Legislature(2003 - 2004)

02/05/2004 01:35 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                          WORK SESSION                                                                                        
                        February 5, 2004                                                                                        
                           1:35 p.m.                                                                                            
                                                                                                                                
TAPE(S) 04-5,  6                                                                                                              
                                                                                                                              
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Con Bunde, Chair                                                                                                        
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Gary Stevens                                                                                                            
Senator Hollis French                                                                                                           
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Bettye Davis                                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
^WORKSESSION - Pulltab Regulations                                                                                            
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Mr. Larry Meyers, Deputy Director                                                                                               
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
                                                                                                                                
Mr. Jack Powers                                                                                                                 
Pulltab Operator                                                                                                                
Anchorage AK                                                                                                                    
                                                                                                                                
Mr. Mac Meiners                                                                                                                 
Juneau Gun Club                                                                                                                 
Juneau AK                                                                                                                       
                                                                                                                                
Mr. Dennis Smith, President                                                                                                     
Board of Directors                                                                                                              
Kenai Peninsula Oilers                                                                                                          
                                                                                                                                
Mr. Wayne Stevens, Executive Director                                                                                           
Kodiak Chamber of Commerce                                                                                                      
Kodiak AK                                                                                                                       
                                                                                                                                
Mr. Jeff Prather, Supervisor,                                                                                                   
Gaming Group                                                                                                                    
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
                                                                                                                                
Dr. Sven Haakenson, Director                                                                                                    
Alutiiq Museum                                                                                                                  
Kodiak AK                                                                                                                       
                                                                                                                                
Ms. Julie Kangan, Chairman                                                                                                      
Gold Cache Bingo of Anchorage                                                                                                   
Anchorage AK                                                                                                                    
                                                                                                                                
Mr. David Sanden                                                                                                                
Hidden Treasures                                                                                                                
Juneau AK                                                                                                                       
                                                                                                                                
Mr. Jerry Lewis, President                                                                                                      
Alaska Bingo Supply                                                                                                             
Anchorage AK                                                                                                                    
                                                                                                                                
Mr. Steven Bochording, General Manager                                                                                          
Gold Cache Bingo                                                                                                                
Kodiak AK                                                                                                                       
                                                                                                                                
Mr. John Regan                                                                                                                  
Spenard Lions                                                                                                                   
Anchorage AK                                                                                                                    
                                                                                                                                
Mr. Robert Loescher                                                                                                             
Tlingit-Haida Central Council                                                                                                   
Juneau AK                                                                                                                       
                                                                                                                                
Mr. Dave Lambert                                                                                                                
Fairbanks Operator                                                                                                              
Fairbanks AK                                                                                                                    
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-5, SIDE A                                                                                                             
                                                                                                                                
^WORKSESSION ON PULLTAB REGULATIONS                                                                                           
                                                                                                                                
CHAIR CON BUNDE called the Senate Labor and Commerce Standing                                                                 
Committee work session to order at 1:35 p.m. Present were                                                                       
Senator Stevens,  French, Seekins and Chair  Bunde. Senator Davis                                                               
was  excused. The  first order  of  business to  come before  the                                                               
committee was  a work  session on  pulltab regulations.  He noted                                                               
that  this  committee  had  passed   a  bill  last  session  that                                                               
increased taxes and that was  still being considered in the other                                                               
body;  another  bill  might  be  introduced  that  would  discuss                                                               
establishment of a gaming commission.                                                                                           
                                                                                                                                
He recapped  that the members  of the Subcommittee  on Charitable                                                               
Gaming were Senator  Hollis French and Senator  Ralph Seekins who                                                               
addressed  many   issues  including   accountability,  oversight,                                                               
financial return  to charities,  the definition of  charities and                                                               
the question of limiting participation to geographic areas.                                                                     
                                                                                                                                
MR. LARRY  MEYERS, Deputy Director,  Tax Division,  Department of                                                               
Revenue  (DOR), explained  that  the  subcommittee report  before                                                               
them discusses  a permittee/vendor  gaming relationship  in which                                                               
the permittee  delivers the  games to the  vendor and  receives a                                                               
check for  70 percent  of ideal  net in  return. The  vendor then                                                               
becomes  the owner  of  the games,  but doesn't  have  to do  any                                                               
accounting. In  this instance, the permittee  would be guaranteed                                                               
a certain percentage  at the time the game is  played. He thought                                                               
that  the  committee should  deliberate  on  what percentage  the                                                               
permittee receives and if it should be received up front.                                                                       
                                                                                                                                
CHAIR BUNDE asked if he could recommend a percentage.                                                                           
                                                                                                                                
MR.  MEYERS replied  that  30 percent  is  the current  statutory                                                               
minimum;  but the  division has  heard of  instances where  rents                                                               
were  inflated by  three times  the going  rate and  is concerned                                                               
about the detection of possible fraudulent gaming expenses.                                                                     
                                                                                                                                
CHAIR BUNDE asked  how many new people would have  to be hired to                                                               
conduct audits.                                                                                                                 
                                                                                                                                
MR. MEYERS replied that there  are two auditors for approximately                                                               
1,000 permittees  and 27 operators  and he felt that  staff would                                                               
have to be tripled to do an adequate job.                                                                                       
                                                                                                                                
CHAIR  BUNDE suggested  instituting a  licensing requirement  for                                                               
all employees of pulltab operations to pay for the audits.                                                                      
                                                                                                                                
MR. MEYERS added that generally  an appeals forum goes along with                                                               
an audit situation.                                                                                                             
                                                                                                                                
SENATOR  GARY STEVENS  asked how  the triple  rent situation  was                                                               
exposed and  if the operator  could be  relied on to  report what                                                               
the going rate for rent is.                                                                                                     
                                                                                                                                
MR.  MEYERS   responded  that  the  state   hired  appraisers  to                                                               
determine the market value of the  rents in that instance and had                                                               
eventually settled with two parties over that issue.                                                                            
                                                                                                                                
CHAIR  BUNDE noted  a suggestion  that  the multiple  beneficiary                                                               
permittees (MBPs) be required to pay  30 percent up front, but he                                                               
didn't know if that would be productive.                                                                                        
                                                                                                                                
MR. MEYERS replied that the  MBP permits are "a different animal"                                                               
than operators  and vendors. An  MBP is a  co-op with two  to six                                                               
members who band  together with the idea of  seeking economies of                                                               
scale  and  efficiencies.  "It's  not  set up  to  do  that  [pay                                                               
themselves a minimum]."                                                                                                         
                                                                                                                                
SENATOR  FRENCH asked  how the  30  percent payout  happens in  a                                                               
typical transaction using a $100 pulltab for an example.                                                                        
                                                                                                                                
MR. MEYERS  replied that a $1,000  game pays out $800  in prizes,                                                               
about  78 percent.  That  would  leave $200,  the  ideal net;  30                                                               
percent  of that  ($60)  would go  right into  the  hands of  the                                                               
permittee in this  example. It would be an  up front transaction.                                                               
The permittee  vendor would get  70 percent ($140), but  he would                                                               
have  to pay  the taxes  and other  expenses. Under  the scenario                                                               
before them  [subcommittee report],  who should pay  the expenses                                                               
would  have to  be  worked out,  but  he would  like  to see  the                                                               
expenses stay in the hands of the operators.                                                                                    
                                                                                                                                
CHAIR BUNDE said  the vendor should want some  economies in their                                                               
operation, because they  get 70 percent and if  their expenses go                                                               
up, their profits go down.                                                                                                      
                                                                                                                                
MR. MEYERS agreed with that statement.                                                                                          
                                                                                                                                
SENATOR SEEKINS asked who pays for the cost of the game.                                                                        
                                                                                                                                
MR. MEYERS replied that the  operator (who gets 70 percent) would                                                               
in  this instance.  He reiterated  that any  proposed legislation                                                               
would have to carefully state  what expenses the parties would be                                                               
responsible for paying.  The cleanest accounting would  be to say                                                               
that the permittee  would get 30 percent of the  ideal net, which                                                               
is the value of the game less the prizes.                                                                                       
                                                                                                                                
CHAIR  BUNDE said  he  wanted to  limit  the committee's  current                                                               
discussion to the 30 percent of the ideal net proposal.                                                                         
                                                                                                                                
MR. JACK POWERS, Anchorage operator,  informed the committee that                                                               
operators  are already  bonded and,  from his  experience dealing                                                               
with various locations  and about 25 permittees,  said, "It would                                                               
take one heck of a bank roll to be paying up front."                                                                            
                                                                                                                                
CHAIR BUNDE asked if the state  didn't require a bond, could that                                                               
money be used to make the up front payments.                                                                                    
                                                                                                                                
MR.  POWERS said  he  would  have to  think  about  that, but  he                                                               
thought they  should really  be addressing the  14 MBPs  that are                                                               
bigger operations as well as the 27 operators.                                                                                  
                                                                                                                                
SENATOR SEEKINS inserted that this  summer he heard that very few                                                               
licensees  would   challenge  their  operator  if   they  thought                                                               
something wasn't right, because they  would be quickly booted out                                                               
while five more [licensees] were waiting  to come in to work with                                                               
that operator.                                                                                                                  
                                                                                                                                
MR. POWERS replied  that he had never  experienced that situation                                                               
with his non-profits  and maybe Senator Seekins  was referring to                                                               
a few isolated cases.                                                                                                           
                                                                                                                                
SENATOR SEEKINS made  his point saying if he made  a claim on Mr.                                                               
Powers' bond, he didn't think they would be friends any more.                                                                   
                                                                                                                                
CHAIR BUNDE asked Mac Meiners what he thought.                                                                                  
                                                                                                                                
MR. MAC MEINERS, Juneau Gun Club,  said he is also the designated                                                               
member  of  the Juneau  Ski  Club  and  the United  Fishermen  of                                                               
Alaska. He  stated that  he has  vendor relationships  with those                                                               
entities and  explained that  there are  four distinct  groups of                                                               
permittees:  the vendor  relationships, the  MBPs, the  fraternal                                                               
organizations and the operators - and they are all different.                                                                   
                                                                                                                                
CHAIR  BUNDE  said the  committee  wasn't  focused on  increasing                                                               
taxes to  the state,  but rather on  whether the  American Cancer                                                               
Society should  have to compete for  space on the shelf  with the                                                               
Nome Chamber of Commerce.                                                                                                       
                                                                                                                                
MR.  MEINERS  said in  his  instance,  he  is hired  to  generate                                                               
revenue for  his group and,  "The harder  you work, the  more you                                                               
get."                                                                                                                           
                                                                                                                                
His groups do the 70/30 split  and pay all the expenses including                                                               
games, city sales tax, wages, if  any, and other expenses that go                                                               
with gaming. Their records are  submitted to the state for review                                                               
and if  they don't  have the  30 percent minimum  to give  to the                                                               
group, he  isn't gaming any  longer. However, he thought  that he                                                               
remitted closer to 40 percent to the group.                                                                                     
                                                                                                                                
CHAIR BUNDE said  the 30 percent minimum might not  apply to him,                                                               
because he is hired by a  group of organizations. If he wanted to                                                               
pay  himself  an  exorbitant  salary,  it's  incumbent  upon  the                                                               
permittees to keep that from happening.                                                                                         
                                                                                                                                
MR. MEINERS agreed. He explained further that:                                                                                  
                                                                                                                                
     The  clubs I  started with  when I  started gaming  had                                                                    
     nothing. So, to  come out and say you have  to put a 30                                                                    
     percent  limit on  your operation  would not  let clubs                                                                    
     that  have  zero get  started.  You  would actually  be                                                                    
     limiting them.                                                                                                             
                                                                                                                                
He felt  that a  person should  be able to  game anywhere  if the                                                               
rules  are met  and the  game  is played  properly and  suggested                                                               
maybe using an area registration.                                                                                               
                                                                                                                                
SENATOR HOLLIS  FRENCH asked how a  new player would not  be able                                                               
to get  into the gaming  industry under  the 30 percent  up front                                                               
idea.                                                                                                                           
                                                                                                                                
MR. MEINERS replied  using the United Fishermen  of Alaska (UFA),                                                               
which  had  no  money  when  it started,  as  an  example.    UFA                                                               
qualified as a 501 (c)(3) and he explained that:                                                                                
                                                                                                                                
     The Juneau Gun Club had  more prize limitations than it                                                                    
     could  handle.  Remember,  you're   only  good  for  $1                                                                    
     million and  an operator is  only good for  $500,000. I                                                                    
     had  a  little  over  $1   million  -  I  think  I  had                                                                    
     $1,350,000  or  $1,400,000.   So,  that  means  there's                                                                    
     enough room  for two  permittees. So,  the Gun  Club in                                                                    
     the goodness of their heart  - to keep their location -                                                                    
     allowed  the  United  Fishermen  of  Alaska  use  their                                                                    
     gaming equipment, which is legal.                                                                                          
                                                                                                                                
SENATOR  FRENCH  apologized  for  interrupting  and  asked  which                                                               
gaming equipment he was referring to.                                                                                           
                                                                                                                                
MR. MEINERS  replied the  cash registers and  a scale  to measure                                                               
the pulltabs.                                                                                                                   
                                                                                                                                
CHAIR BUNDE asked what the scale was used for.                                                                                  
                                                                                                                                
MR. MEINERS replied:                                                                                                            
                                                                                                                                
     In a vendor  relationship, when I drop the  game by the                                                                    
     bar,   it's   theirs.   I   relieve   myself   of   all                                                                    
     responsibility.  I don't  micromanage them.  It's their                                                                    
     responsibility to get their money  out of the game. So,                                                                    
     at times  when you  think there's impropriety,  you can                                                                    
     weigh the  pulltabs and that  will tell you  if anybody                                                                    
     is  dipping into  the jar  or not  - or  you can  use a                                                                    
     camera to watch your operations. That is done.                                                                             
                                                                                                                                
CHAIR BUNDE  asked, "So, when you  drop them by the  bar, you get                                                               
paid at  that time  and then if  they sell them  or not,  it's on                                                               
their head."                                                                                                                    
                                                                                                                                
MR. MEINERS said that was right.                                                                                                
                                                                                                                                
CHAIR  BUNDE asked  him  if  he was  basically  remitting the  30                                                               
percent right now.                                                                                                              
                                                                                                                                
MR. MEINERS replied yes, but the  bar gives him the money when he                                                               
gives them the game.                                                                                                            
                                                                                                                                
MR.  WAYNE   STEVENS,  Executive  Director,  Kodiak   Chamber  of                                                               
Commerce, said  they are a MBP  operating at a bar  in Kodiak. He                                                               
encouraged  the  committee  to   look  at  the  current  language                                                               
allowing landlords to charge "up to  20 percent of the ideal net"                                                               
and thought tightening  up "fair market value"  would help reduce                                                               
operating costs. He testified that  a good auditing program and a                                                               
gaming  task  force  could be  valuable  in  designing  effective                                                               
oversight of the gaming industry.                                                                                               
                                                                                                                                
MR. DAVE  LAMBERT, owner of  seven operations in  Fairbanks, said                                                               
he has over 700 games out.  As an operator, he receives a minimum                                                               
of 30  percent, but the  cost of operating  is going up.  He said                                                               
every  year his  rents  go up  by  3 percent  and  last year  the                                                               
minimum wage  was increased, as  well. He informed them  that his                                                               
games cost  about $15,000 a piece  and that paying 30  percent up                                                               
front  would be  about $5,000  and that's  just not  possible for                                                               
him.                                                                                                                            
                                                                                                                                
SENATOR FRENCH  asked what he is  paying per square foot  for his                                                               
rental space.                                                                                                                   
                                                                                                                                
MR. LAMBERT replied  that it varies; he is paying  $1,400 for one                                                               
900 sq.  ft. place  and he  is paying  almost $2,000  for another                                                               
place that  is a lot  smaller. However, the $2,000  place returns                                                               
three times the revenue the other place returns.                                                                                
                                                                                                                                
MR. JACK  POWERS commented  again that  he gave  a minimum  of 30                                                               
percent at the  end of the year to his  non-profits and last year                                                               
one of  them got about  $1,400,000 - but  he pointed out  that he                                                               
had all year to come up with it.                                                                                                
                                                                                                                                
TAPE 04-5, SIDE B                                                                                                             
                                                                                                                                
MR. POWERS  stated that if he  had to pay $1,400,000  in advance,                                                               
he would  have to close his  doors. He felt that  comparing a bar                                                               
operating  pulltabs with  a bingo  hall  operation was  comparing                                                               
apples and oranges.                                                                                                             
                                                                                                                                
CHAIR BUNDE corrected  him saying that he didn't  think the whole                                                               
yearly amount  would be required up  front, but rather a  fee per                                                               
game. He asked if he bought a year's supply at a time.                                                                          
                                                                                                                                
MR. POWERS explained that he buys  about a month's worth of games                                                               
at a  time and that up  front payments would be  $300,000 for any                                                               
given month.                                                                                                                    
                                                                                                                                
CHAIR BUNDE changed  the discussion to the  question of proximity                                                               
and the  fact that  charitable gaming  can raise  money statewide                                                               
for  a particular  community or  entity. He  asked if  there were                                                               
questions or comments from the committee.                                                                                       
                                                                                                                                
SENATOR SEEKINS  said while he was  working on this issue  in the                                                               
interim, he  ran into some  people who  liked the idea  that they                                                               
could  work  with an  operator  who  had locations  in  different                                                               
towns.                                                                                                                          
                                                                                                                                
     He would run twenty  different licensees in Juneau, the                                                                    
     same  twenty  some  place in  Anchorage  and  the  same                                                                    
     twenty some place in Fairbanks.                                                                                            
                                                                                                                                
     Other times, we had  some indication that people either                                                                    
     in a small population or  in one [town] where there was                                                                    
     a sales tax  on the pulltab, that they  would prefer to                                                                    
     operate  someplace  where  there was  either  a  larger                                                                    
     population to benefit their smaller  population or in a                                                                    
     population where they  didn't have to pay  sales tax to                                                                    
     get a  higher net.... So, the  discussion was dependent                                                                    
     upon where you were from.                                                                                                  
                                                                                                                                
     Folks in some of the  smaller entities that were trying                                                                    
     to  get into  an  operator  situation couldn't  because                                                                    
     those  slots   were  filled  with  people   from  other                                                                    
     communities  and made  it very  difficult  for them  to                                                                    
     enter  into  a  pulltab  relationship  and  wanted  the                                                                    
     foreign entities, so to speak, to be gone.                                                                                 
                                                                                                                                
     In  some   cases  we  found  that   there  were  actual                                                                    
     municipalities that  were involved  and it  was alluded                                                                    
     to  that some  of  these municipalities  had  a leg  up                                                                    
     because they could  appropriate the money to  go in and                                                                    
     help set  up a  pulltab parlor  someplace so  that they                                                                    
     could  supplement  their  municipal  income  by  having                                                                    
     something up front to go in  and get going with - where                                                                    
     a smaller non-profit  that was just trying  to get into                                                                    
     the  game  could  not  do   that.  They  were  somewhat                                                                    
     hampered by  not being able  to go with  themselves; so                                                                    
     they had  to go  find a vendor  relationship or  try to                                                                    
     find an operator relationship. And,  again, if it was a                                                                    
     permittee  from  some  other location  that  was  there                                                                    
     blocking  their ability,  there was  some concern  that                                                                    
     that's not  right and he  ought to go back  to wherever                                                                    
     and do  his gaming there. So,  it kind of came  down to                                                                    
     where you were from and  how you were benefiting as the                                                                    
     discussion went along.                                                                                                     
                                                                                                                                
CHAIR BUNDE  asked, as  a general rule,  did people  from smaller                                                               
communities think  that permittees from bigger  communities ought                                                               
to stay out, but the smaller  communities wanted to be able to go                                                               
into the bigger communities.                                                                                                    
                                                                                                                                
SENATOR SEEKINS said they ran into that thinking, also.                                                                         
                                                                                                                                
SENATOR  FRENCH  said  a  preliminary   report  from  the  gaming                                                               
activity for  Juneau-Douglas and Auke Bay,  Alaska, tabulates how                                                               
much money each  of the organizations collected and  what sort of                                                               
permit they  hold, etc., but  it didn't indicate where  the games                                                               
were played.                                                                                                                    
                                                                                                                                
MR.  JEFF  PRATHER,  Supervisor,   Gaming  Group,  Department  of                                                               
Revenue,  explained that  the report  is  just a  summary of  the                                                               
activity of  permittees that are  located in Juneau  and wouldn't                                                               
indicate where the games were being played.                                                                                     
                                                                                                                                
SENATOR FRENCH  said he assumed  the smallest communities  in the                                                               
state where pulltabs were played were Kenai and Nome.                                                                           
                                                                                                                                
MR.  PRATHER replied  that pulltabs  are played  in some  smaller                                                               
Bush communities, also.                                                                                                         
                                                                                                                                
SENATOR   FRENCH  asked   where  those   are  tabulated   in  the                                                               
department's annual report.                                                                                                     
                                                                                                                                
MR. PRATHER replied that one could look under Native villages.                                                                  
                                                                                                                                
SENATOR FRENCH noted that the report  just says who has a permit,                                                               
but doesn't show where it is played.                                                                                            
                                                                                                                                
MR. PRATHER  responded that  he gave the  subcommittee a  list of                                                               
all  the permit  holders who  were  gaming outside  of their  own                                                               
locality this  past summer and he  would be glad to  provide that                                                               
list to him.                                                                                                                    
                                                                                                                                
CHAIR BUNDE asked him how many people are in his division.                                                                      
                                                                                                                                
MR. PRATHER replied seven people.                                                                                               
                                                                                                                                
SENATOR  GARY STEVENS  asked if  Alaska  is the  only state  that                                                               
allows  groups  to  have gambling  operations  outside  of  their                                                               
immediate vicinity.                                                                                                             
                                                                                                                                
MR.  PRATHER didn't  know the  answer, but  he did  know that  in                                                               
Alaska, only  municipalities are  prohibited from  gaming outside                                                               
of their own location.                                                                                                          
                                                                                                                                
CHAIR BUNDE  asked how Nenana  gets to  sell ice pool  tickets in                                                               
Juneau.                                                                                                                         
                                                                                                                                
MR.  PRATHER  replied that  those  tickets  are sponsored  by  an                                                               
organization other than the city.                                                                                               
                                                                                                                                
SENATOR STEVENS said that the  Koniag Corporation from Kodiak has                                                               
reached a  point where  half of the  membership lives  outside of                                                               
Kodiak and asked Dr. Sven Haakenson to comment on that.                                                                         
                                                                                                                                
DR. SVEN HAAKENSON, Director, Alutiiq  Museum in Kodiak, asked if                                                               
he was referring to regional proximity or geographic.                                                                           
                                                                                                                                
CHAIR BUNDE  responded that those  terms have probably  been used                                                               
interchangeably,  but  the  question   being  discussed  is  what                                                               
action,  if any,  the Legislature  should take  regarding permits                                                               
issued for an organization in one area being played in another.                                                                 
                                                                                                                                
DR. HAAKENSON revealed that the  Alutiiq Museum is a permittee of                                                               
an  MBP permit.  Without  that support,  the  Museum, which  runs                                                               
ongoing  cultural programs  that  benefit  the entire  community,                                                               
wouldn't be able to operate.                                                                                                    
                                                                                                                                
CHAIR BUNDE  pointed out  that they wouldn't  be able  to operate                                                               
based on a donation to the  City of Kodiak, but that doesn't mean                                                               
that other entities couldn't generate funds.                                                                                    
                                                                                                                                
MS. JULIE  KANAGAN, Chair, Board  of Directors, Gold  Cache Bingo                                                               
of  Anchorage, said  she represents  the Kodiak  Union of  Native                                                               
Associations that  is a part  owner of  the MBP Gold  Cache Bingo                                                               
Operation in Anchorage.  Currently, six permits are  used by Gold                                                               
Cache  Bingo;  a manager  was  hired  and  reports to  the  board                                                               
monthly.  She   expressed  their  desire  to   keep  the  pulltab                                                               
operation in  Anchorage, because  it has been  that way  for more                                                               
than 15 years already and the  revenues are used to benefit youth                                                               
and cultural programs. She added  that the permittees are paid on                                                               
a monthly basis.                                                                                                                
                                                                                                                                
CHAIR BUNDE  asked her  how she would  feel if  another community                                                               
like  Juneau  started  gaming  in  Kodiak  and  if  she  had  any                                                               
suggestions that would resolve the issue.                                                                                       
                                                                                                                                
MS.  KANAGAN replied  if Juneau  wanted to  come to  Kodiak, that                                                               
risk would be Juneau's decision.                                                                                                
                                                                                                                                
MR. STEVENS inserted  that for a number of years  a Juneau permit                                                               
was operating in Kodiak and no one tried to run them off.                                                                       
                                                                                                                                
SENATOR  FRENCH observed  that the  only permit  he sees  [in the                                                               
division's  report]  being  operated  in  Kodiak  is  a  National                                                               
Multiple Sclerosis Society  permit at the Breakers  Bar. He asked                                                               
if there was a market for pulltabs in Kodiak.                                                                                   
                                                                                                                                
MR.  STEVENS  replied   that  the  City  of   Kodiak  has  passed                                                               
legislation that does  not allow "operators" to  do their pulltab                                                               
operations  in  Kodiak. All  Kodiak  gaming  activities are  MBP,                                                               
vendor  permit or  directed gaming.  "There are  no operators  in                                                               
Kodiak and  there are pulltabs in  a number of places  around the                                                               
community...."                                                                                                                  
                                                                                                                                
MR. DAVID SANDEN  said he is the primary member  in charge of the                                                               
MBP Hidden  Treasures, a group  of three local Juneau  groups. He                                                               
said:                                                                                                                           
                                                                                                                                
     On the  proximity issue specifically,  we game  only in                                                                    
     Juneau,  but  we're   finding  that  increasingly  more                                                                    
     difficult through the double taxation burden.                                                                              
                                                                                                                                
     However, we  have hesitated to enter  any other markets                                                                    
     because we  feel that we  use 100 percent of  our money                                                                    
     in  Juneau and  we feel  like it's  kind of  ethical to                                                                    
     raise it  in Juneau. But  I do understand  the problems                                                                    
     with groups  that have a larger  statewide purpose than                                                                    
     our  groups do  and  also groups  from  very small  and                                                                    
     rural  communities  that,   frankly,  need  a  medi-vac                                                                    
     airplane and they have to go raise money in Anchorage.                                                                     
                                                                                                                                
MR. SANDEN  said 2003  census data  indicates that  Anchorage and                                                               
Mat-Su have 53 percent of  Alaska's population; Fairbanks, Denali                                                               
and  Yukon-Koyukuk  have  15 percent;  Kenai  Peninsula,  Kodiak,                                                               
Valdez  and Cordova  have  12 percent;  Southeast  Alaska has  11                                                               
percent; Southwest Alaska has 6  percent and the Northwest Arctic                                                               
has 3 percent. He pointed out:                                                                                                  
                                                                                                                                
     There were some  errors, in our opinion,  made when the                                                                    
     charitable  gaming statutes  were  created. Gaming  has                                                                    
     sort  of   been  regulated   and  dealt   with  through                                                                    
     taxation. That's because it's  gambling and gambling is                                                                    
     a vice. Like all vices,  gambling seems - all vices pay                                                                    
     a  large tax  burden. In  the  State of  Alaska it's  a                                                                    
     proportionately  small tax  burden. However,  we're the                                                                    
     only  state   in  the  union  that   allows  individual                                                                    
     municipalities to tax gaming in addition to the state.                                                                     
                                                                                                                                
He explained that throughout the  United States the larger entity                                                               
[federal government]  would tax the  ideal net of the  "big fish"                                                               
and distribute that  money based on where proceeds  are raised by                                                               
location.                                                                                                                       
                                                                                                                                
MR. SANDEN said that Hidden  Treasures proposes, and has proposed                                                               
for  years,  that   everyone  has  to  report   by  location.  He                                                               
backtracked   noting   that    the   indirect   negative   social                                                               
consequences  of   gambling  cost  cities  money   and  the  only                                                               
practical  mechanism   to  provide  funds  to   deal  with  those                                                               
consequences is through  the tax code. He  proposed that whatever                                                               
tax rate  gets decided upon in  SB 102 that the  money gets split                                                               
with the municipalities  proportionately. Regulating how proceeds                                                               
are spent  - no matter  who raises them -  can be decided  by the                                                               
Legislature.  He  added,  regarding  giving  30  percent  to  the                                                               
operators:                                                                                                                      
                                                                                                                                
     I  think  the ultimate  test  there  would be  for  the                                                                    
     Department of Revenue to run  those numbers by a banker                                                                    
     and, if  a banker  would give that  operator a  loan to                                                                    
     front the money  for his games, then  it's feasible; if                                                                    
     not, it's not feasible. That's pretty much it.                                                                             
                                                                                                                                
CHAIR  BUNDE thanked  him  and  said he  wanted  get  a few  more                                                               
comments.                                                                                                                       
                                                                                                                                
MR. STEVENS asked the members to  consider that 30 percent of the                                                               
ideal net  leaves the  community where  the gaming  activity took                                                               
place, but the other 70 percent already stays there.                                                                            
                                                                                                                                
CHAIR BUNDE  remarked that  the negative  social impact  stays in                                                               
the community as well.                                                                                                          
                                                                                                                                
MR.  JERRY  LEWIS,  President,   Alaska  Bingo  Supply,  said  he                                                               
distributes in Anchorage and sells  statewide, but he didn't want                                                               
to comment on the proximity issue.                                                                                              
                                                                                                                                
MR. JOHN  REGAN, Spenard Lions,  felt if an  outside organization                                                               
(Kodiak, for  instance) took all  the money they made  in another                                                               
community  (Anchorage) out  of that  community, that  is doing  a                                                               
disservice  to   the  organizations  in  Anchorage.   "Perhaps  a                                                               
percentage should  be spent in  the community where the  money is                                                               
raised by that permittee holder."                                                                                               
                                                                                                                                
CHAIR  BUNDE  asked him  to  comment  on the  increased  economic                                                               
activity gaming brings to the economy of a community.                                                                           
                                                                                                                                
MR. REGAN said  his organization turns around and  uses the money                                                               
they make for people who need the help.                                                                                         
                                                                                                                                
CHAIR  BUNDE  said   he  understood  his  point   and  moved  the                                                               
discussion to  the definition  of a  permittee. He  asked Senator                                                               
Seekins to comment  on whether the definition  should be narrowed                                                               
to  those who  are really  doing charitable  work or  continue to                                                               
include those who work for community advancement.                                                                               
                                                                                                                                
SENATOR  SEEKINS responded  that  he, personally,  felt that  the                                                               
door has been opened way too far.                                                                                               
                                                                                                                                
        Anyone with an IRS non-profit status that has 20                                                                        
       members and has been in existence for 3 years can                                                                        
     apply for a permit....                                                                                                     
                                                                                                                                
     I have  a problem  when a membership  organization that                                                                    
     is  going to  pursue a  particular agenda  and try  and                                                                    
     develop a certain segment of  the community competes in                                                                    
     the charitable  gaming industry  for pulltabs.  I don't                                                                    
     have a problem and no  one seems to object to different                                                                    
     organizations being able to do raffle permits.                                                                             
                                                                                                                                
     I had comments from people  who said, you know, we're a                                                                    
     group that  supports a particular  youth sport  for our                                                                    
     children. We have  a team, we have 20  families, we run                                                                    
     a permit  because we don't want  to have to pay  out of                                                                    
     our pocket for our kids to  play hockey or to ski or to                                                                    
     play baseball or whatever sport you want to fill in.                                                                       
                                                                                                                                
     Under  the current  situation they  can  get there.  In                                                                    
     some respects,  I don't  particularly think  that those                                                                    
     folks  should be  competing for  dollars  from the  so-                                                                    
     called charitable  gaming industry  so that  they don't                                                                    
     have to  pay for  the recreational activities  of their                                                                    
     own children....                                                                                                           
                                                                                                                                
SENATOR SEEKINS reiterated  that many of these  choices are based                                                               
on personal preference but, in  general, most people he talked to                                                               
thought  the   interpretation  of  a  charity   for  purposes  of                                                               
charitable  gaming may  have gone  too far  and certain  licenses                                                               
should be  restricted to absolutely identified  raffle-type games                                                               
and the pulltabs should be reserved for true charities.                                                                         
                                                                                                                                
SENATOR  FRENCH agreed  saying that  he  felt the  most good  the                                                               
Legislature  could do  for truly  charitable organizations  is to                                                               
open the  field up  for people  who are doing  the most  good and                                                               
restrict those organizations that are  doing less good. He really                                                               
couldn't see why the Alaska  Democrats and the Alaska Republicans                                                               
needed to be considered charitable organizations.                                                                               
                                                                                                                                
MR. DENNIS  SMITH, Kenai Peninsula  Oilers, prefaced  his remarks                                                               
by  saying that  he runs  an amateur  baseball organization  that                                                               
consists of  NCAA eligible players  that come up for  the summer.                                                               
The Oilers  use the MBP  and return  40 percent to  the permittee                                                               
for its use. His organization  felt that defining charities would                                                               
be like  opening Pandora's Box. He  referenced riverboat gambling                                                               
in the  central Midwest  where the thought  was to  have tourists                                                               
gambling  on  the   boats;  but  once  the   laws  were  written,                                                               
essentially  a pontoon  raft with  a walkway  along the  waterway                                                               
would be eligible to be a casino. He said:                                                                                      
                                                                                                                                
     We like to  think we create jobs for  our community; we                                                                    
     offer  scholarships  to  students and  members  of  the                                                                    
     community;  we   have  a   growing  source   of  summer                                                                    
     entertainment at a very minimal  cost to the community.                                                                    
     This  is something  that  we sought  out  as a  revenue                                                                    
     source over  two decades ago....  I think  you're going                                                                    
     to have a  very difficult time trying to  pin down what                                                                    
     constitutes a charity  without seeing further loopholes                                                                    
     or aggravations in the future.                                                                                             
                                                                                                                                
CHAIR  BUNDE  said  that  maybe   the  definition  of  charitable                                                               
gambling needs to  be changed to non-profit  or just fund-raising                                                               
gambling.                                                                                                                       
                                                                                                                                
SENATOR FRENCH asked Mr. Smith how  much his net proceeds are per                                                               
year.                                                                                                                           
                                                                                                                                
MR. SMITH  answered the return  is currently 40 percent  or about                                                               
$241,000.                                                                                                                       
                                                                                                                                
MR.  STEVEN BORCHORDING,  General  Manager, Gold  Cache Bingo  in                                                               
Anchorage,  said  defining what  is  charitable  gaming and  what                                                               
isn't would be significantly problematic. He said:                                                                              
                                                                                                                                
     I don't  at this time  need to  go to Easter  Seals and                                                                    
     get a pair  of crutches for my son. However,  I like to                                                                    
     take  my son  to the  baseball games  in Anchorage  and                                                                    
     they are  very inexpensive entertainment. He  can watch                                                                    
     kids  who someday  might be  major  league players.  Is                                                                    
     that  charitable   or  not?  I  don't   know.  Is  that                                                                    
     bettering  the community?  I would  think so.  The fact                                                                    
     that I hear  not letting kids play  sports concerns me,                                                                    
     because I  have a son  and I would  love for him  to be                                                                    
     able to play  sports. If I can afford it  great, and if                                                                    
     I can't I would love to  have somebody help if I could.                                                                    
     And how is  that not bettering the  community? He could                                                                    
     be off  doing something else,  which we hear  about all                                                                    
     the time. So,  what is the definition of  a charity and                                                                    
     what isn't?                                                                                                                
                                                                                                                                
MR.  BORCHORDING   said  that  both  pulltabs   and  raffles  are                                                               
gambling; someone is wagering money  to win something. He thought                                                               
it  is  more important  to  make  sure  that the  permittees  are                                                               
actually used  properly and that  a lot of today's  discussion is                                                               
already in place.                                                                                                               
                                                                                                                                
CHAIR  BUNDE  mentioned  that  he  heard  that  his  organization                                                               
returned more than the required 30 percent.                                                                                     
                                                                                                                                
MR.  BORCHORDING  agreed  saying  that in  2001  it  returned  57                                                               
percent; in 2002 it returned 54  percent; and in 2003 it returned                                                               
53 percent (using pulltabs).                                                                                                    
                                                                                                                                
CHAIR  BUNDE asked  if he  attributed those  returns to  being an                                                               
MBP.                                                                                                                            
                                                                                                                                
TAPE 04-6, SIDE A                                                                                                             
                                                                                                                              
3:10 p.m.                                                                                                                     
                                                                                                                                
MR.  BORCHORDING replied  no  and that  it had  more  to do  with                                                               
building the business.                                                                                                          
                                                                                                                                
CHAIR BUNDE asked him if he was hired by his organizations.                                                                     
                                                                                                                                
MR.  BORCHORDING replied  that  a board  of  directors hired  him                                                               
under   contract   with    certain   parameters   and   fiduciary                                                               
responsibilities.                                                                                                               
                                                                                                                                
SENATOR  SEEKINS  said  he  had just  talked  with  Red  Boucher,                                                               
founder  of the  Fairbanks Goldpanners  Baseball Team,  about all                                                               
the good players who had played  for them. Pulltabs were not used                                                               
for revenue  back then. While on  the board of directors  for the                                                               
Alaska  Goldpanners, Senator  Seekins said  he founded  the North                                                               
Pole Knicks  and became the  commissioner of the  Alaska Baseball                                                               
League. He used to hire kids to work in his dealership.                                                                         
                                                                                                                                
     Kids don't  work in  the summer now;  they work  at the                                                                    
     ballpark mowing  the grass,  because they  have pulltab                                                                    
     revenue. They don't have  to have community involvement                                                                    
     as  much as  they  used  to have.  So,  there's been  a                                                                    
     culture change....                                                                                                         
                                                                                                                                
He  continued saying  that pulltabs  are an  alternative, easier,                                                               
less  confrontational way  to  raise  money. Other  organizations                                                               
started  using pulltabs  to raise  money  and there  is an  ever-                                                               
increasing number  of permittees.  "Are we just  going to  let it                                                               
grow and see where it ends  or should there be some constraint as                                                               
to what a true charity is?"                                                                                                     
                                                                                                                                
MR. BORCHORDING responded  that he talked to some  groups who are                                                               
technically  charitable  even   under  the  senator's  definition                                                               
(including one who runs Alaskan  Independent Blind, Inc.) and the                                                               
fact  is that  knocking  on  doors and  telephone  calls are  not                                                               
creating the kind of revenue  they used to. This [pulltabs] fills                                                               
the gap without having to ask the government for money.                                                                         
                                                                                                                                
MR. JOHN REGAN,  Spenard Lions, said that his club  used to raise                                                               
money going door-to-door selling brooms and light bulbs.                                                                        
                                                                                                                                
     That  takes time.  Volunteers have  only  so much  time                                                                    
     they can  give. By using  money gained from  gaming, we                                                                    
     can donate and  use more of our volunteer  time than if                                                                    
     we had to go out and  raise the money other ways.... So                                                                    
     this has helped us help more people.                                                                                       
                                                                                                                                
CHAIR BUNDE  said the bigger  question is  that there are  only X                                                               
amount of dollars  in the non-profit gaming community  and if the                                                               
Legislature "tightened it up," would  the Lions Club get a bigger                                                               
share - not should they go  back to selling brooms. He then asked                                                               
Mr. Loescher what he thought.                                                                                                   
                                                                                                                                
MR. ROBERT  W. LOESCHER, Tlingit-Haida Community  Council (THCC),                                                               
said he  also represents  a number  of Alaska  Native Brotherhood                                                               
Associations (ANB).  He agreed that  trying to  define charitable                                                               
would be  an impossible task. It  might be easier to  look at how                                                               
the  federal  government  classifies  gaming, which  is  how  the                                                               
National Gambling  Impact Study  Commission (a 20-year  report on                                                               
gambling) looked at it.                                                                                                         
                                                                                                                                
He  warned  that  non-profit  organizations  need  to  deal  with                                                               
government agencies  and tax entities  within some sort  of legal                                                               
framework and many  elect to go to non-profit status  and IRS tax                                                               
code classifications (even though it takes a while).                                                                            
                                                                                                                                
MR. LOESCHER stated that local  communities don't get the federal                                                               
and state  funding that they  used to and local  communities have                                                               
tried to  solve problems;  for instance,  pulltabs in  Juneau pay                                                               
for the high  school basketball and football teams.  He urged the                                                               
committee to consider  the kind of gaming it wants  to enable and                                                               
what purposes the funding will go toward.                                                                                       
                                                                                                                                
CHAIR BUNDE  asked Mr. Prather if  he would comment on  his ideas                                                               
about the definition of charity.                                                                                                
                                                                                                                                
MR.  PRATHER commented,  "Mr.  Chairman, that  is  a minefield  I                                                               
would rather not walk through."                                                                                                 
                                                                                                                                
SENATOR  FRENCH said  he  was told  that  some charitable  gaming                                                               
operators formed  a trade association  and ran a permit  and used                                                               
some of the proceeds from it  to defend themselves when they were                                                               
sued by  the state for not  turning over all the  money they were                                                               
supposed to in their other operations.                                                                                          
                                                                                                                                
MR. PRATHER  replied that did  take place. An  operator conducted                                                               
gaming on  behalf of a  number of permittees,  one of whom  was a                                                               
trade  association called  the Charitable  Gaming Association  of                                                               
Alaska. An audit  determined that the operator  had underpaid his                                                               
permittees  by $186,000  and  one of  the  beneficiaries of  that                                                               
should  have been  the Charitable  Gaming Association  of Alaska.                                                               
The  operator hired  an attorney  and  during the  course of  the                                                               
hearing it came out that all  the legal fees paid to the attorney                                                               
came from  the Charitable  Gaming Association  of Alaska  (one of                                                               
the  groups  the  money  was  being  recovered  for).  That  case                                                               
continued to the Supreme Court  and was eventually settled before                                                               
the  final decision.  "That's one  of the  most egregious  abuses                                                               
that we've seen of gaming money."                                                                                               
                                                                                                                                
SENATOR  FRENCH  asked  what statute  would  prohibit  that  from                                                               
happening again.                                                                                                                
                                                                                                                                
MR. PRATHER replied that particular  organization is no longer in                                                               
business, but  one other  exists that is  spending the  money the                                                               
way the  laws were intended  for them  to spend it.  He explained                                                               
that the department would not  object if a trade association used                                                               
its money to file a lawsuit over proposed regulations.                                                                          
                                                                                                                                
MR. POWERS closed with  an idea he had to charge  a $1 "user fee"                                                               
admission to  each bingo  session. He thought  this fee  would be                                                               
easy on the  operators and MBPs and bring in  a couple of million                                                               
dollars to  the general fund. The  money could be sent  in to the                                                               
state every month.                                                                                                              
                                                                                                                                
CHAIR  BUNDE  said  that  really  wasn't  the  focus  of  today's                                                               
meeting, but he  would circulate any correspondence on  it to the                                                               
rest of  the committee. He asked  if there were any  more closing                                                               
comments.                                                                                                                       
                                                                                                                                
MR.  DAVE LAMBERT,  Fairbanks,  asked the  committee  to look  at                                                               
"pooling"  and  better  enforcement  in  relation  to  licensees'                                                               
employees.                                                                                                                      
                                                                                                                                
MR.  DENNIS SMITH  closed saying  that his  organization is  very                                                               
satisfied with current enforcement.                                                                                             
                                                                                                                                
DR.  HAAKENSON closed  also  agreeing with  the  status quo,  but                                                               
wanting clearer  definitions to  deal with the  next time  he was                                                               
asked to speak on this issue.                                                                                                   
                                                                                                                                
MR.  BORCHORDING closed  saying that  he hadn't  raised his  main                                                               
point yet, which is to do away with authorized expenses.                                                                        
                                                                                                                                
     Set  a specific  amount  that must  be  paid from  each                                                                    
     pulltab game that  is closed. If I close  out 10 $1,000                                                                    
     games  this month  and I'm  an operator,  so to  speak;                                                                    
     show me  the check for  $3,000. You're out;  it's done.                                                                    
     If I'm a self-directed permit  like I run right now, of                                                                    
     course, I'm going to be  trying to maximize my profits.                                                                    
     So, I  must submit a check  of at least 30  percent. If                                                                    
     it's more than that,  wonderful, my charities make more                                                                    
     money. It's very simple....                                                                                                
                                                                                                                                
He agreed  with Mr. Power's suggestion  of a $1 fee  and the need                                                               
for   accountability.  He   supported  mandated   sentencing  for                                                               
violations  of gaming  statute and  for  the licensee  to be  the                                                               
responsible party, not an employee.                                                                                             
                                                                                                                                
CHAIR BUNDE  asked anyone  with more comments  to submit  them in                                                               
writing  and said  he  would distribute  them  to the  committee.                                                               
There being no further business  to come before the committee, he                                                               
adjourned the meeting at 3:30 p.m.                                                                                              

Document Name Date/Time Subjects