA, SOLDOTNA  (via  teleconference),  reported  that                 
she  was member-in-charge  of  an  operation.  She noted  that                 
the  organization's pull-tabs  were  purchased with  14 to  20                 
percent ideal  net. She asked whether  they would have  to pay                 
more tax.  She also  wondered why some  places sold  pull-tabs                 
from  fishbowls  where the  whole  series was  not  in at  one                 
time,  and  yet   there  were  surcharges  for   the  complete                 
series.  She commented  that the  intent of  the bill was  not                 
to raise  revenue for the  state, and  yet it would  take more                 
than two times what it cost to operate.                                        
                                                                               
EARL  MICKELSON,  COMMANDER,  AMERICAN   LEGION  POST,  KODIAK                 
(via teleconference),  spoke  in support  of the treatment  of                 
the  three  entities   involved  in  gaming,   especially  the                 
separation  of  the  treatment  of  operators   from  multiple                 
beneficiary  permittees   from  organization   that  conducted                 
their  own sales.  He stated  that he  represented the  later.                 
He wanted a level playing field.                                               
                                                                               
Mr.  Mickelson directed  attention  to  Section 4  on page  4,                 
lines 20 and  21 and the words  "raffle or lottery"  and noted                 
that  on  page 3  the  words  were "raffle  and  lottery."  He                 
questioned the different meanings.                                             
                                                                               
Mr. Mickelson  disagreed  with Section  13, page  8, lines  21                 
and  22. He  maintained that  the proposed  legislation  would                 
provide  for  different  treatment   by authorizing   multiple                 
limits of  activity based  on the number  of permittees  being                 
accommodated  by an operator  or an MBP.  He opined that  as a                 
charity,  they did not  want to  be in the  same situation  as                 
operators  and   vendors,  when  there  was  an   intermediary                 
without    direct    association     with    the    charitable                 
organization.  He wanted  entities such  as the  Elks and  VFW                 
to have  certain liberties,  particularly  when sales  were to                 
members only.  He returned  to Section 13,  and said  they had                 
been taxed  10 percent delivery  or payment, but there  was no                 
payment,  since  they were  the  charity.  He had  no  quarrel                 
with the  percentages on pull-tabs  or bingo, but  thought the                 
additional  10  percent  was  unnecessarily   restrictive.  He                 
questioned  how  the  provision  would   function  related  to                 
raffles and door-prizes.                                                       
                                                                               
LARRY HACKENMILLER,  VENDOR,  FAIRBANKS (via teleconference),                  
noted that  most testimony  did not deal  with vendors  or bar                 
owners.  He  thought  the  legislation   should  be  based  on                 
existing  practices.  He provided  his history  of  experience                 
with pull-tabs.  In  1986, he had  been the  first Alaskan  to                 
sell pull-tabs  under  the existing  regulation. Before  that,                 
it  was  private  clubs.  Regulations  were  updated.  At  one                 
time,  bars   were  selling   pull-tabs  for  permittees   and                 
charging  any odd percentage  they wanted,  because of  a lack                 
of regulation.  When operators  came into  the picture,  there                 
was a problem  at first, because  a lot of the operators  were                 
using  charitable   gaming  to   get  rich.  Legislation   was                 
adopted  that   required  a  bond  of  $25,000   to  $100,000.                 
Vendors or  bar owners  could not afford  that, but there  was                 
a  lot  of  revenue  from  them.   In  order  to  correct  the                 
situation, a  procedure was set up  and vendors had to  pay 70                 
percent  of  the ideal  net  up front,  before  the  pull-tabs                 
were delivered.  He noted that  DOR did not speak  of problems                 
with vendors,  such as non-compliance.  The basic  solution to                 
the problem was based on inventory.                                            
                                                                               
Mr. Hackenmiller  thought  the pull-tab  solution (he  did not                 
want to speak  to bingo or raffles)  was to set the  situation                 
up  the  way  it   was  set  up  with  vendors.   The  bonding                 
requirement   could   be   dropped  for   operators   if   the                 
percentage was charged up-front.                                               
                                                                               
Mr. Hackenmiller  spoke to  problems he  had with the  current                 
draft of  the bill.  He pointed  to page 11  (at the top)  and                 
referenced  contracts  with the  vendor: "the  permittee  will                 
receive  no less  than  16 percent  of  the ideal  gross."  He                 
argued  that currently  the permittee  got 70  percent of  the                 
ideal  net. He provided  an example  of a  situation that  was                 
hurting  vendors,   even  though   vendors  were  causing   no                 
problems  for DOR.  He identified  a set  of pull-tabs  called                 
the "Criss-Cross  950."  The gross was  $2,184. The  permittee                 
got 70  percent ($241),  and he got  30 percent ($103).  Under                 
the  new proposal,  if he  paid 16  percent of  the gross,  he                 
would  have to pay  [permittees?]  $349, or  $5 more than  the                 
actual  net. He  thought a  system that  already worked  would                 
be eliminated.  He wanted  to know where  the 16 percent  came                 
from.                                                                          
                                                                               
Mr.  Hackenmiller asserted  that  the idea  behind  charitable                 
gaming  was  that  charitable  groups   could  make  money  to                 
support their  needs. When  he first started,  he had  done it                 
for nothing.  There were  23 bars in  Fairbanks that  also did                 
it  for  nothing.  Operators  moved   in  and  started  taking                 
percentages,  so bars  started taking  percentages. He  wanted                 
the groups  to retain 51 percent  for pull-tabs. He  suggested                 
running the program like it was done with vendors.                             
                                                                               
KENT   HARTZBERG,   EXECUTIVE   DIRECTOR,    BONIFACE   BINGO,                 
ANCHORAGE,  testified that  he had  experience  as an  auditor                 
for  charitable  gaming, so  he  had been  on  both sides.  He                 
understood  what   the  department  wanted  and   thought  the                 
legislation  had some good  points. However,  he felt  that it                 
would  create  more problems  than  it  would solve.  He  felt                 
that  the   department   had  not   been  user-friendly.   The                 
reporting  requirements  were  so  complicated  that  even  he                 
could  not  follow  them,  in  spite  of  his  experience.  He                 
thought  the problem  was  that the  department  had not  been                 
working with the charities, MBPs, or operators.                                
                                                                               
Mr.  Hartzberg  suggested   that  the  bill  could  level  the                 
playing  field   by  giving  the   MBPs  the  same   reporting                 
requirements  as the  operators.  He thought  the  percentages                 
were up for  debate, whether at  30 percent of adjusted  gross                 
for  pull-tabs  or  10  percent  for  bingo.  He  thought  the                 
percentage  paid from bingo  should increase.  He referred  to                 
the  unrelated business  income  tax (UBIT)  that the  federal                 
government  would  be glad  to  put  on pull-tabs;  the  state                 
also had  taxes. Bingo,  on the  other hand,  was not  taxable                 
for  both  the federal  and  state  portions.  Increasing  the                 
amount  returned  to  the  charities   would  result  in  more                 
actual dollars.  He did  not think the  increase would  affect                 
sales.                                                                         
                                                                               
Mr.  Hartzberg  referred  to  the  tax  on  net  proceeds.  He                 
reported  that  his charity  would  pay  $1,000 in  1996;  the                 
percentages  would  result   in  payment  of  $1,600.  He  was                 
concerned  about  the  state  increasing  its  take  when  the                 
prime objective  was more money  to the charities.  He thought                 
there  were  ways  to  accommodate   the  department  and  the                 
charities.                                                                     
                                                                               
Co-chair Sharp noted the problems of working with averages.                    
                                                                               
TOM  DEWHIRST,  ANCHORAGE,  stated  that the  concept  of  the                 
bill had  great merit,  but he  had concerns.  He thought  the                 
bill was  like the  old gross-receipts  tax,  an attempt  at a                 
level  playing field,  another  good idea  that  did not  work                 
and that  was abolished in the  1970s. He believed  the reason                 
the  idea  did  not  work  was  that  it  did  not  take  into                 
consideration   the  fact   that  different   operations   had                 
different costs  and different profit  margins. A  person with                 
a low  profit margin had  to do a high  volume and had  to pay                 
more  taxes; they  could show  loss  and still  be subject  to                 
the tax.  A person  with 100  percent mark-up  and low  volume                 
had a low tax.                                                                 
                                                                               
Mr.  Dewhirst believed  that  vendors and  self-run  charities                 
should  get   20  percent   of  the   gross;  there   were  no                 
additional   costs   involved.   He  did   not   believe   the                 
legislation  took the  economy  or theft  into  consideration.                 
He referred  to a person who stole  at least $25,000  from two                 
charities;  the cost to  prosecute the  person was twice  that                 
amount.  The charity  was  hurt and  its license  revoked.  He                 
thought  there should be  different classes  of charities  and                 
the money should be collected at the distributor level.                        
                                                                               
Mr. Dewhirst  felt that every  time regulations were  changed,                 
there  were   adjustment  costs   and  fewer  funds   for  the                 
charities.                                                                     
                                                                               
Representative   Martin  asked  a  question  about   501(c)(3)                 
charities. Mr.  Dewhirst clarified  that he was talking  about                 
501(c).  He thought  every charity  in the  state should  have                 
501 status  so that the charity  dollars were not paid  to the                 
federal government.                                                            
                                                                               
Representative  Martin  commented  in  support of  the  501(c)                 
status.                                                                        
                                                                               
GEORGE WRIGHT,  MEMBER-IN-CHARGE,  ALASKA NATIVE  BROTHERHOOD,                 
JUNEAU  (via teleconference),  noted  that  the Alaska  Native                 
Brotherhood  camp was a non-profit  organization. He  reported                 
that he  was on  the governor's  task force  and that many  of                 
the issues  being  discussed had  been covered  by the  group.                 
There  had been  much discussion  about  leveling the  playing                 
field  in the  bingo  and  pull-tab  business. They  also  had                 
talked  about  pooling.  He  thought  that the  draft  of  the                 
legislation  was headed in the  right direction and  he agreed                 
with most  of the items.  However, he  pointed out that  there                 
was a  local problem  in Juneau  related to  sales tax  on the                 
gross sales  of the  pull-tabs. Currently,  they were  getting                 
about 51  percent of every  dollar deposited  in the  bank, or                 
82 percent  of the  total net.  In other  words, the city  had                 
$47,000  in  sales  tax  and  the  charity   got  $19,000.  He                 
thought the issue needed to be addressed.                                      
                                                                               
Mr. Wright  referred  to the section  of the  bill related  to                 
redefining   gross  receipts  to   exclude  local   sales  tax                 
collected.  He thought  the city  should go  into business  if                 
they wanted tax dollars to give to other charities.                            
                                                                               
Mr. Wright  commented that the  bingo percentages in  the bill                 
were  a good starting  point,  but he  thought the  percentage                 
should be  higher; going  up to 5 percent  of the gross  could                 
level the  playing field  in Anchorage.  He thought a  monster                 
had been created in Anchorage with the bingo awards.                           
                                                                               
DON  SKEWIS,  VENDOR,   ANCHORAGE,  testified   that  he  gave                 
around  $70,000   to  $90,000  to  charities   each  year.  He                 
thought  the  operator, MBP,  and  vendor  were the  same.  He                 
viewed  bingo as  a different  class  and a  necessary  social                 
event  for  people  who  did  not  drink.  He  believed  bingo                 
provided a service to the community.                                           
                                                                               
Mr.  Skewis  thought there  was  a solution  to  the  problems                 
through putting  tax on the top  of the game, and  getting the                 
money  there,  and giving  the  charity  money up  front.  The                 
bookkeeping  costs  would  be  gone  and  there  would  be  no                 
auditing.  He referred  to  a bill  that  was  related to  the                 
lottery.  Thirty percent  off the  top would  be given to  the                 
charities,  the state  would  get 15  percent,  municipalities                 
would get  25 percent;  the vendor would  take 30 percent.  He                 
was concerned  that every  time the  legislation was  revised,                 
the  vendors  (the  bars)  got  less and  less.  He  knew  the                 
numbers  on  bingo  had  to  be  different.  He  wondered  why                 
operators were treated differently than vendors.                               
                                                                               
[SFC-97, Tape 154, Side B]                                                     
                                                                               
Mr. Skewis reiterated concerns. He  pointed out that Las Vegas                 
did not  get involved  in regulating.  There was a  discussion                 
about the political difficulties of the issue.                                 
                                                                               
ASHLEY  REED,   CHARITABLE  GAMING   ASSOCIATION  OF   ALASKA,                 
ANCHORAGE, spoke  to past fights  about charitable  gaming. He                 
expressed confusion  and wanted  to know which section  of the                 
bill  would  create a  level  playing  field. He  argued  that                 
nothing in  the bill would  create a  level playing field.  He                 
did not  think there was  a simple  answer. He disagreed  with                 
DOR  statements that  there was  no gambling  competition.  He                 
argued   that  there   was   illegal  gambling   activity   in                 
Anchorage  and he  thought it  was  naïve to  think there  was                 
not.  When  the  laws  were  changed  to  limit  the  size  of                 
prizes, the illegal gaming establishments benefited.                           
                                                                               
Mr. Reed  suggested learning  more about  the different  types                 
of  operations.  Each of  the operations  had  different  cost                 
structures.  Bingo gathered 100  people in the room;  it would                 
be easy  to sell pull-tabs  to those  people who were  already                 
gathered  to  play games.  There  were  Elks clubs  and  other                 
fraternal  organizations   that  had  a  jar  sitting  on  the                 
counter  of the  bar.  There were  stand-alone  operations  in                 
malls  that had  higher costs.  He argued  that "leveling  the                 
playing field" was an impractical solution.                                    
                                                                               
Mr. Reed  referred to  discussion with  staff that revealed  a                 
lack  of  understanding   of  the  complexities   in  a  given                 
community.  Small non-profits could  not compete with  bigger,                 
better-known   organizations   with   political   connections.                 
Small  groups   could  get  together  and  get   a  reasonable                 
return.                                                                        
                                                                               
Mr.  Reed suggested  studying  and identifying  the  different                 
types of  organizations and cost  structures, then  applying a                 
scale in order to level the playing field.                                     
                                                                               
Representative  Martin  asked  who he  represented.  Mr.  Reed                 
answered the  Charitable Gaming  Association; he did  not know                 
all the individual members of that.                                            
                                                                               
Representative  Martin  asked   whether  the  organization  he                 
represented  had met  and told  him what to  say. He  wondered                 
if the organization  had a permit.  Mr. Reed responded  in the                 
affirmative.                                                                   
                                                                               
Representative  Martin queried  another organization  with the                 
same  name.   Mr.  Reed   replied  that   there  was   another                 
organization  with the same name;  he assumed it did  the same                 
thing as his.                                                                  
                                                                               
Representative  Martin   stated  that  he  was  worried  about                 
groups that  came under the phony  disguise of charities.  Mr.                 
Reed  pointed out  that  the organization  could  not pay  him                 
through  pull-tabs.   Representative  Martin   asked  how  the                 
organization  generated  its money.  Mr.  Reed responded  that                 
he did not know.                                                               
                                                                               
Mr.  Reed  described  discussion  at  the  end  of  the  prior                 
legislative  session when the DOR  budget was cut.  He pointed                 
to  activity  by Representative   Martin in  the  House  State                 
Affairs  Committee.  There had  been  four or  five  hearings,                 
but the more  the committee got  into the bill, the  more they                 
understood  how complex  the  issue was.  He  opined that  the                 
consensus  of   the  committee  at   that  time  was   that  a                 
simplified-percentage  bill  would  not  work  and  would  not                 
serve the  industry or the charities  well. He reiterated  his                 
concerns.                                                                      
                                                                               
DAVE  HAMMOCK, GENERAL  MANAGER,  PUBLIC  RADIO STATION  KBBI,                 
HOMER  (via  teleconference),   testified  that   KBBI  was  a                 
permit  holder  and  that  he  was  the  member-in-charge.  He                 
agreed that  it would  be difficult to  create a solution  for                 
the  broad range  of organizations.  He  agreed strongly  with                 
Mr.  Hackenmiller,  who had  spoken  as  a vendor.  The  radio                 
station  also had a  permittee-vendor relationship;  it  had a                 
pull-tab  operation,  bought  directly  from  the  wholesaler,                 
and   provided   pull-tab   games    to   a   local   licensed                 
establishment.  Every  time the  pull-tabs  were dropped  off,                 
KBBI received a check for 70 percent of the ideal net.                         
                                                                               
Mr.  Hammock  informed  the  committee   that  for  KBBI,  the                 
current  system  worked.  He  felt  good  about  the  rate  of                 
return  and stated  that the  transaction was  simple. He  was                 
interested  in  anything  that would  simplify  the  paperwork                 
and recording requirements.                                                    
                                                                               
Mr.   Hammock   referred   to   numbers   mentioned   by   Mr.                 
Hackenmiller.  He was  not sure  what games  Mr.  Hackenmiller                 
was  using; KBBI  currently  got 70  percent of  net. He  said                 
that  given  the  games  they  currently  used,  there  was  a                 
difference  in that under  a 16 percent  of ideal gross,  they                 
would get  between $30 and $89  less per game. They  estimated                 
an  average  annual  sale  of  games  of  about  50  games  to                 
vendors;  over  a year,  there  would be  a net  reduction  of                 
$1,500  to $4,400 in  income, or  5 to  15 percent  reduction.                 
Gaming  accounted  for  about  5.5   percent  of  their  total                 
annual  income, but  that was equal  to one  employee and  was                 
important.                                                                     
                                                                               
Mr.  Hammock   added  that  charitable   gaming  was   a  very                 
competitive  enterprise,   and  not  just  between  operators.                 
There  were  a limited  number  of vendors  available  to  the                 
radio  station,  and there  were  many other  charitable  non-                 
profit  organizations   in  Homer   interested  in   the  same                 
activity.  He stated  that the  minimum set  by statute  would                 
become  the  level that  organizations  like  KBBI  got.  They                 
might  not be  able  to  compete with  other  non-profits.  He                 
emphasized  that 17  to 20  percent  would be  better than  16                 
percent.   He  understood   that   the  situation   could   be                 
different for other operators and other games.                                 
                                                                               
Mr.  Hammock  discussed  concerns   about  the  definition  of                 
"charity."  He pointed  out that  KBBI did  not collect  money                 
and  give  it   to  the  poor,  but  was  an   authorized  and                 
recognized   non-profit  institution.   He  understood   there                 
could  be   abuses  of  charitable   status,  but   hoped  the                 
legislature   would  carefully   consider   who  could   be  a                 
permittee and  not put too many  strictures on the  definition                 
of charity.                                                                    
                                                                               
Mr.   Hackenmiller    continued    with   earlier    testimony                 
interrupted  by  technical  difficulties.  He  stated  that  a                 
higher  percentage  ticket would  be a  marketing  tool for  a                 
non-profit  group. He  noted that  the system  he used  worked                 
and  suggested  paying up  front  to  eliminate red  tape.  He                 
urged using the vendor program as a model.                                     
                                                                               
Mr. Lopez  referred to the comment  about paying up  front and                 
asked  whether  a distributor  would  be expected  to  collect                 
the money  for the charity.  He maintained  that there  was no                 
protection  for distributors  that collected  tax money;  they                 
got  stuck with  paying  the money  to  the state.  He  wanted                 
protection in the bill.                                                        
                                                                               
Representative  Martin  commented  that  testimony  had  shown                 
that different  people  seem to charge  different amounts  for                 
the  same box  of pull-tabs.  He  asked for  elaboration.  Mr.                 
Lopez responded that geography affected costs, including                       
delivery costs.                                                                
                                                                               
Co-chair Sharp welcomed written testimony on the issue. He                     
commended the department's work on the legislation. He                         
stated his intent to simplify the reporting process.                           
                                                                               
Adjournment                                                                  
                                                                               
The meeting was adjourned.                                                     

Document Name Date/Time Subjects