Legislature(2003 - 2004)

05/09/2003 09:02 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                           May 09, 2003                                                                                       
                              9:02 AM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-03 # 84,  Side A                                                                                                            
SFC 03 # 84,  Side B                                                                                                            
SFC 03 # 85,  Side A                                                                                                            
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Gary Wilken convened  the meeting at approximately 9:02 AM.                                                            
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Lyda Green, Co-Chair                                                                                                    
Senator Con Bunde, Vice Chair                                                                                                   
Senator Robin Taylor                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Senator Ben Stevens                                                                                                             
                                                                                                                                
Also Attending:  LARRY PERSILY, Deputy  Commissioner, Department  of                                                          
Revenue;   MARIA  MOYA,   Member,   Southeast   Alaska  Friends   of                                                            
Montessori; ALBERT  JUDSON; BOB LOESCHER, President,  Juneau Tlingit                                                            
& Haida  Community Council;  GEORGE WRIGHT,  Operator, former  Self-                                                            
Directed Permittee  and former Charitable Gaming Task  Force member;                                                            
AGNES  D'CAFANGO, Gaming  Employee;  DAVID KATZEEK,  Member,  Alaska                                                            
Native Brotherhood;  ELLIE  MORITZ, Pull Tab  Dealer, Alaska  Native                                                            
Brotherhood  Hall;  DAVID  SANDEN,  Coordinator,   Juneau  Multiple-                                                            
Beneficiaries   Permittees;  LASH  ZEMP,  Parent;  LUPITA   ALVEREZ,                                                            
Director, Juneau Montessori Center                                                                                              
                                                                                                                                
Attending via  Teleconference: From  an offnet site: GREG  PETERSON,                                                          
Allied  Charities  of  Alaska  Association;  From  Anchorage:  PERRY                                                            
GREEN;  JOHN LOPEZ,  President,  Denali  Gaming Supply,  Inc.;  LYNN                                                            
REESE,   Owner   and  Operator,   Lynn's   Pull-tabs;   TED   BROWN,                                                            
Representative,  Alaska Indoor  Sports; JIM  PEOT, General  Manager,                                                            
Whaler Casino  Supply; KENT HARTZBERG, Licensed Operator  and former                                                            
State Auditor,  Division of Games  of Chance & Skill, Department  of                                                            
Community and  Economic Development; From Fairbanks:  DAVID LAMBERT,                                                            
Fundraiser; GENE HANSEN,  Representative, Fraternal Order of Eagles;                                                            
JUNE  ROGERS, Executive  Director,  Fairbanks Art  Association;  TOM                                                            
ROGERS,   Office    Manager,   Downtown    Bingo;   DAN    THOMPSON,                                                            
Representative,  C&A  Distributors;  STEVE  EARLY; LAYNE  ST.  JOHN,                                                            
Executive Director,  Yukon Quest International,  Ltd.; JOELLEN  FOX,                                                            
Pull-tab   Operator/Dealer;   ALLYN  YANISH;   Representative,   Q&A                                                            
Distributors;  From Nome:  TIM  SMITH, President,  Nome Fisherman's                                                             
Association; From  Sitka: PATTY MILLS, Gaming Manager,  Sitka Tribes                                                            
of   Alaska;   SANDIE   JOHNSON;   From   Kenai:    LEN   MALMQUIST,                                                            
Representative,  Kenai Charities Co-op; From Kodiak:  WAYNE STEVENS,                                                            
Executive Director, Kodiak Chamber of Commerce;                                                                                 
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SB 102-CHARITABLE GAMING REVENUE                                                                                                
                                                                                                                                
Testimony  was presented  by the  Department of  Revenue and  public                                                            
testimony was taken. The bill was held in Committee.                                                                            
                                                                                                                                
HB 229-PAROLE FOR MEDICAL/COGNITIVE DISABILITY                                                                                  
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 102(L&C)                                                                                            
     "An Act increasing the amount of revenue received by the state                                                             
     from charitable gaming activities; relating to taxes on pull-                                                              
     tabs; and providing for an effective date."                                                                                
                                                                                                                                
                                                                                                                                
Co-Chair  Wilken  stated that  the  Senate  Rules Committee  at  the                                                            
request of  Governor Frank  Murkowski sponsors  this bill.  He noted                                                            
that the  bill would  increase  "the State's  charitable gaming  tax                                                            
rate to  five percent of  ideal gross receipts  for pull tabs  which                                                            
generates  $12.5 million."  He continued that  the Senate Labor  and                                                            
Commerce  (SL&C)   Committee  committee   substitute,  Version   23-                                                            
GS1131\Q, "instead places  a 15-percent tax rate on the ideal net on                                                            
each series" distributed  by a pull-tab operation,  which he stated,                                                            
might generate  approximately ten  million dollars. He noted  that a                                                            
proposed committee substitute,  Version "Q", is before the Committee                                                            
and is  accompanied by  new fiscal  note #2 from  the Department  of                                                            
Revenue.                                                                                                                        
                                                                                                                                
LARRY PERSILY, Deputy Commissioner,  Department of Revenue, informed                                                            
the Committee  that the  Administration's  original bill would  have                                                            
instituted  "a  significant  change  in  how  the  pull-tab  tax  is                                                            
administered  on  charitable  organizations"   by  taxing  on  gross                                                            
revenue rather  than the existing three-percent of  net on pull-tabs                                                            
"played."  He continued that  the original  bill was changed  by the                                                            
SL&C to  tax at a 15-percent  of ideal net  which, he explained,  is                                                            
the  amount  remaining   after  prizes  are  distributed   with  the                                                            
assumption  that all of the  pull-tabs in a  game would be  sold. He                                                            
exampled  that $200 is the  ideal net of a  game consisting  of 1000                                                            
one-dollar  pull-tabs with an 80-percent  payout. He furthered  that                                                            
while  both the  current tax  and the  tax proposed  in Version  "Q"                                                            
collect on the net amount  of the game, Version "Q" assumes that all                                                            
the pull-tabs  in a specific game  would be sold. He stated  that in                                                            
order to  meet the tax  obligation, charities  would make  "internal                                                            
adjustments" such  as negotiating operating expenses  with operators                                                            
and  vendors  and  adjusting  prize  payouts.  He  stated  that  the                                                            
original  version of  the bill  proposed "a  significant change"  by                                                            
mandating, in  statute, that no game in the State  could payout more                                                            
than 68-percent in prizes  as compared to the current average payout                                                            
of 78-percent.  He explained  that  the intent of  the lower  payout                                                            
limit is to  provide operators with  additional funds to  cover "the                                                            
higher tax burden"                                                                                                              
                                                                                                                                
Mr. Persily  clarified that the Department's  fiscal note  #2 should                                                            
be  correctly  identified  as  CS  SB 102(L&C)  rather  than  CS  SB
102(STA).                                                                                                                       
                                                                                                                                
AT EASE 9:08 AM / 9:08 AM                                                                                                       
                                                                                                                                
Mr. Persily  referred  the Committee  to a handout  provided  by the                                                            
Department  titled, "Distribution  of  Dollars  in Pull-Tab  Games,"                                                            
[copy on file]  dated May 9, 2003, which reflects  the calendar year                                                            
2001  financial  activity  levels  of the  four  types  of  pull-tab                                                            
operations  in the State. He defined  theses operations as  follows:                                                            
Self-Directed  Gaming Permittees  are those  that oversee their  own                                                            
pull-tab operations;  Multiple-Beneficiary  Permittees (MBPs)  occur                                                            
when several  charities  form a cooperative  to  run a gaming  site;                                                            
Operators are for-profit  businesses that contract with a charity to                                                            
sell its pull-tabs;  and the Vendors category applies  to permittees                                                            
that sell  pull-tabs  to a bar,  which then  sells  the game to  its                                                            
patrons.  He specified  that the  charts depict  the percentages  of                                                            
revenue  paid  out  for prizes;  the  current  pull-tab  tax;  total                                                            
expenses;  and the  net profit  to charities  for each  of the  four                                                            
operations.                                                                                                                     
                                                                                                                                
Co-Chair  Wilken  asked for  confirmation  that  the four  types  of                                                            
categories currently operate in the State.                                                                                      
                                                                                                                                
Mr. Persily  affirmed.  He reiterated  that the  charts reflect  the                                                            
total monetary activities  of the four operations for the year 2001.                                                            
He pointed  out that pull-tab operators  must determine whether  the                                                            
money to  fund the proposed  tax increase  would be subtracted  from                                                            
prizes, profits, or expenses.                                                                                                   
                                                                                                                                
Co-Chair Wilken asked which of the operations is most prevalent.                                                                
                                                                                                                                
Mr.  Persily  communicated   that  the  "Self-Directed  Permittees"                                                             
category conducted approximately  half, or $126 million of the total                                                            
$274 million, of the 2001 pull-tab volume.                                                                                      
                                                                                                                                
Co-Chair  Wilken furthered  that the chart  indicates that  the MBPs                                                            
and  Operators each  earned  revenues of  approximately  $54 to  $57                                                            
million and that Vendors earned approximately half that amount.                                                                 
                                                                                                                                
Mr. Persily concurred.                                                                                                          
                                                                                                                                
Senator  Taylor asked  which expenses  could be  deducted under  the                                                            
ideal net proposal.                                                                                                             
                                                                                                                                
Mr. Persily responded that  prizes and federal and local taxes would                                                            
be allowable  deductions  while payroll taxes,  rent, and  utilities                                                            
would be disallowed.                                                                                                            
                                                                                                                                
Co-Chair Wilken summarized  that the definition of ideal net is "the                                                            
amount equal to the total  amount of receipts that would be received                                                            
if every  individual pull-tab  in a series  were sold at face  value                                                            
minus the prizes to be awarded for that series."                                                                                
                                                                                                                                
Mr. Persily  corrected  his previous  statement  by clarifying  that                                                            
allowable  expenses would be  limited to prizes  and not to  federal                                                            
and local taxes.                                                                                                                
                                                                                                                                
Senator Taylor  asked for confirmation that a prize  payout limit is                                                            
not specified in the SL&C committee substitute.                                                                                 
                                                                                                                                
Mr. Persily  confirmed  that Version  "Q" does not  specify a  prize                                                            
limit. He reiterated  that the charitable  organizations  would make                                                            
the decisions  "on how to come up  with the money to pay  the higher                                                            
tax."                                                                                                                           
                                                                                                                                
Senator Taylor  asked how  pull-tab players  would be notified  of a                                                            
game's prize structure.                                                                                                         
                                                                                                                                
Mr. Persily responded  that games are required to  disclose what the                                                            
prizes are,  but he continued, payout  statistics are not  required.                                                            
However,  he voiced  the  understanding  that "players  become  very                                                            
quickly educated" about  which games pay out. Therefore, he reasoned                                                            
that "competition  would dictate  that" charities  and games  with a                                                            
low  payout percentage  would  experience  "players  gravitating  to                                                            
those games with a higher payout."                                                                                              
                                                                                                                                
Senator Taylor  opined that  this "might be  true" in a competitive                                                             
urban area; however, he  asked what might occur were there "only one                                                            
game in town."                                                                                                                  
                                                                                                                                
Mr. Persily  stated  that while  there  might be  a single  pull-tab                                                            
permittee  in a  community, more  than  one pull-tab  game could  be                                                            
offered. He continued  that State statutes do not  currently specify                                                            
a minimum or maximum payout level.                                                                                              
                                                                                                                                
Senator Taylor  understood that State statutes do  not influence the                                                            
prize  payout;  however,  he  voiced  "fascination"  that  the  four                                                            
operations  currently   have  prize  payouts  of  approximately   78                                                            
percent.  He  asked  whether  the  industry  rather  than  the  game                                                            
determines the payout range  as he considers "this an important part                                                            
of the equation."                                                                                                               
                                                                                                                                
Mr. Persily responded  that the payout range falls  between 72 to 80                                                            
percent with the  average payout being 78 percent.  He informed that                                                            
charities  could  specify  the prize  payout  percentage  when  they                                                            
purchase a game.                                                                                                                
                                                                                                                                
Senator  Hoffman surmised  from the  aforementioned  chart that  the                                                            
expenses  for the four  types of  pull-tab operations  appear  to be                                                            
"somewhat fixed due to  [the] nature of [the] operation." Therefore,                                                            
he continued, the prize  payout percentage and the net profit to the                                                            
charities  would  be the  areas  from which  the  new  tax would  be                                                            
funded.  He  stressed  that  as a  result;  this  legislation  might                                                            
negatively  impact   the  level  of  money  available   for  charity                                                            
donations  and might  ultimately require  State  assistance in  some                                                            
manner. He opined  that were this the resulting scenario,  the "bill                                                            
would be for naught."                                                                                                           
                                                                                                                                
Senator Taylor  asked whether revenue  projections for video  gaming                                                            
or a State lottery are available.                                                                                               
                                                                                                                                
Mr. Persily responded  that the revenue would depend  on how the net                                                            
proceeds would be distributed.  He elaborated that the revenue could                                                            
be  shared,  for  example,  between   the  State  and  charities  or                                                            
municipalities.  He  voiced  that  projected  revenue from  a  State                                                            
lottery would  be "no more  than one million  dollars;" however,  he                                                            
noted that  were the  State to join  in a  multi-state lottery,  the                                                            
revenue could be higher.  He summarized that numerous variables such                                                            
as the type of video gaming  or lottery, prize payouts, the entities                                                            
involved  in  the   revenue  sharing,  game  limitations,   and  the                                                            
frequency of the lottery would affect the revenue.                                                                              
                                                                                                                                
Senator Taylor  requested "a best  case" revenue scenario  for these                                                            
activities.                                                                                                                     
                                                                                                                                
Mr.  Persily   responded   that  were  the   current  video   gaming                                                            
legislation  adopted,  the  State could  gross  up to  $50  million;                                                            
however, he continued  that, after expenses, the State  might net in                                                            
"the single digit numbers."                                                                                                     
                                                                                                                                
Co-Chair Wilken commented  that public testimony would now be taken,                                                            
and he asked testifiers  to limit their comments to  two minutes. He                                                            
encouraged Committee members  to ask questions of the testifiers and                                                            
noted that  Senator  Bunde, being  a member of  the SL&C  committee,                                                            
might be able to provide further information to the Committee.                                                                  
                                                                                                                                
GREGORY  PETERSON,   Representative,  Allied  Charities   of  Alaska                                                            
Association,  testified via teleconference  from an offnet  site and                                                            
commented  that Senator  Hoffman's comments  regarding the  negative                                                            
affect  the new tax  might incur  upon charitable  donations  "was a                                                            
remarkable grasp" of the  possible consequences of this legislation.                                                            
He stated that while the  State might receive ten million dollars in                                                            
new revenue, the consequence  might be the removal of "33 percent of                                                            
the money  that charities  have to give away."  He stated that  this                                                            
would compare  to "the  dog chasing  its tail"  as the State  "would                                                            
lose  more than  it  would gain"  by being  required  to  compensate                                                            
charities  for  the  downturn  in pull-tab  permittees'   charitable                                                            
contributions.                                                                                                                  
                                                                                                                                
PERRY  GREEN  testified   via  teleconference  from   Anchorage  and                                                            
suggested that a study  be conducted to understand "the real affect"                                                            
of the  committee  substitute.  He opined  that the  removal of  15-                                                            
percent of ideal net profit  would "kill the industry," reduce jobs,                                                            
and  destroy resources  to  1,200 charities.  He  stressed that  the                                                            
proposal needs  more discussion and that the July  1, 2003 effective                                                            
date is premature. He concluded  that this legislation is "little in                                                            
comparison" to  legislation regarding revenue from  North Slope oil,                                                            
and  that these  changes  would  be  harmful  to charities  and  the                                                            
benefits derived from pull-tab revenues.                                                                                        
                                                                                                                                
JOHN LOPEZ,  President,  Denali Gaming  Supply  Inc., testified  via                                                            
teleconference  from Anchorage to state that the proposed  ideal net                                                            
tax burden  would force operators  to lower prize payouts  which, he                                                            
avowed, would  deter players from  participating. He continued  that                                                            
this would result in pull-tab  businesses either closing or reducing                                                            
operations, and,  he asserted that there would be  a snowball affect                                                            
on tax  bases because  supporting  business,  such as distributors,                                                             
would  be harmed.  He stated  that a  study should  be conducted  to                                                            
determine the impact of the legislation before it is enacted.                                                                   
                                                                                                                                
Co-Chair Wilken acknowledged  that the Committee has received copies                                                            
of Mr. Lopez's written  testimony and accompanying spreadsheet [copy                                                            
on file] dated May 5, 2003.                                                                                                     
                                                                                                                                
LYNN  REESE,   Owner/Operator,  Lynn's   Pull-tabs,  testified   via                                                            
teleconference  from Anchorage and  informed the Committee  that her                                                            
small business  would not survive the 15 percent increase  specified                                                            
in this bill.                                                                                                                   
                                                                                                                                
Senator Hoffman asked the number of employees in her business.                                                                  
                                                                                                                                
Ms. Reese  replied  six. She  stated that  some of  them are  single                                                            
parents, some  are on welfare, and  that she is flexible  with their                                                            
schedules in order to make work a viable option for them.                                                                       
                                                                                                                                
TED  BROWN, Representative,   Alaska Indoor  Sports,  testified  via                                                            
teleconference   from  Anchorage   to  state   that  enacting   this                                                            
legislation this  session provides insufficient time  for operators,                                                            
the Legislature,  and other affected individuals to  become familiar                                                            
with the numerous  "factors, terminology, and consequences"  of this                                                            
legislation. He urged that  time is provided to fully understand the                                                            
business and the impacts  of this legislation before a vote be taken                                                            
that could "destroy" the industry.                                                                                              
                                                                                                                                
Co-chair  Wilken assured  the testifier  that, in  addition to  this                                                            
public testimony,  legislators are reading the numerous  letters and                                                            
e-mails in order to understand the impacts of the bill.                                                                         
                                                                                                                                
JIM  PEOT, General  Manager,  Whaler  Casino Supply,  testified  via                                                            
teleconference  from Anchorage  and urged  the Committee to  curtail                                                            
action on this  legislation until an economic impact  study has been                                                            
conducted. He  communicated that due to the nature  of his business,                                                            
he has contact with each  of the four different pull-tab operations.                                                            
He continued  that  he has  conducted an  informal  survey of  those                                                            
operators,  and he  attested that  the self-directed  charities  and                                                            
small operators  would be severely impacted by this  legislation. He                                                            
announced that the solution  is not to lower the prize payouts as it                                                            
would negatively  affect the number of players of  a game. He voiced                                                            
support  for a study  to be  conducted to  gauge the  impact of  the                                                            
legislation.                                                                                                                    
                                                                                                                                
GENE HANSEN,  Representative, Fraternal  Order of Eagles,  testified                                                            
via teleconference  from  Fairbanks  to share  information with  the                                                            
Committee  regarding how  the net  profit generated  from  pull-tabs                                                            
contributes  to a  community.  He noted  that, over  the past  three                                                            
years, his Order  has netted $122,000 in pull-tab  revenue, although                                                            
he communicated  that  due to  the economy  and  changes in  alcohol                                                            
consumption  laws, this  amount is  lower than  previous  historical                                                            
revenues. He noted that  were this committee substitute adopted, the                                                            
15 percent  of ideal net tax would  equate to approximately  $18,000                                                            
of the $122,000.  He stated that the Order uses its  net proceeds to                                                            
support local  needs such as the Breast Cancer Detection  Center and                                                            
funding  Prostate  Specific Antigen  (PSA)  blood tests  for  senior                                                            
citizens.  He stated that  were this level  of tax implemented,  the                                                            
Order would not be able  to continue funding community needs as they                                                            
historically have. He urged  the Committee to table this legislation                                                            
until further research has been conducted.                                                                                      
                                                                                                                                
Senator  Olson  asked for  further  information  regarding  the  PSA                                                            
testing that the Order supports.                                                                                                
                                                                                                                                
Mr. Hansen  explained  that the Order  provides  funds to the  local                                                            
senior  health  center  to assist  senior  men  in having  the  test                                                            
performed.                                                                                                                      
                                                                                                                                
DAVID  LAMBERT,  Fundraiser,   testified  via  teleconference   from                                                            
Fairbanks to  declare that the result  of this legislation  would be                                                            
"the  obliteration"  of  MBPs,  Operators,  and a  number  of  Self-                                                            
Directed Permittees.  He stated that those that might  survive would                                                            
be the larger  operations such as the Moose and Elks  Club fraternal                                                            
organizations  that  have  other means  of  supporting  their  labor                                                            
costs.                                                                                                                          
                                                                                                                                
Mr. Lambert  relayed  Senator Bunde's  comments spoken  in the  SL&C                                                            
committee  that "non-profits  are lazy  and should  raise funds  via                                                            
bake sales  and raffles." Mr. Lambert  contended this suggestion  is                                                            
unrealistic as funds raised  from these efforts would be inadequate.                                                            
He stated that  this legislation is not going to work,  and he urged                                                            
the Committee  to table it, as the Committee, he opined,  is unaware                                                            
of the devastation that would occur.                                                                                            
                                                                                                                                
Senator  Bunde noted  his involvement  in  non-profit organizations                                                             
before  the onset  of pull-tabs,  and  he attested  that  sufficient                                                            
funds were raised to keep  operations afloat. He stated that raising                                                            
funds without  pull-tab revenues might  be hard work, but  it is do-                                                            
able.                                                                                                                           
                                                                                                                                
JUNE  ROGERS,   Executive  Director,   Fairbanks  Art  Association,                                                             
testified  via  teleconference  from  Fairbanks  that she  is  "very                                                            
concerned"  about the bill's  affect on local  organizations  as the                                                            
revenue garnered  from pull-tabs supports local social  services and                                                            
would  be difficult  to  replace.  She  stated  that this  issue  is                                                            
"misunderstood,"  and she  urged the Committee  to table this  issue                                                            
until a later date in order  for "a better decision" to be made. She                                                            
reminded the Committee  that non-profit organizations,  specifically                                                            
arts organizations,  have  undergone continuous  funding  reductions                                                            
over the past  twenty years. She continued that these  entities have                                                            
been sustained by diversifying  funding endeavors using a variety of                                                            
methods,  including collecting  revenue  from pull-tabs  as well  as                                                            
bake sales and other creative measures.                                                                                         
                                                                                                                                
TOM  ROGERS,   Office  Manager,   Downtown   Bingo,  testified   via                                                            
teleconference from Fairbanks  in support of the testimony regarding                                                            
the negative  impact that this legislation  would have on  the pull-                                                            
tab industry.  He voiced that rather than the projected  ten million                                                            
dollars  in new  revenue,  the State  "would  raise nothing…because                                                             
there isn't going to be  anything to tax." He stated that were prize                                                            
payouts  reduced, the  industry  would suffer.  He  shared that  the                                                            
result of  this action would  be similar to  that of the Nenana  Ice                                                            
Classic  which suffered  a "a 30-percent  reduction  in their  gross                                                            
revenue" this year after  ticket prices were raised from two dollars                                                            
to two dollars and fifty cents.                                                                                                 
                                                                                                                                
DAN  THOMPSON,  Representative,  C&A  Distributors,   testified  via                                                            
teleconference  from Fairbanks and  conveyed to the Committee  that,                                                            
as a result of  working with a variety of non-profit  organizations,                                                            
he is  aware that  gaming is an  important revenue  source and  that                                                            
this legislation  "would do tremendous  damage" to the industry.  He                                                            
asserted that the proposed  tax would reflect a simple economic law,                                                            
which is "increase the  expenses, lower the profits." He stated that                                                            
this  would  negatively  affect  charitable   contributions  in  the                                                            
community.  He asserted that the Department  of Revenue numbers  are                                                            
"bad," and that the Department  does not understand the economics of                                                            
the  industry. He  urged  the Committee  to  table the  issue  until                                                            
further studies are conducted.                                                                                                  
                                                                                                                                
Co-Chair  Wilken asked whether  Mr. Thompson  has a copy of  the pie                                                            
chart information for the four types of pull-tab operations.                                                                    
                                                                                                                                
Mr. Thompson responded he did.                                                                                                  
                                                                                                                                
Co-Chair  Wilken  asked  for  clarification  that  while  the  prize                                                            
component  averages  78-percent,  the  level  is  variable  as  game                                                            
operators   could   specify   lower   prize   payout   percentages.                                                             
Additionally,  he asked whether  "the prize  component could  become                                                            
one  of  the  components  that  is  reduced  in  order  to  pay  the                                                            
additional tax."                                                                                                                
                                                                                                                                
Mr. Thompson responded  that some entities would adjust  or maintain                                                            
the prize payout  levels depending "on the profile  of the operation                                                            
and what their players will accept."                                                                                            
                                                                                                                                
Co-Chair Wilken  asked whether it would be "too simple"  to increase                                                            
a charity's  net profit  by three  percent by  lowering the  average                                                            
prize payout from 78 percent to 75 percent.                                                                                     
                                                                                                                                
Mr. Thompson  responded that this  would be "too simple of  a way to                                                            
look at  it;" although he  believed that a  portion of the  money to                                                            
pay the tax would be drawn from the prize structure.                                                                            
                                                                                                                                
Co-Chair  Wilken  acknowledged   that  the  prize  payout  could  be                                                            
adjusted.                                                                                                                       
                                                                                                                                
Senator Bunde  informed the Committee  that, by law, charities  must                                                            
receive a minimum  of 30-percent of the pull-tab operation  revenue;                                                            
therefore,  he asserted an  operator must decide  whether "it  is in                                                            
their interest to stay in business."                                                                                            
                                                                                                                                
[NOTE: The following testifiers presented in Juneau.]                                                                           
                                                                                                                                
MARIA  MOYA,  Member,   Southeast  Alaska  Friends  of  Montessori,                                                             
informed the Committee  that this is a non-profit  organization that                                                            
promotes educational opportunities in the Juneau area.                                                                          
                                                                                                                                
                                                                                                                                
SFC 03 # 84, Side B 09:50 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Ms. Moya urged  the Committee to amend  the committee substitute  to                                                            
include "a  statewide prohibition  of local sales taxation  of pull-                                                            
tab receipts."  She  shared that with  the net  revenue it  receives                                                            
from its  pull-tab gaming  permit, the  Juneau Montessori  community                                                            
program provides a wide  variety of educational programs including a                                                            
high  qualify preschool  program,  a  kindergarten  program, and  an                                                            
elementary  program  with  a  total  enrollment  in  excess  of  120                                                            
students.                                                                                                                       
                                                                                                                                
Ms. Moya expressed  that were this legislation adopted  without this                                                            
exemption, the resulting  affect on the Montessori program "would be                                                            
profound."  She elaborated  that currently  the program pays  a city                                                            
tax  that equates  to  25-percent  of the  ideal net  receipts.  She                                                            
stated that  the addition of an additional  15-percent of  ideal net                                                            
tax,  as  proposed  in the  committee  substitute,  would  mean  the                                                            
overall  tax  burden  of the  program  would  be  approximately  40-                                                            
percent.  She  asserted  that  with  overhead   expenses  and  prize                                                            
payouts,  the  current  programs  would  not be  viable  under  that                                                            
circumstance.  Thus, she concluded, a downsizing or  discontinuation                                                            
of programs, specifically  the kindergarten program  that has served                                                            
approximately  1,600 children  during its  18-year operation,  would                                                            
result. She stated  that closure of the kindergarten  program, which                                                            
is the foundation  for the other levels  of the Montessori  program,                                                            
"would  have  a  chilling   rippling  affect."  She  requested   the                                                            
Committee to carefully  consider the affect this legislation  has on                                                            
small businesses  and, in  particular, address  the double-taxation                                                             
issue.                                                                                                                          
                                                                                                                                
Senator Bunde  asked regarding the  tuition structure for  students.                                                            
                                                                                                                                
Ms. Moya  replied that there  is a tuition  charge at the  preschool                                                            
level.                                                                                                                          
                                                                                                                                
Senator  Bunde asked  for confirmation  that  the program's  current                                                            
City and Borough of Juneau  taxes amount to approximately 25-percent                                                            
of ideal net.                                                                                                                   
                                                                                                                                
Ms. Moya confirmed that  current local taxes equate to approximately                                                            
25-percent of ideal net.                                                                                                        
                                                                                                                                
Senator  Bunde  surmised  therefore,   that  contrary  to  testimony                                                            
attesting "that  economic collapse" would result at  a 25-percent of                                                            
ideal net taxation  level there are charity programs  that currently                                                            
function successfully at that level.                                                                                            
                                                                                                                                
Ms. Moya  commented that  were this legislation  to be adopted,  the                                                            
additional tax would put the organization under.                                                                                
                                                                                                                                
Senator Taylor  asked how a statewide  four-percent sales  tax would                                                            
affect the program assuming  the legislation was amended to prohibit                                                            
local sales taxes being collected on pull-tab revenue.                                                                          
                                                                                                                                
Ms.  Moya  responded  that  options  might  include  distributing  a                                                            
portion of the receipts from those taxes back to municipalities.                                                                
                                                                                                                                
Senator Taylor  asked whether  the intent would  be to funnel  those                                                            
funds through to organizations such as the Montessori program.                                                                  
                                                                                                                                
Ms. Moya  clarified that  rather than be  directed to programs,  the                                                            
funds would allow a municipality  to replace the revenue lost by the                                                            
pull-tab sales tax exemption.                                                                                                   
                                                                                                                                
Senator Taylor  asked for further  information regarding  the amount                                                            
the organization is currently taxed on its pull-tab sales.                                                                      
                                                                                                                                
Ms. Moya clarified  that the organization  is required to  pay five-                                                            
percent of gross which  equates to 25-percent of ideal net receipts.                                                            
                                                                                                                                
Senator Taylor  asked how an eight-percent  sales tax, comprised  of                                                            
the five percent  City tax and a three-percent statewide  tax, might                                                            
affect the organization.                                                                                                        
                                                                                                                                
Ms. Moya  remarked that  this would  make the  situation "even  more                                                            
difficult."                                                                                                                     
                                                                                                                                
ALBERT JUDSON,  voiced opposition  to the bill as it "would  shackle                                                            
the benevolent  efforts" of local  entities by imposing unrealistic                                                             
requirements  on  pull-tab  operators.  He  stated  that  were  this                                                            
legislation  to be adopted  without further  study being  conducted,                                                            
"it would create  a fiscal experiment  at the expense of  low income                                                            
people," who "should  not be targeted" to solve the  fiscal problems                                                            
of the State.                                                                                                                   
                                                                                                                                
BOB LOESCHER,  President, Juneau Tlingit & Haida Community  Council,                                                            
communicated  to the Committee that  the self-directed local  gaming                                                            
organization  has been involved  in gaming  activities in excess  of                                                            
thirty years and that the  net profits have allowed the organization                                                            
to  build   a  community  center   and  support  numerous   internal                                                            
charitable  groups as  well as  local schools  and  the elderly.  He                                                            
informed the Committee  that were this bill's regulations applied to                                                            
the  organization's  December  31,  2002 pull-tab  report  that  was                                                            
submitted  to the State,  the net income  to the organization  would                                                            
have been sufficiently impacted.                                                                                                
                                                                                                                                
Furthermore,  Mr. Loescher asserted  that the organization  would be                                                            
forced out  of compliance  with the State's  30-percent requirement                                                             
and would  be forced to  relinquish its permit.  He noted that  were                                                            
the five-percent  local tax  factored in,  the cumulative tax  would                                                            
amount to 43-percent  of ideal net,  and that a Statewide  sales tax                                                            
would  further  increase  the  overall  tax  amount.  He  urged  the                                                            
Committee to hold the bill and reconsider its impacts.                                                                          
                                                                                                                                
GEORGE WRIGHT,  Operator, former Self-Directed Permittee  and former                                                            
Charitable  Gaming Task Force member,  declared that the  Department                                                            
of  Revenue  does not  have  a  grasp  on charitable  gaming  as  is                                                            
substantiated  by the fact  that the aforementioned  pie charts  are                                                            
incomplete  in that they do not reflect  the three-percent  tax that                                                            
gaming entities  are required to pay  to the State upon the  initial                                                            
purchase  of the  pull-tabs.  He asserted  that  this  is a  complex                                                            
situation  that  requires  further  study.  He  attested  that  were                                                            
charitable  revenues reduced, such  things as school sport  programs                                                            
would  be  negatively  affected  as they  are  funded  primarily  by                                                            
charitable  organizations.  He  stated that  a  gambling  commission                                                            
should  be formed  to study the  industry and  make recommendations                                                             
addressing  such things  as the  impact of the  three-percent  State                                                            
tax, local  sales taxes,  and the proposed  15-percent on ideal  net                                                            
tax. He stated that were  this tax imposed as presented, "70-percent                                                            
of the charities  would be forced to close," his organization  would                                                            
lose  100 employees,  and that  other entities  such  as the  Alaska                                                            
Native  Brotherhood  organization  would  lose  90  percent  of  its                                                            
funding.                                                                                                                        
                                                                                                                                
AGNES  D'CAFANGO,  Gaming  Industry   Employee,  testified  that  it                                                            
appears "that the State  is not against gaming," so she pondered why                                                            
the State does  not incorporate a  lottery and "leave the  charities                                                            
alone that  are struggling  to make it now."  She asked whether  the                                                            
revenue generated from  this bill would be used to fund State health                                                            
care.                                                                                                                           
                                                                                                                                
Co-chair Wilken  stated that the money  would be deposited  into the                                                            
general fund and  used for multiple purposes, including  some health                                                            
care.                                                                                                                           
                                                                                                                                
Ms. D'Cafango  asserted that, "the  State should earn its  own money                                                            
instead of  taking it from charities."  She stated that rather  than                                                            
penalize  charities in this  manner, the money  could remain  in the                                                            
organization and be used to elevate counter staff salaries.                                                                     
                                                                                                                                
[NOTE: Statewide testimony resumes.]                                                                                            
                                                                                                                                
LEN MALMQUIST, Representative,  Kenai Charities Co-op, testified via                                                            
teleconference  from Kenai  and voiced  opposition  to the bill.  He                                                            
attested  that this legislation  would result  in a 500-percent  tax                                                            
increase that  would impact each charity in the State.  He disclosed                                                            
that the historical  high level of pull-tab revenue  occurred in the                                                            
year 2001 and  that using that data as the basis for  the pie charts                                                            
"is misleading  you at best." He continued that pull-tab  revenue in                                                            
his region  is down this year from  the previous year, and  that any                                                            
decline in charitable  contributions would force recipients  to turn                                                            
to the  State  for assistance.  Furthermore,  he  asserted that  the                                                            
Department  of Revenue  fiscal note  does not  anticipate the  shift                                                            
from  charitable  funding   to  the  State.  He  continued  that  in                                                            
addition, the  loss of potential jobs and "the trickle  down" affect                                                            
of the  legislation are not  reflected. He  stated that local  Kenai                                                            
charities   fund  substantial  projects   such  as  sports   events,                                                            
scholarships,  food  banks, fire  fighting  training,  and more.  He                                                            
advised that were  this legislation adopted, these  things could not                                                            
be funded and he questioned  whether "the State would pick them up."                                                            
In conclusion,  he urged  for a study to  be conducted to  determine                                                            
the  minimal  overall  fiscal  impact and  what  the  "trickle  down                                                            
affect" would be.                                                                                                               
                                                                                                                                
WAYNE  STEVENS,  Executive  Director, Kodiak  Chamber  of  Commerce,                                                            
testified via  teleconference from Kodiak and communicated  that the                                                            
Chamber operates  a Self-Directed,  Multi-Beneficiary Permit  gaming                                                            
operation. He mentioned  that separate electronic gaming legislation                                                            
specifies  an 85-percent  prize payout whereas  pull-tabs average  a                                                            
78-percent  payout.  He stated  that the  discussion  to reduce  the                                                            
pull-tab  payout  is  being  conducted  "without  any corresponding                                                             
discussion about the psychology  of gaming and what that does to the                                                            
play."  He labeled  the aforementioned  pie chart  as "misleading,"                                                             
particularly  "as it  includes  the one  percent tax  on annual  net                                                            
proceeds but very  conveniently includes the three-percent  tax that                                                            
is currently  paid  on the ideal  net to  the State  in the  expense                                                            
slice." He  shared that his organization's  2002 permit's  ideal net                                                            
was approximately  $729,000  with  $22,000 paid  to the  State  as a                                                            
result  of the three-percent  tax.  He continued  that were the  15-                                                            
percent  of ideal  net  adopted, his  organization's  tax  component                                                            
would  be approximately  $109,350  which,  based  on the  year  2002                                                            
numbers,  would leave the  Chamber with a  net profit of $5,000.  He                                                            
stated  that at that  point, the  organization would  choose  not to                                                            
continue  its gaming activities  and would  thereby terminate  three                                                            
employees  and the  ability  to fund  multiple community  needs.  He                                                            
urged the Committee to further study the legislation.                                                                           
                                                                                                                                
Senator Taylor voiced concern  about testifiers' assertions that the                                                            
Department  of Revenue is  misleading the  Legislature by  including                                                            
the one percent State tax  on the chart but not specifying the three                                                            
percent tax that is paid.                                                                                                       
                                                                                                                                
Mr. Stevens  responded  that according  to his  organization's  2002                                                            
Permittee Annual  Financial Statement, the one percent  State tax on                                                            
net  proceeds  amounted to  $845.  In addition,  he  continued,  the                                                            
organization  paid approximately  $22,000 in  the form of the  three                                                            
percent  tax. He  continued that  the 15-percent  of  ideal net  tax                                                            
would increase  the amount to approximately $109,000  that in effect                                                            
would  reduce  the  organization's  net  proceeds  from  $92,000  to                                                            
approximately $5,000.                                                                                                           
                                                                                                                                
Senator Taylor asked how the three-percent tax is determined.                                                                   
                                                                                                                                
Mr. Stevens  clarified  that the three  percent tax  is paid  on the                                                            
ideal  net  when the  charity  purchases  the  game. He  voiced  the                                                            
understanding  that  this tax  is included  in the  "total  expense"                                                            
section of the pie chart.                                                                                                       
                                                                                                                                
In  response  to  a  question  from  Senator   Taylor,  Mr.  Stevens                                                            
clarified that  the three-percent  tax is a tax on the ideal  net at                                                            
the time a  game is purchased whereas  the one-percent State  tax is                                                            
paid on  the net  proceeds as  presented on  the year-end  financial                                                            
statement.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  surmised that the three-percent tax  is included in                                                            
the total expense information.                                                                                                  
                                                                                                                                
Mr. Stevens "assumed" that it is.                                                                                               
                                                                                                                                
Co-chair Wilken  stated that the footnote on the pie  chart reads as                                                            
follows.                                                                                                                        
                                                                                                                                
     "For purposes of this presentation, federal and local taxes                                                                
     have been combined into the expenses category but the state                                                                
     pull-tab tax has been set out separately from expenses."                                                                   
                                                                                                                                
Co-chair Wilken  stated that clarification  regarding this  "upfront                                                            
tax on pull-tabs" would be forthcoming from the Department.                                                                     
                                                                                                                                
TIM SMITH,  President, Nome Fisherman's  Association, testified  via                                                            
teleconference from Nome  in opposition to the bill on behalf of the                                                            
Self-Directed  Permittee   association.  He  stated  that  this  500                                                            
percent  tax increase  would "kill  the goose that  lays the  golden                                                            
eggs."  He  shared  how  important   pull-tab  sales  are  to  local                                                            
governments,  particularly those small  communities in Bush  Alaska,                                                            
which  acquire the  majority  of their  local operating  funds  from                                                            
pull-tab  sales. Additionally,  he voiced  concern that communities                                                             
such as  Nome, which has  a local four-percent  sales tax,  would be                                                            
negatively  affected by a loss of  revenue from negatively  affected                                                            
pull-tab operations.                                                                                                            
                                                                                                                                
Mr.  Smith explained  that  the one-percent  pull-tab  tax  category                                                            
reflected  on the pie chart  equates "to one  percent of the  gross"                                                            
revenue. However, he declared,  "that this is not a realistic way to                                                            
look  at  pull-tab  revenues"  because  there  is  quite  a  bit  of                                                            
difference  between gross sales and  ideal net revenue. He  stressed                                                            
that were  this legislation  adopted, the  one percent increment  on                                                            
the chart  would be  increased fivefold  with the  net profit  being                                                            
lowered by that  amount. He exampled that were this  to occur, using                                                            
the data  on the "Operators"  chart, the  one-percent increment  for                                                            
the pull-tab tax  would increase to five percent and  the charities'                                                            
six-percent net profit increment would decrease to one-percent.                                                                 
                                                                                                                                
Mr. Smith  noted  that rather  than collect  $1.04  for a  pull-tab,                                                            
charities in Nome collect  ninety-six cents on a one-dollar pull-tab                                                            
because they absorb the  four-percent local tax. He stated that this                                                            
action  and  the three-percent   State  tax paid  on  each  pull-tab                                                            
affects  ideal net.  Therefore,  he asserted  that  the charity,  in                                                            
reality, collects ninety-three  cents for each one-dollar face-value                                                            
pull-tab  when both the local  and State taxes  are factored  in. He                                                            
stated that  were the State tax to  increase to 15-percent  of ideal                                                            
net, it "makes  our math even worse."  Additionally, he stated  that                                                            
in order to entice  individuals to purchase the few  remaining pull-                                                            
tabs  of   a  particular   game,  pull-tab   operators  must   offer                                                            
incentives,  thereby creating  more  loss. He asserted  that all  of                                                            
these things factor into the net profit.                                                                                        
                                                                                                                                
Mr. Smith  suggested  that, rather  than target  pull-tab  operators                                                            
with additional  taxes,  the tax base  should be  expanded to  allow                                                            
video gaming and "perhaps a State lottery."                                                                                     
                                                                                                                                
Co-Chair  Wilken  asked  whether  local  and State  taxes  could  be                                                            
assessed from  the prize payout category rather than  the net profit                                                            
category.                                                                                                                       
                                                                                                                                
Mr. Smith responded  that paying the  taxes from the prize  category                                                            
would require prize payouts  to be reduced, and he declared that the                                                            
current payout  return has reached the limit of what  players "would                                                            
tolerate."  He noted  that  contrary to  the Department  of  Revenue                                                            
testimony,  the percentage  of payout  is posted  and players  "know                                                            
exactly" what  the prize payout is  for each game. He declared  that                                                            
players would  either "quit" or cut  back on playing games  were the                                                            
prize payout lowered.                                                                                                           
                                                                                                                                
Co-Chair  Wilken surmised  therefore,  that pull-tab  players  would                                                            
quit playing  a 50-percent payout  game and would seek out  a higher                                                            
payout game.                                                                                                                    
                                                                                                                                
Mr. Smith  concurred and  stated that lower  prize payout games  are                                                            
currently available, but they are not being played.                                                                             
                                                                                                                                
Senator  Bunde asserted however,  that were  a statewide  percentage                                                            
payout  level  incorporated,   players  would  not  have   different                                                            
choices. He opined that players would not stop gambling.                                                                        
                                                                                                                                
PATTY MILLS, Gaming  Manager, Sitka Tribes of Alaska,  testified via                                                            
teleconference  from Sitka  and spoke  to the  negative impact  that                                                            
this legislation  would incur on the organization's  ability to fund                                                            
local charities.  She requested  that an  impact study be  conducted                                                            
before further action was taken.                                                                                                
                                                                                                                                
Senator   Bunde  asked   whether  "outside   of  Sitka"   charitable                                                            
organizations are allowed to sell their pull-tab games in Sitka.                                                                
                                                                                                                                
Ms.  Mills  replied   that  the  City  of  Sitka  recently   adopted                                                            
regulations prohibiting out-of-town pull-tab operations.                                                                        
                                                                                                                                
SANDIE JOHNSON testified  via teleconference from Sitka and spoke of                                                            
the benefits  community charities  receive  as a result of  pull-tab                                                            
revenue.  She stated that  this source of  revenue has additionally                                                             
lessened the  demand on local and  State government for funding  and                                                            
support.  She  voiced that  the  testimony  being presented  to  the                                                            
Committee  is  both  knowledgeable   and  accurate.  She  urged  the                                                            
Committee  to  conduct  an  impact  study,  as  she  stressed,  this                                                            
legislation  would  "greatly  impact"  charities,  communities,  and                                                            
governments.                                                                                                                    
                                                                                                                                
KENT  HARTZBERG,   Licensed  Operator  and  former  State   auditor,                                                            
Division  of  Games  of  Chance  &  Skill,  Department  of  Revenue,                                                            
testified  via  teleconference  from Anchorage  and  commented  that                                                            
while "this legislation  might look good on paper,  in reality, it's                                                            
just not going to work."  He stated that "gaming is an entertainment                                                            
business,"  and  were the  prize  payout  lowered to  68-percent  as                                                            
proposed  by the Governor,  "people would just  not play."  He noted                                                            
that it takes up to two  months to sell all the pull-tabs in a game,                                                            
and  he furthered  "that  from  an operational  standpoint,"  a  tax                                                            
increase from  three-percent to 15-percent on ideal  net would incur                                                            
a substantial  tax bill. He attested  that "it would be much  better                                                            
to fine tune" this legislation before it is enacted.                                                                            
                                                                                                                                
Senator  Bunde wondered  how  the odds  for winning  the Nenana  Ice                                                            
Classic  compare  to  the prize  payout  for  pull-tabs  because  he                                                            
understood  that the  number of Ice  Classic tickets  being sold  is                                                            
increasing annually.  Furthermore, he commented that  while there is                                                            
increasing  support  for  implementation  of  a State  Lottery,  the                                                            
chances of winning  that are less than that of pull-tabs.  He stated                                                            
that the continuing  growth of the Ice Classic ticket  sales and the                                                            
support  of  a  lottery,  contradict  the  testimony   against  this                                                            
legislation.                                                                                                                    
                                                                                                                                
STEVE EARLY, testified  via teleconference from Anchorage,  to voice                                                            
that  this  legislation  "would  tax  the  gaming  business  out  of                                                            
business  in one  fell swoop."  He continued  that  rather than  the                                                            
State  gaining  revenue,  it would  cost  the  State money,  as  the                                                            
charities currently  benefiting from  the pull-tab revenue  would be                                                            
required   to   seek  replacement   assistance   from   the   State.                                                            
Additionally,  he shared that his twelve years of  experience in the                                                            
gaming  business have  taught him  that running  a game  with a  77-                                                            
percent  average  payout works  best  as  those that  return  higher                                                            
payouts sell  out within two days  and those with lower payouts  "do                                                            
not  move." He  stated  that customers  "are  on the  edge now"  and                                                            
lowering the payout  would result in the loss of players.  He stated                                                            
that the fallout  of failed pull-tab  business would be job  losses,                                                            
sales  tax losses,  supporting businesses  losses,  and real  estate                                                            
losses.                                                                                                                         
                                                                                                                                
LAYNE  ST. JOHN,  Executive  Director,  Yukon  Quest International,                                                             
Ltd., testified  via teleconference from Fairbanks  to state that he                                                            
does not support  the 15-percent of  ideal net tax as it  would hurt                                                            
the industry  too much. He stated  that currently, the organization                                                             
currently  pays  approximately   $600  a  monthly  in  State  taxes;                                                            
however,  he   calculated  that  this   amount  would  increase   to                                                            
approximately  $3,000  a month,  "straight  out of  the non-profits                                                             
pocket as the bill now  reads." He spoke of the difficulty that this                                                            
legislation would  incur to the operators, although  he stated that,                                                            
while the industry  would not be able  to continue to support  other                                                            
charities or community  events at current levels, he doubted that it                                                            
would  "kill" the  industry. He  affirmed that  the State  currently                                                            
receives a  three-percent tax on the  purchase of the pull-tabs  and                                                            
an additional  one-percent of the  entity's gross gaming  revenue at                                                            
the end of the year.                                                                                                            
                                                                                                                                
JOELLEN   FOX,  Pull-Tab   Operator   and  Dealer,   testified   via                                                            
teleconference to affirm  that lowering pull-tab prize payouts would                                                            
lower the gross  sales of the pull-tab  operators. She reviewed  the                                                            
history of this  legislation, and she urged the Committee  to become                                                            
further  educated  on the  pull-tab  industry before  any  decisions                                                            
regarding it are  made. She stressed that, "a 15-percent  tax is not                                                            
the answer" as  it would have a devastating affect  on the industry.                                                            
                                                                                                                                
ALLYN  YANISH,  Representative,  Q&A  Distributors,   testified  via                                                            
teleconference  from Fairbanks and  informed the Committee  that the                                                            
proposed  tax  burden would  exceed  the  cost  of the  product.  He                                                            
presented calculations  regarding the cost of a box  of pull-tabs to                                                            
the  industry and  how the  ideal  tax on  net would  affect it.  He                                                            
voiced the understanding  that the Republican Party's platform is to                                                            
reduce taxes  and stimulate growth  and revenue. He voiced  the need                                                            
for  the industry  and  the State  to work  together  to develop  an                                                            
equitable plan to accomplish these goals.                                                                                       
                                                                                                                                
[NOTE: The following testimonies are presented in Juneau.]                                                                      
                                                                                                                                
DAVID  KATZEEK,  Member,  Alaska  Native  Brotherhood,  stated  that                                                            
"number  crunching"  this  issue  appears  to  result  in  seemingly                                                            
positive  benefits  to the  State. However,  he asserted  that  "15-                                                            
percent of  nothing is  nothing." He stated  that charities  perform                                                            
important functions in  communities, and he asked that more study be                                                            
conducted on this issue before further action is taken.                                                                         
                                                                                                                                
ELLIE  MORITZ,  Pull-Tab Dealer,  Alaska  Native  Brotherhood  Hall,                                                            
informed the Committee  that pull-tab revenues have  been declining,                                                            
as people are not playing  as frequently or for as long as they used                                                            
to. However, she noted  that the players are educated in the various                                                            
games being played.                                                                                                             
                                                                                                                                
                                                                                                                                
SFC 03 # 85, Side A 10:38 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Ms.  Moritz  continued  pull-tab  game  players  "are  wise  to  the                                                            
payouts"  of the various  games, and  subsequently  do not play  the                                                            
games with low percentage payouts.                                                                                              
                                                                                                                                
DAVID SANDEN,  Coordinator, Juneau  Multiple-Beneficiary  Permittees                                                            
informed the  Committee that this  group of permittees includes  the                                                            
Juneau  Montessori Center,  Juneau  Dance Unlimited,  and  Southeast                                                            
Alaska Friends  of the  Montessori. He confirmed  that the  industry                                                            
does  make money;  however,  he stated  that were  this legislation                                                             
adopted without  the exemption of  local sales taxes, then  numerous                                                            
organizations  would  not  be  able  to operate.  He  noted  that  a                                                            
financial  report  of  his  operation   has  been  provided  to  the                                                            
Committee [copy on file]  for their review. He stated that while the                                                            
industry is able to pay  a tax, the 15-percent of ideal net combined                                                            
with local taxation levels  would be devastating. He exampled that a                                                            
one-dollar  bill equals  to one  pull-tab  and, of  that dollar,  80                                                            
cents is  delegated for prize  payouts with  the remaining  20 cents                                                            
being the organization's  adjusted  gross income. He specified  that                                                            
support  for local  charities, local  sales taxes,  and the  State's                                                            
three-percent tax are paid from that 20-cents.                                                                                  
                                                                                                                                
Mr.  Sanden   furthered   that  it   would  not   be  feasible   for                                                            
organizations  to pay both a 15-percent  State tax and a  local tax.                                                            
He suggested that the Committee  consider completely eliminating the                                                            
State tax and  raising the 30-percent minimum return  to non-profits                                                            
to  a 50-percent  minimum.  He  urged  the Committee  to  amend  the                                                            
legislation  to  prohibit  double  taxation caused  by  local  sales                                                            
taxes.                                                                                                                          
                                                                                                                                
Co-Chair  Green asked  how organizations  such as  those Mr.  Sanden                                                            
represents  arrived  at the  decision  to use  pull-tab  funds as  a                                                            
funding source for education.                                                                                                   
                                                                                                                                
Mr. Sanden  responded  that the  organizations'  Boards of  Director                                                            
would need to answer that  question; however, he opined that, in his                                                            
perspective, "every Board  of Directors that gets involved in gaming                                                            
faces an ethical  dilemma" in determining whether  "the ends justify                                                            
the means."                                                                                                                     
                                                                                                                                
Co-Chair  Green commented  that an  alternative  to gaming  receipts                                                            
would be a tuition or fee based system.                                                                                         
                                                                                                                                
Mr. Sanden noted  that the Montessori School has a  tuition program.                                                            
                                                                                                                                
Senator Olson  asked whether Mr. Sanden  would support an  amendment                                                            
that would  prohibit  local sales  taxes from being  charged  on the                                                            
industry.                                                                                                                       
                                                                                                                                
Mr. Sanden responded that  were local sales tax prohibited, then the                                                            
15-percent of ideal net tax would be acceptable.                                                                                
                                                                                                                                
LASH ZEMP, Parent,  testified that his three children  have attended                                                            
the Juneau  Montessori Center  program because  it provides  quality                                                            
pre-school activities.  He stated that, in as much  as it may bother                                                            
him "philosophically"  that the school raises funding  from the sale                                                            
of pull-tabs,  the reality is that the pull-tab revenue  has allowed                                                            
the program  "to survive." In response  to Co-chair Green's  comment                                                            
that tuition is an alternative  method of supporting the program, he                                                            
noted that  families with children  attending the Juneau  Montessori                                                            
program pay a "hefty tuition"  which supports staff training that is                                                            
a key element  as "long-term staff" is "crucial to  the success of a                                                            
program  as it  provides  continuity."  He  advised that  were  this                                                            
legislation  to be  implemented,  the  concept of  "charity  gaming"                                                            
would  be replaced  with "gaming  with  taxation"  as the  charities                                                            
would no longer  receive benefits.  He asserted that bake  sales and                                                            
other local fundraisers,  alone, do not provide sufficient  revenue;                                                            
however,  he  stated  that  these  things,  combined  with  pull-tab                                                            
revenues  and  tuition,  have   allowed  the  program  to  be  self-                                                            
sufficient  as opposed to  being forced to  seek a local  government                                                            
subsidy.                                                                                                                        
                                                                                                                                
LUPITA ALVEREZ,  Director, Juneau Montessori Program,  reported that                                                            
the Montessori  program  depends on  pull-tab revenue  to assist  in                                                            
offsetting  the tuition  expense children  in the  program would  be                                                            
required to pay otherwise.  She stated that the loss of this tuition                                                            
assistance would  be a hardship on families. Furthermore,  she noted                                                            
that State  childcare grants and childcare  assistance programs  are                                                            
reportedly  going to  receive less  funding thereby  limiting  other                                                            
avenues of support  in addition to having a negative  effect on some                                                            
families  in  the program  who  currently  receive  assistance.  She                                                            
mentioned that until children  reach the age of five, free education                                                            
opportunities  are  non-existent  in  the  State  and  families  are                                                            
required to pay for pre-school programs.                                                                                        
                                                                                                                                
Senator  Bunde  communicated   that  this  issue  would  be  further                                                            
studied, with  particular emphasis  on the definition of  a charity,                                                            
during  the  Legislative  interim  by a  subcommittee  comprised  of                                                            
Senator  Ralph Seekins  and  Senator Hollis  French.  He noted  that                                                            
other issues, including  outside charities operating in communities,                                                            
would also be addressed.                                                                                                        
                                                                                                                                
The bill was HELD in Committee                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Gary Wilken adjourned the meeting at 10:52 AM                                                                          

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