Legislature(2001 - 2002)
01/29/2002 01:35 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 175-MUNICIPAL PROTESTS OF GAMING PERMITS
CHAIRMAN STEVENS announced SB 175 to be up for consideration.
SENATOR KIM ELTON, sponsor, said that charitable gaming is big
business in our state and in the year 2000 sold more than $300
million worth of pull tabs and bingo cards. A decade ago when he
was on the municipal assembly, they found that the sale of pull
tabs in Juneau amounted to $474 for every man, woman and child in
the municipality. It is a business that has led to some problems
in Juneau and has the potential of creating some problems in
other communities. Local government now having trouble with the
gaming operation is having limited options. It can ban all
charitable gaming or ban just pull tabs or forever prohibit a
particular individual or group from conducting gaming activities
in the municipality.
The problem with those options is that the people who
really suffer are the non-profits that are getting
revenue from the gaming operation. You might have a bad
permittee or a bad operator, but the only option you
have is to get at them and that harms the people who
may most need the money - whether it's little league or
youth football or youth skiers.
SENATOR ELTON said they are trying to set up a system that is
analogous to the ABC situation where municipalities can challenge
the issuance of a permit in the same way they challenge the
issuance of a liquor license.
The most common reasons under the ABC provisions for
protesting liquor licenses are failure to meet local
safety codes and failure to pay municipal taxes. Lots
of times protests by municipalities don't even rise to
the level of the ABC Board. What happens, a protest is
filed for non-payment of taxes, for example. The liquor
license owner will go to the municipality, either pay
the taxes that are in dispute or establish an escrow
account. That can't happen now with gaming permittees.
To wrap up, the real problem we have here is a problem
that occurred in Juneau and can happen elsewhere.
That's where three groups refused to pay city sales
tax. The arrears amounted to about $1 million and there
was no hammer the municipality had to compel lawful
action on the part of the permit holders. This gets
around that in much the same way we deal with ABC Board
liquor licenses. With that I want to point out, Mr.
Chair, this isn't just a Juneau problem. We know other
communities including Bethel, Chevak, Dillingham,
Hoonah, Kotzebue, North Pole, Palmer and Wasilla also
could be in the same position that Juneau has found
itself in…
MR. JOHN HARTLE, Deputy City and Borough Attorney for Juneau,
supported SB 175.
We think it's a good idea. It would allow
municipalities to protest the issuance of gaming
licenses and it would implement basically the same
system that's now in place for liquor licenses, which
periodically come before the city assembly and the city
staff determines if the liquor license holder is in
arrears on taxes and, if so, protests to the ABC Board
and that holds up the liquor license. Our experience
has been that the taxes get remitted when the liquor
license is held up. This would implement the same idea
for a gaming permit. We think that's a good idea - that
it would prevent problems. As Senator Elton indicated,
we have problems in Juneau where pull tab permitees
stopped collecting and remitting the city sales tax and
a big arrears built up, which is now being laid on the
non-profit organizations - the Rebounders Club, the
baseball club and the organizations that are doing
terrific things in the community. Now, in my view,
because of the actions of their contractor, they're
being hit with some sizeable bills.
This legislation would protect them and it would also
protect the municipality from getting a large arrears
in taxes built up, which helps the municipality set its
annual budget as some of you know. I think this would
also help the state's gaming regulators. It would
provide eyes and ears in the municipalities to check up
on these licenses, to see that they're following the
law and to report abuses and find problems. There would
be some cost; it's a $10,000 fiscal note. I don't know
if that's exactly right, but it looks reasonable to me.
Our example of trying to collect taxes from entities
that don't really have any assets and the city doesn't
really want to foreclose on bats and basketballs very
badly. But what they do have, their main asset - these
groups - the multiple beneficiary permitees - they have
this valuable permit that allows them to game and sell
pull tabs. Our studies have shown that Senator Elton is
right in that hundreds of dollars per man, woman, and
child in Juneau, Alaska are sold every year…This would
give the municipalities a little bit of leverage over
that license.
MR. HARTLE said he had talked with Department of Revenue Deputy
Commissioner, Neil Slotnick, who may propose some amendments,
most of which sounded perfectly acceptable to him. The concepts
are fine and would narrow it down a little bit and get the
Department out of adjudicating municipal concerns.
SENATOR TORGERSON said his problem with the bill is the broad
based language that has to do with conditions. "It doesn't say
taxes. Taxes I think is a no-brainer. They should pay."
He said that there had been a court fight over this issue and
that they had also had discussions about smoking in facilities
and that the CBJ has an ordinance and they are trying to go
around it. He could see them passing a resolution banning smoking
as a condition; it could be anything. "It's way too broad based…"
He said the back taxes concern was very legitimate adding that
was all they could do at the ABC Board.
MR. HARTLE responded that it would make sense to say something
like "conditions relating to payment of taxes or compliance with
the municipal code" - something that narrows it down from general
complaints. He added that they had to go to court to try to
collect the taxes and they won at every level. That they have to
pay is now the law of the land. During the appeals a huge arrears
built up and this would address that.
SENATOR TORGERSON said that goes to the heart of the problem.
MR. NEIL SLOTNICK, Deputy Commissioner, Department of Revenue,
said they are neutral to negative position on this bill. He said:
Certainly it's a good idea to have municipal
involvement in charitable gaming, but as Senator Elton
did point out, there already is the opportunity for
municipalities to be involved in charitable gaming. In
addition to this statute, unamended, which would allow
municipalities to protest licenses due to the lack of
qualifications under the charitable gaming statutes,
there is also an opportunity for municipalities to ban
gaming by operators or vendors (AS 05.15.124) and
there's a local election option under AS 05.15.620 and
635 that would allow a municipality to ban charitable
gaming throughout the municipality. So, if there was a
big objection to charitable gaming, you can already
take care of it.
The Department is not looking for more work in the
charitable gaming section. It is a very large industry to
police and this is a very open ended statute allowing
municipalities to protest for almost any reason. They would
then be in the position of having to enforce those protests
or enforce the conditions that they want to impose on a
license - with no guidelines as to what those conditions
could be other than that they can't be in violation of state
law. "That would give us one more list of things to have to
enforce against one pull tab shop and not against all the
others. We frankly don't have the staff to do that."
MR. SLOTNICK said Mr. Hartle's suggestion of putting specific
grounds in the bill for a municipal protest would be acceptable
to the Department of Revenue.
So that we didn't have to make a ruling as to whether
this was an arbitrary or capricious action by the
assembly - so that it's very clear - for non-payment of
taxes or perhaps what Mr. Hartle just handed me,
"relating to municipal taxes and violations of
municipal code…That could be grounds for protest. As to
conditions, because the second part of this allows the
municipalities to suggest conditions placed upon a
permit. I would probably still rather not see an open-
ended ability of municipalities to impose conditions
that we would be in the position of having to enforce.
SENATOR TORGERSON agreed that they should just focus on taxes and
asked if the CBJ officially protested to them when the permit was
being reissued.
MR. SLOTNICK replied that they were probably aware of it. They
get renewals from everybody in December and the permits have to
get issued before the end of January, which isn't enough time to
do the accounting. They can go back and do audits, which take
years. The audit of this organization did find a violation and
administrative action was taken by the Department, but it takes a
long time.
SENATOR TORGERSON said he didn't think the ABC Board could put
conditions on licensing like paying back over time. Rather they
have to pay their taxes or they're out. He asked if instead of a
condition, wouldn't it be better to make that a rule.
MR. SLOTNICK said it would be from their point of view.
CHAIRMAN STEVENS asked how many violations they had in gaming
permits annually.
MR. SLOTNICK said he would have to check. In the renewal process,
the one thing they enforce is minimum payout percentages that a
permittee has to pay to the charity.
CHAIRMAN STEVENS said they have the permission from the charity
that has the gaming permit for the multiple beneficiary permittee
to run that permit for them for some percentage
MR. SLOTNICK said that was correct.
CHAIRMAN STEVENS asked if that was a negotiable percentage.
MR. SLOTNICK replied that it is a set percentage. Every December
they try to look through the first three quarters reports, figure
out who's in danger of being in violation, target them and try to
get some accounting, just to make sure they have met with the
minimum payout percentage.
CHAIRMAN STEVENS asked if they have additional obligations to the
municipalities or boroughs that they operate in .
MR. SLOTNICK replied that was true in Juneau.
CHAIRMAN STEVENS asked if it was true in other areas of the state
that had a sales tax as well.
MR. SLOTNICK said he wasn't sure.
CHAIRMAN STEVENS said there was only two ways to be in violation.
One is if you don't pay the beneficiary and two is if you don't
pay your taxes.
MR. SLOTNICK responded that there were lots of ways to be in
violation of the charitable gaming laws. You could run too many
sessions of bingo or sell pull tabs that are above the prize
limit, for instance. He said there are a number of violations in
a year and some of them result in a notice of violation and
nothing more than a letter. Some of them result in denial of
renewal, but generally that is based only on failure to make the
minimum payouts to the charity. This is all they have time to
enforce during the renewal period.
CHAIRMAN STEVENS asked if this bill added not paying taxes to the
reasons for denial.
MR. SLOTNICK said that wasn't clear now.
2:13
SENATOR AUSTERMAN commented that he didn't think this bill went
far enough and that pull tabs should be eliminated altogether,
but he thought this was a good bill and asked if Senator
Torgerson had a suggestion.
SENATOR TORGERSON said he was thinking they could delete section
2 on page 2 and give them a remedy to fix it, like paying the
taxes or remedying the violation.
SENATOR ELTON said he understood Senator Torgerson's concern with
broadness and suggested on page 1, line 11 to insert "holding"
after the word "after". This restates that the municipality holds
the first hearing.
Page 1, line 13, they might want to read: "protest the conduct of
the activity in its jurisdiction by resolution" and say something
like "the conduct must violate municipal code."
He added that if there was a no-smoking in public places
ordinance in place that would also give the municipality a right
to protest the permit.
SENATOR TORGERSON said he wouldn't go there.
SENATOR ELTON said it's important to note the history. The
Department will not deny a permit on a failure to pay municipal
taxes. They would deny on a failure to pay the state taxes, but
they have no authority to deny a permit to somebody who fails to
pay municipal taxes and that's the issue here.
He noted that the Department was aware of what was going on in
Juneau and ought to have been aware that on paperwork filed by
these permitees they said they were paying the taxes, despite the
fact that a specially appointed judge by the court system had
found otherwise. They are trying to give the Department the
authority to do what they need to do.
SENATOR TORGERSON said he would delete all the municipal
hearings. "If you're in violation of paying taxes, what's the
hearing going to do? Make this as cut and dry as you can…"
He said they are trying to have the Department deny the permit if
they are in violation of municipal code and sales tax is
municipal codes so he didn't know that they even had to put sales
tax in there. The license would not be issued until that's
remedied. He didn't think there needed to be a lot of hearing
officers trying to figure this out.
SENATOR ELTON said he didn't disagree and cautioned that the only
option the municipality has now is to close the activity. While
that gets to the problem of a bad person who is running the
gaming operation, the net effect is no the charities that are
benefiting from the activity. He is concerned if there is no
hearing on the public level, they are shutting out from any
discussion what the net effect is going to be on the charities.
"I am more comfortable forcing some kind of a dialogue at the
community level between those who are going to be most affected,
which are the non-profits and the taxing authority of the
municipality."
TAPE 02-1, SIDE B
MR. SLOTNICK said he was concerned with the rights of the
permittees who have a right to notice and be heard before a value
given by the state is taken away. They have had this problem
before. He'd rather stay out of that briar patch and would rather
not have the Department adjudicating municipal law if it's
possible to avoid it. He would rather have some positive finding
come to them from the municipality where they don't have the
discretion to interpret municipal law at all and that would
probably be after a hearing.
SENATOR TORGERSON asked if they notify the municipality of the
gaming permits when it's renewed.
MR. SLOTNICK replied that the law says that the applicants are
supposed to notify the municipality when they apply.
SENATOR TORGERSON asked if they do that.
MR. SLOTNICK said he didn't know.
SENATOR TORGERSON asked if the ABC Board had a hearing when they
pull a license.
MR. SLOTNICK said yes and they would have to, also.
SENATOR TORGERSON said they could have all the hearings they
want, but he was just talking about denying it and they can't
release it until it reaches a certain point. "I don't expect you
to be interpreting municipal code…"
2:25
SENATOR AUSTERMAN said he didn't know if they were forcing the
state into a position of having to defend itself as well, if the
municipality hasn't had a hearing.
SENATOR TORGERSON said the burden is not on the municipality to
prove someone didn't pay their taxes; the person is supposed to
prove what their liability is. A municipality does that through
audits.
SENATOR ELTON suggested on page 1, line 13 to insert: "protest
the conduct of the activity in its jurisdiction by resolution
stating the municipal code violation in the protest filed with
the department."
This would still allow some discretion within the Department of
Revenue to judge whether or not the municipality acted
precipitously.
CHAIRMAN STEVENS asked what they would do with section 2.
SENATOR ELTON responded that they could delete section 2.
SENATOR LEMAN wondered if they were giving some additional
benefit beyond due process. He wanted to say, "after following
the procedures of due process, which may include holding a
hearing…"
MR. SLOTNICK responded that generally due process requires notice
and an opportunity to be heard and what the hearing consists of
is flexible depending on the size of the right being taken away.
MR. HARTLE commented that this could mean simply that there be a
hearing on the resolution of protest. This language would not
take away the due process rights that tax payers are going to
have before they have to pay a tax bill.
This would be some sort of hearing on the protest. And
so the resolution has to be passed by the governing
body of the municipality. So they would do it at a
public meeting with a hearing and notice to the permit
holder. If the resolution passed, they would have had
their hearing, got their due process and the notice
would go to the department to take action on the
license.
He supported Senator Torgerson's effort to narrow this down to
failure to pay taxes or violations of the municipal code, because
as he said, failure to pay taxes is a violation of the municipal
code. He would put it on line 13 after "protest". It would say,
"a municipality may protest violations of municipal code" and
delete "the reasons for".
CHAIRMAN STEVENS recapped on line 11 to insert "holding" after
"after" and on page 2, line 1 after "the" to insert "municipal
code violation", delete "reasons for" and insert "in".
MR. HARTLE said he would insert on line 10, "a municipality may,
after holding a hearing, at which the applicant is afforded the
opportunity to make a defense, (1) protest the issuance of a
permit or license based on violations of municipal code."
SENATOR LEMAN moved that amendment along with inserting "holding"
on line 11. There were no objections and it was so ordered.
SENATOR TORGERSON said he didn't think they wanted "arbitrary,
capricious and unreasonable" on page 2, line 3, because the
department would then be adjudicating the municipal code.
MR. SLOTNICK said he would prefer not to be in between the
municipality and the permittee. He would like a resolution from
the municipality allowing them to grant a license.
SENATOR AUSTERMAN said he thought leaving those words out would
allow a broader interpretation.
SENATOR TORGERSON said that municipal law cannot be found to be
arbitrary, capricious or unreasonable by a commissioner of the
state.
SENATOR ELTON asked if it was necessary for the department to
hold a hearing if in fact there has been a determination that
there is a violation of municipal code. If that is the case, the
committee could say on line 2 after "shall deny the permit or
license." and delete the rest of the language.
MR. SLOTNICK commented that an applicant for a permit or a
license will always have the opportunity for a hearing before the
department, because if a permit it denied, it can be appealed, an
action that is covered elsewhere in statute. Requiring a hearing
in this section is confusing. If they deny a permit on the basis
that there was a protest from a municipality, a person could
still appeal that and they would receive a full due process
hearing before the Department of Revenue.
CHAIRMAN STEVENS asked if he was suggesting that they don't even
need that language.
SENATOR ELTON said that meant saying "permit or license." and
deleting the rest.
SENATOR TORGESON explained they are saying if they are in
violation, that their license is denied, but they are not giving
a remedy and he thought they should insert if they paid their
back taxes, the department would issue them a license.
CHAIRMAN STEVENS said they would no longer be in violation of a
municipal code if they paid their back taxes.
MR. SLOTNICK said there would still be a protest and until that
is rescinded it doesn't look like the department can give them
back their license. They should make the municipality withdraw
its protest.
SENATOR LEMAN offered a conceptual amendment on page 2, deleting
everything after "license" through the end of line 3 and
inserting "until notified by the municipality that the violation
has been remedied." There were no objections and it was adopted.
SENATOR TORGERSON said he didn't think they needed section 2 on
page 2, lines 4 - 17.
SENATOR ELTON explained that there are some municipalities that
also hold gaming permits. In previous language, they were trying
to make sure they wouldn't get a competitive advantage by
arbitrarily protesting licenses. He thought the tightened
language took care of that concern and it is not necessary now.
SENATOR TORGERSON moved to delete line 4 - 17 on page 2. There
were no objections and it was adopted.
SENATOR AUSTERMAN asked what taxes the state got from the pull
tab tax.
SENATOR TORGERSON replied that it is around $27 million including
bingo and everything.
MR. JOHN RICE, Juneau Charities, said they fought long and hard
over the ability of municipalities to tax charitable gaming. He
thought a lot was not understood about charitable gaming. Money
that is received through charitable gaming goes solely to non-
profit charities, which take the money and distribute it to
families who need housing, clothing, medical care and to
children. He thought it was poor public policy to allow
municipalities to impose a sales tax.
CHAIRMAN STEVENS said they wanted to hear from him if he would
address the bill or its amendments, but they were not discussing
the policies of charitable gaming. He asked if his clients are
the ones who are in violation of the municipal tax payment to the
City of Juneau.
MR. RICE said that was true.
SENATOR AUSTERMAN moved to pass CSSB 175 (L&C) with individual
recommendations from committee with a zero fiscal note. He
explained that eliminating the necessity to hold hearings changed
the fiscal note.
SENATOR LEMAN asked that the Department of Revenue prepare a new
fiscal note. There were no objections and it was so ordered.
CHAIRMAN STEVENS adjourned the meeting at 3:00 p.m.
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