Legislature(1997 - 1998)
06/25/1997 01:30 PM Senate FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES{PRIVATE }
SENATE FINANCE COMMITTEE
25 June 1997
1:30 p.m.
TAPES
SFC-97, Tape 153, Sides A and B
SFC-97, Tape 154, Sides A and B
CALL TO ORDER
Senator Bert Sharp, Co-chair, convened the meeting at the
Alaska Legislative Information Office, Anchorage, Alaska, at
approximately 1:45 p.m.
PRESENT
In addition to Co-chair Sharp, Senators Phillips, Adams, and
Parnell were present.
ALSO ATTENDING:
Representative Terry Martin; Tom Williams, Staff, Senator
Bert Sharp; Deborah Vogt, Deputy Commissioner, Department
of Revenue; Dennis Poshard, Director, Division of
Charitable Gaming, Department of Revenue; Larry E. Meyers,
Director, Division of Income and Excise Audit, Department
of Revenue.
SUMMARY INFORMATION
SB 273 CHARITABLE GAMING
Work Draft for SB 273, Version "H" (6/20/97) was
discussed at the interim meeting.
TESTIFIERS:
The following individuals testified in person or via
teleconference regarding the gaming issue: John Lopez,
Operations Manager, Alaska Bingo Supply, Anchorage; Joe
Nyquist, Operator, Fairbanks and Anchorage; Randy Koelsch,
Operator, Fairbanks; Jack Powers, Operator, Anchorage; Bob
Wolting, Fairbanks; Ann McElrea, Soldotna; Earl Mickelson,
Commander, American Legion Post, Kodiak; Larry
Hackenmiller, Vendor, Fairbanks; Kent Hartzberg, Executive
Director, Boniface Bingo, Anchorage; Tom Dewhirst,
Anchorage; George Wright, Member-in-Charge, Alaska Native
Brotherhood, Juneau; Don Skewis, Vendor, Anchorage; Ashley
Reed, Charitable Gaming Association of Alaska, Anchorage;
and Dave Hammock, General Manager, Public Radio Station
KBBI, Homer.
Co-chair Sharp explained that the purpose of the meeting
was to discuss draft legislation [for SB 273, version "H"]
that had not been introduced in order to gather opinions
from the department and participants in the gaming industry
in Alaska. He pointed out that the meeting would be limited
to the proposals included in the draft legislation,
principally the simplification of gaming accounting by
basing the charitable share on gross receipts instead of
net proceeds. He added that other gaming issues would be
addressed by other legislation, other committees, and other
meetings.
Co-chair Sharp reported that the percentages included in
the draft legislation were for discussion purposes only;
the numbers would be subject to change. He emphasized that
the desire of the committee was that the legislation not
change the flow of any dollars from the direction they
currently went, as far as the state, charities, operators,
and permit holders. He stated that the committee wanted to
come up with percentages that resulted in the same flow of
money from the operation of gaming in the state of Alaska.
Co-chair Sharp noted that there would be a presentation by
his staff, followed by a presentation by the Department of
Revenue (DOR). He added that comments and recommendations
regarding the proposed legislation would be made available
to those directly involved in charitable gaming,
specifically the charity's multi-beneficiary permittees,
gaming operator vendors, and pull-tab distributors. He
noted that when legislation was introduced at the beginning
of the session, there would be ample opportunity for
additional public comment as the provision moved through
the committee process in both the Senate and the House.
Co-chair Sharp pointed out that the draft version being
used in the hearing was the "H" version. He noted past
promises made to DOR to simplify the auditing procedures
related to gaming and the efforts required by operators and
permittees.
TOM WILLIAMS, STAFF, SENATOR BERT SHARP, explained that the
Senate Finance Committee subcommittee for DOR had
considered various alternatives for savings, one of which
was to consolidate the Division of Charitable Gaming into
the Division of Income and Excise Audit, as it had been in
the 1980s. Various ways of streamlining the charitable-
gaming process had been considered so that fewer resources
would be needed. The commissioner of DOR had expressed
interest in the proposal and urged the committee to
proceed.
Mr. Williams referred to the sponsor statement, a sectional
analysis of the work draft ("H" version dated 6/20/97), and
copies of statutes that had either been repealed or
repealed and re-enacted. He read from the sponsor
statement:
The legislation is intended to insure that charity's
share of charitable gaming proceeds will be taken
first off the top of every dollar played. The public
will be ensured that out of every dollar wagered, a
certain minimum portion will be going for charitable
purposes. At the same time, it will substantially
simplify the required accounting for the Department of
Revenue, charities, and the operators of charity
permits. Finally, insofar as possible, this
legislation is intended to maintain the status quo
with respect to the relative amounts returned to the
charities, the relative amount that the state collects
in fees, and the relative amount available for the
actual gaming operations. Current Alaska law bases the
amount that a permittee or permittee's licensed
operators must generate for charitable purposes and
bases on adjusted gross gaming income (gross receipts
plus price payouts and taxes). In addition, the law
describes what a charity or an operator can or cannot
claim as an allowable operating expense when
determining the net proceeds (the adjusted gross
income less the allowable operating expenses). This
requires the charities that are operators in the state
to all generate, review, and often audit a substantial
amount of accounting data, specifically as relates to
what is an allowable expense. For the entities
involved in charitable gaming, this is time-consuming
and can be expensive. This legislation would base the
amount required to be dedicated for charitable
purposes (called "charitable share" in the
legislation) on gross gaming receipts. It would also
base the state's fee on gross gaming receipts. Not
only would reporting be substantially simplified, the
need to audit allowable expenses would be eliminated.
The Department of Revenue strongly supports the
concept behind the legislation, which would simplify
the regulatory oversight and regulatory process,
reducing the cost of processing gaming reports. More
importantly, it will enable the department to expend
more of its recently reduced charitable gaming budget
on auditing and the investigation of gaming
activities.
Mr. Williams noted that the bill was 11 pages long and had
a lengthy and tight title because the legislation was not
intended to be a "fix-all" for all charitable gaming's ills
(perceived or otherwise); it was intended to move to gross
receipts and simplify accounting. He added that most of the
sections dealt with replacing the term "net proceeds" (used
currently) with the term "charitable share" (the percentage
of the gross receipts that would go to the charity; the
amount had to be used for charitable purposes, as defined
currently under law). He provided an overview of the
sectional analysis:
· Section 1: Repeals and re-enacts the section of law
that determines how much of a fee goes to the state,
and puts it in a percentage so that it will generate
approximately the same amount currently generated.
· Section 2: Substitutes gross receipts for the
references to authorized expenses net proceeds, and
also provides the authority to explicitly regulate the
timing of the payment of charitable shares currently
implied in Section 11. Language is also expanded to
make more clear who can hold a multiple-beneficiary
permit (MBP).
· Sections 3, 4, and 5: Substitute the charitable share
language for net proceeds.
· Section 6: Updates a reference.
· Section 7: Deletes the references to expenses and adds
language that will explicitly prohibit a charity from
paying any of the expenses of an operator, which will
ensure that the charitable share is not directly or
indirectly reduced.
Mr. Williams noted that in the initial discussions, the
department presented a series of recommendations; those
were narrowed down. He continued with the sectional
analysis:
· Section 9: Repeals and re-enacts the provision of law
that requires certain portions of the proceeds to go
to the charitable share and defines the charitable
share at a preliminary percentage of 2.5 percent of
gross receipts for bingo, 7 percent of gross receipts
for pull-tabs, and 10 percent of gross proceeds for
all other gaming activities (including fishing derbies
and raffles).
· Section 10: Amends statutes adding reporting
requirements for holders of multiple beneficiary
permits that are consistent with the operator
reporting requirements. It does not change when MBP
holders are required to make distributions to
permittees.
· Section 11: Comparable portion to Section 9 as relates
to MBPs, setting percentages of what must be dedicated
for charitable share.
· Section 12: Substitutes charitable share for net
proceeds.
· Section 13: Spells out the amount of the minimum
charitable share.
Mr. Williams detailed that while the minimums stipulated in
Section 13 would be the minimum charitable shares, there
would be nothing that prohibited an operator or permittee
from dedicating more of the gross proceeds to charitable
uses. Entities that operated their own games could dedicate
more. He continued with the sectional analysis:
· Sections 14 and 15: Substitutes charitable share for
net proceeds.
· Section 16: Adds a new section to statute which would
authorize operators to pool gross receipts, prizes,
and door prizes by activity, which will simplify
accounting but not adversely impact the amounts
provided to the charities.
· Sections 17 and 18: Substitute charitable share for
net proceeds.
· Section 19: Repeals and re-enacts existing law to base
gaming limitations on gross receipts rather than prize
payouts, except for bingo. Bingo limitations will
remain based on prizes, which will add consistency and
reduce required accounting without abandoning a
workable system for bingo.
· Section 20: Substitutes "ideal gross" for "ideal net"
and reduces the percentage to a level that will return
approximately the same amount to the permittee. (The
terms "ideal gross" and "ideal net" deal with pull-tab
operators.)
· Section 21: Removes the ideal provision and more
clearly describes the vendor payment process (works
with Section 20).
· Section 22: Redefines gross receipts to exclude local
sales taxes collected.
· Section 23: Amends the definition of ideal gross and
ideal net.
· Section 24: Defines charitable share.
· Section 25: Repeals three sections of statutes that
pertain to authorized expenses and net proceeds.
· Section 26: Allows the department to proceed with the
regulatory process so that regulations can take effect
at the same time that the statutory changes are
affected.
Mr. Williams explained that the intended effect on DOR was
to simplify operations and to allow the department to
utilize resources better; the intended effect on charities,
multiple-beneficiary permittees, game operators, and pull-
tab distributors was to hold the status quo (as far as
possible). He emphasized that the idea was not to
redistribute the dollars generated by gaming.
Mr. Williams discussed other options that had been
considered, including gaming legislation by Representative
Terry Martin heard in the House State Affairs Committee,
which discussed the option of putting forth different
percentages for different types of operators. The proposal
was not included in the version currently being discussed,
in order to keep the playing field level and not protect
certain types of operations. Entities would be free to make
their own decisions (such as what expenses to incur) if
everyone was paying off a certain gross.
Mr. Williams pointed to a handout, the executive summary of
the recommendations of the governor's Charitable Gaming
Task Force. He noted that several of the recommendations,
although not all, were addressed by the current version of
the legislation.
Senator Phillips asked whether any of the recommendations
had been implemented since 1995.
DENNIS POSHARD, DIRECTOR, DIVISION OF CHARITABLE GAMING,
DEPARTMENT OF REVENUE, replied that the department took
several steps in achieving some of the recommendations
through the implementation of a new set of regulations that
the task force helped to craft. He noted, however, that few
statutory changes had occurred.
REPRESENTATIVE TERRY MARTIN emphasized that he was opposed
to taxing the industry. He asked whether phrasing had been
included to protect certain elements of the industry. Mr.
Williams responded in the negative. He said there were
proposals designed to change the charitable share depending
on the type of operation. The differential would recognize
different costs. He admitted that the term "protection"
might not be the best word, and pointed out that the
proposal had not been adopted in the version. The current
version would set the percentage for all different types of
operations and not make a differential for any particular
one.
Representative Martin queried the phrase "charitable
share." He asked whether the total amount that would go to
the permittee would be lowered. He stated concerns.
DEBORAH VOGT, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
testified that the budget of the Division of Charitable
Gaming had been cut significantly during the previous
legislative session and that the division had been merged
with the Division of Income and Excise Audit, directed by
Mr. Meyers. She acknowledged the role of Mr. Poshard, the
out-going director of the Division of Charitable Gaming.
Co-chair Sharp noted that the hearing had been scheduled in
order to get testimony from Mr. Poshard before he left the
division.
Ms. Vogt testified that regulating the gaming industry in
Alaska had been and would continue to be a challenge, and
had been made harder by budget cuts. The department
intended to maintain a strong presence in the industry,
although the Division of Income and Excise Audit had a lot
of other duties and charitable gaming would not be at the
top of its agenda. She noted that the department was
currently facing serious changes in the gaming industry,
including the budget cuts reducing the ability to look
after the industry. In addition, she noted disturbing
trends in the reports filed with the department; a review
of the 1996 reports had shown an increase in non-
compliance. The information was public information,
although the names of particular gaming operations had not
been included in the presentation because the point was to
look at the industry as a whole.
Ms. Vogt pointed to testimony that the proposed legislation
was intended to be revenue neutral. She added the
qualification that the goal was true only to the extent
that people complied with the percentages established by
the legislature. To the extent that operations did not
comply with current law, she hoped the bill would not be
revenue neutral and would have the effect of bringing
people into compliance.
Ms. Vogt believed the legislation would work to solve some
of the problems in the industry, but she did not believe it
would solve all the problems. She noted discussion with
staff regarding issues that were not addressed and added
that the department was supportive of steps that were being
taken.
Mr. Poshard provided a presentation with an overview of
gaming in the state. He pointed to a slide with bar charts
representing the number of permits issued, not the activity
in dollars; the figures inside the bars represented the
dollar amounts of gaming activity that occurred during each
of the years. He gave the committee an overview of
activity:
· When the activity began in 1960, there was no gaming
division. When gaming was legalized in the state, the
gaming program was within DOR, which was responsible
under statute for gaming activities. There was about
$600,000 in gross receipts in gaming activity in 1960.
· In 1984, pull-tabs were authorized through regulation
and the department issued 763 permits; there were
gross receipts of approximately $41.6 million.
· In 1988, operators were legalized, pull-tabs were
legalized by statute, and the prize limits on pull-
tabs were increased; 1,026 permits were issued, with
gross receipts of about $87.5 million.
· In 1989, after the legalization of pull-tabs and
operators, 1042 permits were issued, with gross
receipts of approximately $186 million. Also in 1989,
gaming was transferred from DOR to the Department of
Commerce and Economic Development (DCED).
· In 1993, MBPs and vendors were authorized, minimum
payments to charities were increased, and gaming was
elevated to division status within DOR; 1,046 permits
were issued, with a gross of $227 million.
· In 1994, regulations were enjoined; there was about
$257 million in activity, with a high of 1,126
permits.
· In 1996, new regulations were adopted; 1,056 permits
were issued, with about $270 million in gross
receipts.
· In 1997 (for FY 98), the gaming division's budget was
cut by one-third, the division was eliminated, and the
program transferred to the Income and Excise Audit
Division.
Mr. Poshard turned to the next slide, comparing the
division budget and the activity that occurred from 1990 to
the present. He provided details:
· The first bar chart represented the gross receipts
from gaming. In 1995, there were approximately $270
million in gross receipts; 1996 and 1997 were
estimates.
· The second bar chart represented the net proceeds, or
the amount of money that actually went to the
charities. In 1995, the amount was $22.3 million.
· The third bar chart represented the division's budget,
which reached a high in FY 94 of just over $1 million.
In FY 98, the gaming budget was limited to
approximately $600,000.
Mr. Poshard defined the terms that would be used in the
presentation (statewide averages; some operations returned
more than others to the charities). He defined the terms
and percentages for pull-tabs:
· Average pull-tab dollar: The amount someone paid to
play a pull-tab; the total receipts or gross of that
gaming activity, or 100 percent of the money taken in.
About 77 percent of the gross was paid out in prizes
in Alaska, on the average.
· Ideal net: An idea unique to pull-tabs; if every pull-
tab ticker were sold at face value, and every prize
was paid out in the series (pull-tabs were bought in a
series, where the exact ticket count, each ticket's
worth, and the prizes that would be paid out was
known). The ideal net was the ideal gross figure minus
the prizes paid out.
· Taxes: About 1 percent of the total pull-tab dollar.
· Adjusted gross: The gross minus prizes and taxes; the
figure from which the minimum percentages were
currently calculated. Operators were required to
return 30 percent of the adjusted gross income to the
charities. The charities were required to limit their
expenses to 70 percent of the adjusted gross income
and retain 30 percent.
· Expenses: On the average, 12 percent of the pull-tab
gross went to expenses, including rent, operator fees,
light bills, and equipment such as pull-tabs.
· Net proceeds: The amount going to the charity, what
was left after subtracting prizes, taxes, and
expenses. Net proceeds were the same as the profit of
the gaming activity, and represented about 10 percent
of every pull-tab dollar.
Mr. Poshard next defined the terms and percentages for
bingo:
· Average bingo dollar: The amount someone paid to play
bingo; representing the total receipts or gross of
that gaming activity, or 100 percent of the money
taken in. About 83 percent of the gross got paid out
in prizes in Alaska, on the average.
· Taxes: (No taxes on bingo).
· Adjusted gross: The gross minus prizes.
· Expenses: On the average, 15 percent of the bingo
gross going to expenses, including rent, operator
fees, light bills, and equipment such as bingo paper.
· Net proceeds: The amount going to the charity, what
was left after subtracting prizes and expenses. Net
proceeds were the same as the profit of the gaming
activity, and represented about 2 percent of every
bingo dollar.
Mr. Poshard emphasized that the figures were state-wide
averages; some operations returned higher percentages, and
others returned less. He defined other terms used in the
industry:
· Gross: The total dollar value of all the amounts
wagered on games of chance and skill, or the total
amount players put up to participated in the games.
· Ideal net: (Defined above in pull-tab definitions).
· Adjusted gross: The gross less prizes and taxes.
Adjusted gross was often used in Alaska to calculate
the minimum percentage that went to charities.
· Net proceeds: The profit of the games, which went to
the charities.
Mr. Poshard reviewed the basics of the charitable-gaming
business. He explained that government the government
regulated the industry in order to ensure that the
appropriate level of public benefit was being derived from
the activity. Public benefit consisted of 1) the money to
the charities, and 2) state revenues.
Mr. Poshard addressed how the government ensured public
benefit from charitable gaming in Alaska. He first reviewed
the money to the charities, detailing that at least 30
percent of the adjusted-gross income on operator-owned
pull-tabs had to go to charities. Permittees were held to
the same standard by limiting expenses. The net represented
about 10 percent of the total pull-tab dollar, and at least
10 percent of the adjusted gross income on the Copper River
runs, bingo, and all other gaming activities had to be
returned to the charities. The charities were held to the
standard by limiting expenses to 90 percent. In addition,
all profits above the statutory minimum had to go to the
charities. The charities were due the net proceeds of the
gaming activity, which could be something more than the
minimums if the expenses were less than the maximum
expenses.
Mr. Poshard addressed the question of how tax revenues were
derived for the government. He detailed that 3 percent of
the ideal net of every pull-tab game was collected by the
distributors and remitted to DOR as a pull-tab tax. In
addition, 1 percent was collected on the net proceeds of
activities of permittees who made more than $20,000 in net
proceeds each year. Annual permit and license fees were
also collected.
Mr. Poshard turned to how Alaska compared with other states
in per-capita gaming expenditures. He pointed to a visual
comparing how much money each Alaskan spent each year on
pull-tabs and bingo and emphasized that Alaskans were first
in the nation. The numbers were taken from the 1995
National Association of Fundraising Ticket Manufacturer
report on charity gaming. Per-capita bingo expenditures
were roughly $88, and per-capita pull-tab expenditures were
$345. The amounts were the amount paid to participate; the
numbers also represented prize money turned back as an
additional wager. He summarized that the total per-capita
expenditure in Alaska was $433.
Mr. Poshard moved to the next slide, illustrating how
Alaska compared to other states in deriving public benefit
from gaming activity. He stressed that the figures
represented the returns to the charities as percentages of
gross, and not the total dollars returned to the charities.
States had different systems; many states did not have the
size of charitable gaming as Alaska, and some had
substantially more. He explained that there were several
different methods for deriving public benefit. As a
percentage of gross, Alaska derived approximately 80.86
percent in public benefit. (He noted that the numbers were
taken from the 1995 National Association of Fundraising
Ticket Manufacturer report on charity gaming.)
Mr. Poshard addressed policing expenses in Alaska and
elsewhere and questioned whether Alaska's approach was the
best. In Alaska, amounts were policed by limiting profit to
30 percent of the adjusted gross and limiting the expenses
to 70 percent. In addition, the charities reviewed the
profit of the gaming activities, while the state was put in
the position of policing the expenses.
[SFC-97, Tape 153, Side B]
Mr. Poshard continued that the program focused on policing
the books and records of individual gaming operations to
assure that the profit went to the charities and that the
expenses were reasonable and necessary. He stressed that the
statutory limitation on expenses in Alaska required that they
be reasonable and necessary.
Mr. Poshard turned to the results of the system. In many
cases, expenses expanded to consume nearly every profit over
the minimum amount, which created slow-moving and contentious
audits of charities and operators. The department was put in
the position of making very subjective determinations about
how reasonable and necessary a given expense was to a
particular activity. As a result, fights between the division
and the operators and charities occurred regularly.
Mr. Poshard stated that in the final analysis, little more
than the statutory floor was obtained for the charities at
considerable cost in money and goodwill. He noted that the
state had used a substantial amount of resource trying to
chase down expenses.
Mr. Poshard addressed the question of how other states and
provinces dealt with the issue. He explained that some
governments established a minimum percentage of gross rather
than adjusted gross and did not concern themselves with
policing expense to determine reasonableness; they took a
percentage of the gross figure. Some governments set a higher
amount to go to charities.
Mr. Poshard turned to a slide dealing with multiple-
beneficiary permittees (MBP) and operator activities in 1995
and 1996. He addressed a trend the department had observed in
charitable gaming over the past few years. He stated that a
substantial amount of the non-compliance was the result of
the MBPs.
Mr. Poshard explained the difference between an MBP and an
operator. An operator was an individual who decided to
conduct gaming activity for profit and contracted with
charities in order to do so. First, the operator had to come
to the state, take a test, post a bond of $25,000 to
$100,000, obtain a license, and conform to a strict standard
of 30 percent of 10 percent of the adjusted gross income.
Failure to do so resulted in the department revoking the
right to participate. The statutes stipulate that the
department "shall revoke the license of an operator who does
not meet the minimums." The operator also made all the
capital investment necessary to open a facility and
contracted with charities to run the games.
Mr. Poshard continued that an MBP, in contrast, consisted of
two to six charities that got together and decided to run
their own activities for themselves. The mechanism was
developed to encourage charities to run their own games;
however, one charity would often not want to take on the
significant expense (including capital start-up costs to
lease a facility and purchase supplies, and to hire a
manager, bookkeeper, and employees to run the games). The
problem was that the MBP option had become a loop-hole that
people used to avoid being an operator. Instead, they got two
to six charities to form an MBP and hired them as a manager.
Then, when the charities wound up out of compliance, the
division's recourse was to revoke the permits of the
charities involved, and the manager of the MBP needed only to
get more charities and do the whole thing again.
Mr. Poshard directed attention to the charts representing the
entire MBP and operator activity for 1995 and 1996 for the
entire state. He pointed to a row representing the gross
receipts from the gaming activity. The second row represented
the adjusted-gross income; the next listed the allowable
expenses (what the expenses would be limited to by holding
the expenses to the 70 percent and 90 percent expense
limitations required by statute and multiplying the 70 and 90
percent by the adjusted gross). The next row showed the
actual expenses reported on the 1995 and 1996 annual
financial statements filed with the department. The next row
represented the minimum statutory net proceeds, or the amount
of money the charity should have gotten if they had received
the full 30 and 10 percent. The next row had the reported net
proceeds, which was what they reported on their annual
financial statement, determined by deducting the expenses
from the adjusted gross. Then there were the payments from
permittees, or the amount that actually got paid to the
charities, which was sometimes very different from the net
proceeds.
Mr. Poshard noted that the figures on the chart were compiled
from the 1995 and 1996 annual financial statement and were
not audited figures. They did not necessarily balance in all
instances, but were the figures reported. He stressed that
the figures in red denoted expenses, net proceeds, and
payments to permittees that were out of compliance by an
amount greater than 1 percent. There were several instances
of non-compliance that were negligible amounts; those were
not depicted in red.
Mr. Poshard detailed that the figures on the first page
listed six operators in the Anchorage area. The minimum
statutory net proceeds on the first one was $12,698; the
reported net proceeds was $15,330. The expenses were less
than the 70 percent. The payments to permittees were $12,779.
In the example, the operator paid the minimum statutory net
proceeds, but paid something less than the reported net
proceeds.
Mr. Poshard suggested that the committee pay attention to the
comparison of operators and MBPs and instances of non-
compliance. He turned to MBPs in the Anchorage area, and
pointed to one that was out of compliance by $700. For
another, the minimum statutory net proceeds the charities
should have gotten was $378,000; the charities received about
$298,000, and the MBP was out of compliance at about $80,000.
For another MBP, the charities should have received net
proceeds of $514,000, but received about $377,000.
Mr. Poshard provided comparisons for several other MBPs. One
MBP had an adjusted gross of $986,000 on a gross of $6.9
million; expenses should have been limited to $719,000 but
were $982,000; minimum statutory net proceeds should have
been $267,000 to the charities, but the charities received
just over $11,000 for 1996.
Mr. Poshard pointed to other locations. In 1995, one operator
represented the same location as two MBPs; for 1995 the
operator was substantially in compliance, and in 1996, the
MBP activities included actual expenses of $579,000, about
$140,000 more than the statutory limitation. Charities should
have received about $188,000, but got just under $50,000. In
another instance, the charities should have received
$316,000, but received only $172,000.
Mr. Poshard noted that the trend continued in other
locations. He pointed to operators in Fairbanks, who were in
compliance; the first MBP was a non-filer for 1996, another
was less than the reported net proceeds but more than the
minimum. He underlined another MBP example in Juneau. The
minimum statutory net proceeds that the charities should have
gotten (had the MBP stayed with the expense limitation) was
$287,000, but the charity got only approximately $64,000. He
noted an operator who was out of compliance in 1996; the
operator's license had been revoked.
Mr. Poshard pointed to operators all over the state who were
substantially in compliance except for an operator in Valdez
that underpaid the charities by about $4,000.
Mr. Poshard addressed the recommendations of the governor's
task force. In 1995, Governor Knowles appointed a Charitable
Gaming Task Force that reviewed all statutes and regulations
associated with charitable gaming and came up with
recommendations. He highlighted three:
1. It was the clear intent of the legislature that
operators and MBPs meet the same standards for returns
to the permittees; therefore, the task force unanimously
recommended the division take steps to ensure that
happened.
2. The task force strongly recommended that all
requirements for conducting and reporting should be
clearly and simply spelled out and enforced.
3. The task force unanimously recommended that immediate
steps be taken to establish a level playing field in the
gaming industry where all market participants were
required to meet the same minimum net percentages for
like activities.
Mr. Poshard noted that the division supported the bill but
had a list of things that were not in the bill. The bill
would address the first recommendation in establishing the
same percentages. The bill would also simplify the accounting
and auditing and simplify reporting requirements. The bill
would take steps towards leveling the playing field, although
the division believed additional things could be done.
Mr. Poshard surveyed common complaints about the current
gaming program:
· The division had to police permittees and operators.
· Audits were slow and contentious.
· Accounting for gaming activities was difficult and
financial reports were complex.
· There was no incentive for efficiency for operators
because the charities paid all the expenses.
· Prohibitive financial interest requirements intruded
into the business affairs of those involved in gaming.
Requirements necessitated the division looking into
personal lives.
· There was an uneven playing field between operators and
self-directed gaming.
· Often, the department's only enforcement tool was to
suspend or revoke a charity's permit, even though the
charity was not responsible for the instance of non-
compliance.
Mr. Poshard believed the larger objective of the legislation
would be to change the way the public benefited from gaming.
He listed attributes of the provision, maintaining that the
bill intended to:
· Be a revenue-neutral bill;
· Simplify reporting by basing the charity's share on a
percentage of gross instead of net proceeds;
· Allow the department to maintain its current oversight
with a reduced budget;
· Help ensure charities consistently receive what they
should;
· Provide profit incentives for operators;
· Remove the need for prohibitive financial intersections;
and
· Provide for revocation of gaming participants who fail
to meet minimum percent of gross requirements.
Mr. Poshard added that the bill would also allow operators to
pool. He provided more information about pooling. Currently,
a hypothetical operator that contracted with eight charities
to sell pull-tabs and run bingo games on their behalf
committed to a substantial amount of accounting work. Each
pull-tab game bought was expensed to a particular charity;
all the profits of the game were due to the charity. The
operator had to account for every ticket sold for the
particular game and allocate a portion of the expenses
associated with the sale of the game to the charity. Each
different session of a bingo game was often conducted on
behalf of a different charity, so each session had to be
accounted for separately. A bad night could result in a
charity getting nothing; a good night could result in more
than the minimum.
Mr. Poshard continued with how the proposed legislation would
affect pooling. An operator would account for the total
operation, total sales, total expenses, and would apportion
equal expenses based upon the gross amount apportioned to a
particular organization. Net proceeds would be paid to the
charity accordingly. The accounting burden would be eased and
simplified.
Mr. Poshard noted that other percentages-of-gross proposals
had come before the legislature. In the past, arguments had
been used against some of the bills. He listed some of the
arguments that had been made, along with responses:
· Argument 1: The current 30 and 10 percentages were too
high and too difficult to achieve. The percentage of
gross was higher and would not work because there was
not enough profit left for an operator.
· Response: The bill was intended to be revenue-neutral
and to preserve the status quo.
· Argument 2: Elasticity. Increasing the money to the
charities and the money to the state would force a
decrease in prizes to the players, which would cause
people not to play and kill the gaming industry.
· Response: Charitable gaming was not the only form of
gaming in Alaska. There was no competition from other
types of gaming such as casinos or horse-racing. Alaska
was already 5 percent above the national average for
prize tabs. The bill was intended to be revenue-neutral
and should not affect prize pay-offs.
· Argument 3: The playing field was not level; it should
be and the proposed bill would not do it.
· Response: The proposed bill would help to level the
playing field by establishing the same requirements for
all gaming entities and provide for revocation of those
who were not in compliance.
· Argument 4: The state should not be using gaming to
increase revenues.
· Response: The bill was intended to be revenue neutral
and not derive more money for the state.
· Argument 5: Net proceeds should not be increased because
that would put operators out of business and charities
would suffer.
· Response: The bill was intended to be revenue neutral.
· Argument 6: Statutory penalties were needed for failure
to make or pay minimum net proceeds.
· Response: The bill would establish easily-applicable
penalties for charities that did not meet the minimum
requirements by providing for revocation. The charities
would be given new tools to monitor MBP activities by
requiring monthly reports to the charities for MBPs and
operators. The amount due could be easily calculated by
multiplying by the correct percentage, rather than
having to look at the expenses and determine whether
they were reasonable and necessary.
Mr. Poshard concluded that the proposed legislation would
make needed programmatic changes to simplify oversight of
gaming by simplifying accounting and audits and making them a
percentage of gross. The bill would also allow the department
to administer the gaming program more efficiently. He
underlined that the department strongly supported the bill.
Senator Parnell questioned how much the state derived in tax
revenues from gaming. Mr. Poshard responded that the state
derived approximately $2 million per year. The amount in 1996
was just under $2.2 million.
Senator Parnell queried the FY 98 budget for policing and
regulating the gaming industry. Mr. Poshard replied that the
FY 98 budget had been cut to just over $600,000. The budget
the year prior had been $913,000.
Senator Parnell pointed out that the state spent $913,000 to
bring in $2 million. He asked what direction tax revenue
would go if no statutory changes were made. He wondered
whether tax revenue as well as revenue to charities would be
lost because of the reduced ability to police the industry.
Mr. Poshard responded that the state would bring in roughly
the same amount whether the legislation passed or not. He
detailed that a substantial portion of the $2.1 million [in
tax revenue] was derived from the 3 percent tax on pull-tabs.
He reminded the committee that the tax was collected by the
distributors when the pull-tabs were sold. A little over 20
distributors remitted monthly payments to the state; there
was not a problem with distributors. The rest of the amount
collected by the state was through permit and license fees;
he did not think those amounts would change much either. He
opined that the net-proceeds fee might change slightly, but
that amount represented only about $170,000 of the total.
Senator Parnell questioned why the legislation should be
passed if the state would receive the same amount. He
wondered whether the charities would receive the same amounts
as well. Mr. Poshard responded that the current system used
to monitor activities was cumbersome and contentious. He
pointed to an increasing trend of non-compliance, which
required more and more resource to police. In light of the
recent budget cuts, which had reduced staff from 13 to 7, the
department believed it was necessary to take the steps to
simplify the accounting and auditing in order to maintain the
current level of oversight.
Mr. Williams (?) added that he did not view the program as a
tax program; it would bring in a little revenue, but the
state's primary involvement was to protect the interests of
the charities and ensure gaming as a charitable operation
rather than gambling for profit. He believed the bill
addressed the issues.
Senator Parnell asked whether the bill would allow the state
to protect the charities because of increasing non-
compliance. Mr. Williams thought there could be a stronger
likelihood of maintaining the status quo rather than fighting
the trend of increasing non-compliance.
Senator Parnell queried the relationship between enforcement
costs and tax revenue in other states. Mr. Poshard did not
have the information but offered to prepare something
comparing the cost of regulation versus the amount of
activity.
Co-chair Sharp commented that the state's revenue did not
come from the operations, but the charities depended on the
operations and were affected ten-fold by a dollar loss. Mr.
Williams agreed.
Representative Martin pointed out that the materials showed
that pull-tabs currently contributed 10 percent. He expressed
concerns about how little charity received in Alaska compared
to other states. Mr. Williams noted that the amount shown was
the average. In Alaska, there were also bar owners who ran
games on behalf of charities; they paid a higher percentage
(70 percent of the ideal net). In addition, there were
organizations that paid more than the minimums. He
anticipated that there would be much debate about the correct
percentages.
Representative Martin questioned the ability to remain
revenue neutral, which might not be fair to charities. Mr.
Poshard believed the intent of the bill was not to change the
amount of money going to the charities, the state, prizes, or
participants; the intent was to change the system used to
derive the portions of the pie.
Representative Martin argued that one of the purposes was to
raise revenue for the department to oversee the program. Mr.
Poshard responded that the department was not advocating an
increase in state revenues, although public benefit was
derived from the gaming system.
Co-chair Sharp opened public testimony.
JOHN LOPEZ, OPERATIONS MANAGER, ALASKA BINGO SUPPLY,
ANCHORAGE, stated concerns about the revenue-neutral
proposal. He thought the actual percentages were lower than
the percentages shown in the proposal and that the
percentages were too high in certain sections of the bill.
He opined that the numbers were off by one or one-half
point; operations were run by dollar amounts, not
percentages. He questioned how many operations would be
rendered out of compliance if the percentages were applied.
He also protested the annual fee that would be required on
gaming activity, which would not be revenue-neutral for his
organization.
Mr. Lopez referred to another chart showing that Alaska was
first or second in the nation as far as actual dollars
returned per-capita for charity in net. He thought the
issue could be viewed from different angles. He noted
correspondence related to elasticity of dollars and the
percentage-of-gross concept that included warnings about
the difficulty of management and enforcement. He referred
to an increase put on state tax of gross receipts in 1993
in North Dakota that had resulted in an 8 percent drop in
gross-receipt activity. The net affect had been less money
to the charities.
Mr. Lopez recommended more study and research. He referred
to "playbacks" in pull-tabs; when profitability was
increased, the payback factor was lost and the result was
less participation in gaming.
JOE NYQUIST, OPERATOR, FAIRBANKS AND ANCHORAGE, reported
that he had the first operator license issued in Alaska and
had seen many changes in regulations over the years. He
testified that he supported the concept of simplifying and
leveling the playing field but had concerns about the pull-
tab percentages. He pointed out that he had spent a lot of
money to come up with a computer system to adjust to the
current requirements. He noted that he paid over the
percentage back on his gross.
Co-chair Sharp asked about bingo. Mr. Nyquist thought the
return on bingo was high because donated buildings and
lower overhead created an unfair advantage.
RANDY KOELSCH, OPERATOR, FAIRBANKS, spoke in support of the
enforcement of any rules adopted. He stated that the
percentages appeared reasonable, but the problem was in
setting percentages of ideal gross and not allowing for
changes that evolved in gaming.
[SFC-97, Tape 154, Side A]
JACK POWERS, OPERATOR, ANCHORAGE, testified in support of
charitable gaming and described the operations and players.
He thought the activity was good indoor entertainment. He
spoke to the community aspects of bingo and noted that he
had raised hundreds of thousands of dollars for non-profit
organizations. He referred to charts that had been
presented and opined that there was a difference between
operators and operations. He thought the MBPs were the big
problem because the playing field was not level. He was
experienced in the industry and noted that he had five
bingo halls in Anchorage and employees with benefits. He
expressed upset over a statement that had been made about
his accounting as "legal but unorthodox." He stressed that
he was in compliance and was sad that the department budget
had been cut. He supported policing and fairness. He
described the percentage of gross he thought he could live
with: 6 percent on pull-tabs and 1.5 percent on bingo. He
thought the playing field had to be leveled if the state
wanted a higher percentage. He believed competition was
using grant money to augment losses. He wanted more non-
profits to be involved.
Mr. Powers argued that percentage-of-gross could not be a
"magic number" state-wide because circumstances were
different in different places. He told the committee that
he sold a bingo sheet for 50 cents because one group in
Anchorage had decided to lower to price to 50 cents because
they had help paying the rent and employees and did not
need to make a profit. On the other hand, the same bingo
sheets were sold elsewhere in Fairbanks for $3.00, while he
still got only 50 cents.
Co-chair Sharp maintained that the committee wanted as much
information as possible before introducing the bill.
BOB WOLTING, FAIRBANKS, spoke in support of the legislation
and thought it was time for change in the regulations. He
informed the committee that he was the executive director
of a bingo operation. He provided his credentials in
government and management. The operation was re-organizing
and wanted to bring in recipients of the funds as members
of the board of directors.
ANN MCELREA, SOLDOTNA (via teleconference), reported that
she was member-in-charge of an operation. She noted that
the organization's pull-tabs were purchased with 14 to 20
percent ideal net. She asked whether they would have to pay
more tax. She also wondered why some places sold pull-tabs
from fishbowls where the whole series was not in at one
time, and yet there were surcharges for the complete
series. She commented that the intent of the bill was not
to raise revenue for the state, and yet it would take more
than two times what it cost to operate.
EARL MICKELSON, COMMANDER, AMERICAN LEGION POST, KODIAK
(via teleconference), spoke in support of the treatment of
the three entities involved in gaming, especially the
separation of the treatment of operators from multiple
beneficiary permittees from organization that conducted
their own sales. He stated that he represented the later.
He wanted a level playing field.
Mr. Mickelson directed attention to Section 4 on page 4,
lines 20 and 21 and the words "raffle or lottery" and noted
that on page 3 the words were "raffle and lottery." He
questioned the different meanings.
Mr. Mickelson disagreed with Section 13, page 8, lines 21
and 22. He maintained that the proposed legislation would
provide for different treatment by authorizing multiple
limits of activity based on the number of permittees being
accommodated by an operator or an MBP. He opined that as a
charity, they did not want to be in the same situation as
operators and vendors, when there was an intermediary
without direct association with the charitable
organization. He wanted entities such as the Elks and VFW
to have certain liberties, particularly when sales were to
members only. He returned to Section 13, and said they had
been taxed 10 percent delivery or payment, but there was no
payment, since they were the charity. He had no quarrel
with the percentages on pull-tabs or bingo, but thought the
additional 10 percent was unnecessarily restrictive. He
questioned how the provision would function related to
raffles and door-prizes.
LARRY HACKENMILLER, VENDOR, FAIRBANKS (via teleconference),
noted that most testimony did not deal with vendors or bar
owners. He thought the legislation should be based on
existing practices. He provided his history of experience
with pull-tabs. In 1986, he had been the first Alaskan to
sell pull-tabs under the existing regulation. Before that,
it was private clubs. Regulations were updated. At one
time, bars were selling pull-tabs for permittees and
charging any odd percentage they wanted, because of a lack
of regulation. When operators came into the picture, there
was a problem at first, because a lot of the operators were
using charitable gaming to get rich. Legislation was
adopted that required a bond of $25,000 to $100,000.
Vendors or bar owners could not afford that, but there was
a lot of revenue from them. In order to correct the
situation, a procedure was set up and vendors had to pay 70
percent of the ideal net up front, before the pull-tabs
were delivered. He noted that DOR did not speak of problems
with vendors, such as non-compliance. The basic solution to
the problem was based on inventory.
Mr. Hackenmiller thought the pull-tab solution (he did not
want to speak to bingo or raffles) was to set the situation
up the way it was set up with vendors. The bonding
requirement could be dropped for operators if the
percentage was charged up-front.
Mr. Hackenmiller spoke to problems he had with the current
draft of the bill. He pointed to page 11 (at the top) and
referenced contracts with the vendor: "the permittee will
receive no less than 16 percent of the ideal gross." He
argued that currently the permittee got 70 percent of the
ideal net. He provided an example of a situation that was
hurting vendors, even though vendors were causing no
problems for DOR. He identified a set of pull-tabs called
the "Criss-Cross 950." The gross was $2,184. The permittee
got 70 percent ($241), and he got 30 percent ($103). Under
the new proposal, if he paid 16 percent of the gross, he
would have to pay [permittees?] $349, or $5 more than the
actual net. He thought a system that already worked would
be eliminated. He wanted to know where the 16 percent came
from.
Mr. Hackenmiller asserted that the idea behind charitable
gaming was that charitable groups could make money to
support their needs. When he first started, he had done it
for nothing. There were 23 bars in Fairbanks that also did
it for nothing. Operators moved in and started taking
percentages, so bars started taking percentages. He wanted
the groups to retain 51 percent for pull-tabs. He suggested
running the program like it was done with vendors.
KENT HARTZBERG, EXECUTIVE DIRECTOR, BONIFACE BINGO,
ANCHORAGE, testified that he had experience as an auditor
for charitable gaming, so he had been on both sides. He
understood what the department wanted and thought the
legislation had some good points. However, he felt that it
would create more problems than it would solve. He felt
that the department had not been user-friendly. The
reporting requirements were so complicated that even he
could not follow them, in spite of his experience. He
thought the problem was that the department had not been
working with the charities, MBPs, or operators.
Mr. Hartzberg suggested that the bill could level the
playing field by giving the MBPs the same reporting
requirements as the operators. He thought the percentages
were up for debate, whether at 30 percent of adjusted gross
for pull-tabs or 10 percent for bingo. He thought the
percentage paid from bingo should increase. He referred to
the unrelated business income tax (UBIT) that the federal
government would be glad to put on pull-tabs; the state
also had taxes. Bingo, on the other hand, was not taxable
for both the federal and state portions. Increasing the
amount returned to the charities would result in more
actual dollars. He did not think the increase would affect
sales.
Mr. Hartzberg referred to the tax on net proceeds. He
reported that his charity would pay $1,000 in 1996; the
percentages would result in payment of $1,600. He was
concerned about the state increasing its take when the
prime objective was more money to the charities. He thought
there were ways to accommodate the department and the
charities.
Co-chair Sharp noted the problems of working with averages.
TOM DEWHIRST, ANCHORAGE, stated that the concept of the
bill had great merit, but he had concerns. He thought the
bill was like the old gross-receipts tax, an attempt at a
level playing field, another good idea that did not work
and that was abolished in the 1970s. He believed the reason
the idea did not work was that it did not take into
consideration the fact that different operations had
different costs and different profit margins. A person with
a low profit margin had to do a high volume and had to pay
more taxes; they could show loss and still be subject to
the tax. A person with 100 percent mark-up and low volume
had a low tax.
Mr. Dewhirst believed that vendors and self-run charities
should get 20 percent of the gross; there were no
additional costs involved. He did not believe the
legislation took the economy or theft into consideration.
He referred to a person who stole at least $25,000 from two
charities; the cost to prosecute the person was twice that
amount. The charity was hurt and its license revoked. He
thought there should be different classes of charities and
the money should be collected at the distributor level.
Mr. Dewhirst felt that every time regulations were changed,
there were adjustment costs and fewer funds for the
charities.
Representative Martin asked a question about 501(c)(3)
charities. Mr. Dewhirst clarified that he was talking about
501(c). He thought every charity in the state should have
501 status so that the charity dollars were not paid to the
federal government.
Representative Martin commented in support of the 501(c)
status.
GEORGE WRIGHT, MEMBER-IN-CHARGE, ALASKA NATIVE BROTHERHOOD,
JUNEAU (via teleconference), noted that the Alaska Native
Brotherhood camp was a non-profit organization. He reported
that he was on the governor's task force and that many of
the issues being discussed had been covered by the group.
There had been much discussion about leveling the playing
field in the bingo and pull-tab business. They also had
talked about pooling. He thought that the draft of the
legislation was headed in the right direction and he agreed
with most of the items. However, he pointed out that there
was a local problem in Juneau related to sales tax on the
gross sales of the pull-tabs. Currently, they were getting
about 51 percent of every dollar deposited in the bank, or
82 percent of the total net. In other words, the city had
$47,000 in sales tax and the charity got $19,000. He
thought the issue needed to be addressed.
Mr. Wright referred to the section of the bill related to
redefining gross receipts to exclude local sales tax
collected. He thought the city should go into business if
they wanted tax dollars to give to other charities.
Mr. Wright commented that the bingo percentages in the bill
were a good starting point, but he thought the percentage
should be higher; going up to 5 percent of the gross could
level the playing field in Anchorage. He thought a monster
had been created in Anchorage with the bingo awards.
DON SKEWIS, VENDOR, ANCHORAGE, testified that he gave
around $70,000 to $90,000 to charities each year. He
thought the operator, MBP, and vendor were the same. He
viewed bingo as a different class and a necessary social
event for people who did not drink. He believed bingo
provided a service to the community.
Mr. Skewis thought there was a solution to the problems
through putting tax on the top of the game, and getting the
money there, and giving the charity money up front. The
bookkeeping costs would be gone and there would be no
auditing. He referred to a bill that was related to the
lottery. Thirty percent off the top would be given to the
charities, the state would get 15 percent, municipalities
would get 25 percent; the vendor would take 30 percent. He
was concerned that every time the legislation was revised,
the vendors (the bars) got less and less. He knew the
numbers on bingo had to be different. He wondered why
operators were treated differently than vendors.
[SFC-97, Tape 154, Side B]
Mr. Skewis reiterated concerns. He pointed out that Las Vegas
did not get involved in regulating. There was a discussion
about the political difficulties of the issue.
ASHLEY REED, CHARITABLE GAMING ASSOCIATION OF ALASKA,
ANCHORAGE, spoke to past fights about charitable gaming. He
expressed confusion and wanted to know which section of the
bill would create a level playing field. He argued that
nothing in the bill would create a level playing field. He
did not think there was a simple answer. He disagreed with
DOR statements that there was no gambling competition. He
argued that there was illegal gambling activity in
Anchorage and he thought it was naïve to think there was
not. When the laws were changed to limit the size of
prizes, the illegal gaming establishments benefited.
Mr. Reed suggested learning more about the different types
of operations. Each of the operations had different cost
structures. Bingo gathered 100 people in the room; it would
be easy to sell pull-tabs to those people who were already
gathered to play games. There were Elks clubs and other
fraternal organizations that had a jar sitting on the
counter of the bar. There were stand-alone operations in
malls that had higher costs. He argued that "leveling the
playing field" was an impractical solution.
Mr. Reed referred to discussion with staff that revealed a
lack of understanding of the complexities in a given
community. Small non-profits could not compete with bigger,
better-known organizations with political connections.
Small groups could get together and get a reasonable
return.
Mr. Reed suggested studying and identifying the different
types of organizations and cost structures, then applying a
scale in order to level the playing field.
Representative Martin asked who he represented. Mr. Reed
answered the Charitable Gaming Association; he did not know
all the individual members of that.
Representative Martin asked whether the organization he
represented had met and told him what to say. He wondered
if the organization had a permit. Mr. Reed responded in the
affirmative.
Representative Martin queried another organization with the
same name. Mr. Reed replied that there was another
organization with the same name; he assumed it did the same
thing as his.
Representative Martin stated that he was worried about
groups that came under the phony disguise of charities. Mr.
Reed pointed out that the organization could not pay him
through pull-tabs. Representative Martin asked how the
organization generated its money. Mr. Reed responded that
he did not know.
Mr. Reed described discussion at the end of the prior
legislative session when the DOR budget was cut. He pointed
to activity by Representative Martin in the House State
Affairs Committee. There had been four or five hearings,
but the more the committee got into the bill, the more they
understood how complex the issue was. He opined that the
consensus of the committee at that time was that a
simplified-percentage bill would not work and would not
serve the industry or the charities well. He reiterated his
concerns.
DAVE HAMMOCK, GENERAL MANAGER, PUBLIC RADIO STATION KBBI,
HOMER (via teleconference), testified that KBBI was a
permit holder and that he was the member-in-charge. He
agreed that it would be difficult to create a solution for
the broad range of organizations. He agreed strongly with
Mr. Hackenmiller, who had spoken as a vendor. The radio
station also had a permittee-vendor relationship; it had a
pull-tab operation, bought directly from the wholesaler,
and provided pull-tab games to a local licensed
establishment. Every time the pull-tabs were dropped off,
KBBI received a check for 70 percent of the ideal net.
Mr. Hammock informed the committee that for KBBI, the
current system worked. He felt good about the rate of
return and stated that the transaction was simple. He was
interested in anything that would simplify the paperwork
and recording requirements.
Mr. Hammock referred to numbers mentioned by Mr.
Hackenmiller. He was not sure what games Mr. Hackenmiller
was using; KBBI currently got 70 percent of net. He said
that given the games they currently used, there was a
difference in that under a 16 percent of ideal gross, they
would get between $30 and $89 less per game. They estimated
an average annual sale of games of about 50 games to
vendors; over a year, there would be a net reduction of
$1,500 to $4,400 in income, or 5 to 15 percent reduction.
Gaming accounted for about 5.5 percent of their total
annual income, but that was equal to one employee and was
important.
Mr. Hammock added that charitable gaming was a very
competitive enterprise, and not just between operators.
There were a limited number of vendors available to the
radio station, and there were many other charitable non-
profit organizations in Homer interested in the same
activity. He stated that the minimum set by statute would
become the level that organizations like KBBI got. They
might not be able to compete with other non-profits. He
emphasized that 17 to 20 percent would be better than 16
percent. He understood that the situation could be
different for other operators and other games.
Mr. Hammock discussed concerns about the definition of
"charity." He pointed out that KBBI did not collect money
and give it to the poor, but was an authorized and
recognized non-profit institution. He understood there
could be abuses of charitable status, but hoped the
legislature would carefully consider who could be a
permittee and not put too many strictures on the definition
of charity.
Mr. Hackenmiller continued with earlier testimony
interrupted by technical difficulties. He stated that a
higher percentage ticket would be a marketing tool for a
non-profit group. He noted that the system he used worked
and suggested paying up front to eliminate red tape. He
urged using the vendor program as a model.
Mr. Lopez referred to the comment about paying up front and
asked whether a distributor would be expected to collect
the money for the charity. He maintained that there was no
protection for distributors that collected tax money; they
got stuck with paying the money to the state. He wanted
protection in the bill.
Representative Martin commented that testimony had shown
that different people seem to charge different amounts for
the same box of pull-tabs. He asked for elaboration. Mr.
Lopez responded that geography affected costs, including
delivery costs.
Co-chair Sharp welcomed written testimony on the issue. He
commended the department's work on the legislation. He
stated his intent to simplify the reporting process.
Adjournment
The meeting was adjourned.
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