Legislature(1997 - 1998)
02/26/1998 08:40 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 273
"An Act requiring that gross receipts and ideal gross
be used to account for charitable gaming activities;
requiring municipalities to provide to the state
records concerning sales taxes assessed for charitable
gaming activities; requiring that a charitable share of
charitable gaming receipts be dedicated to charitable
uses; relating to reports required for charitable
gaming activities; relating to payments to the state
from gross receipts of charitable gaming; relating to
contracts between operators or vendors and permittees;
relating to licensing of multiple-beneficiary
permittees and to the duties of a multiple-beneficiary
permittee to each holder of the permit; requiring a
person employed as a gaming manager to be certified by
the state; limiting the expenditure of amounts of gross
receipts and ideal gross required to be paid to
permittees or retained by permittees; relating to the
amount of gross receipts and prizes allowed under a
permit or a multiple- beneficiary permit; allowing
operators to pool gross receipts, prizes, and door
prizes among permittees; and providing for an effective
date."
The Co-chair explained that there had been one hearing had
on the bill, one "listen only" teleconference and a new CS
draft in the file. The explained most of the changes to the
new CS were the amendments in the file to begin with were
rolled into a new CS. Most of the topics in the amendments
were discussed at the last meeting. The amendments were
proposed by industry, charity groups and have been reviewed
by the department and have no objections to the ones rolled
in to the CS after working with various people involved.
New amendments that were not in the folder before, numbered
eight through eleven, and will be presented after Tom
Williams reviews the CS draft. The raising of the prize
limit amount was in question and that has been reassessed
and changed upward to the point the Department feels is
equitable.
Tom Williams, staff to Senator Bert Sharp, was invited to
join the committee. He identified the draft before the
committee was the "T" version, 2/25/98. Attached was also a
summary of the changes included in the draft CS. There are
ten changes made; amendment #4 being the only one not
included in the draft. That amendment dealt with the
industry's request to increase the time frame in which a
charity had to expend its charitable share from one year to
two years. He felt the department was not supportive of
that amendment.
Section one: modified by amendment #8 to designate the
additional fee currently collected by the State as a
gaming fee. They returned to the current method of
calculating it. He explained that in the original
Senate Bill they were looking to change it to gross and
now they were returning it to basing the State's fee on
the charitable share or the amount the charity gets.
Basically, the status quo is maintained by returning to
the current method.
Section six: modified by amendment #1 to require
reporting the charitable share payment each calendar
quarter instead of monthly. This will help insure
operators, MBP's and self-directed permittees have the
cash to pay the charitable share due timely.
Sections ten and thirty-two: modified and a new
section fifteen added by amendment #10 to further
define the responsibilities of a gaming manager, to
require MBP's (multiple beneficiary permittees) to
utilize a gaming manager and to define a gaming manager
as the principal individual with described
responsibilities. Before there was concern the gaming
manager definition was too broad and now has been
narrowed by indicating they are basically the principal
individuals and it would require MBP's to have a gaming
manager. In reality, the department has advised that
all MBP's currently do have a compensated gaming
manager.
Section twelve: modified by amendment #2, which
reinstates the current provision, the department must
advise the permittee the reasons for voiding a
contract. That had been deleted in the original
language. It further eliminates further specific
reference to the department's ability to revoke or
suspend the operator's license since the department
already has that authority under another section of
law, AS 05.15.07.
Section thirteen: eliminated by amendment #3 which
deletes the requirement a permit be played a minimum of
one month by an operator who contracts to play the
permit. Some permittees may take their permit to an
operator in order to raise a limited amount of money
and that may not require it to be played for a full
month. They may only need it played a week or two to
raise sufficient funds.
Section sixteen: modified by amendment #5 to make
MBP's subject to most of the same requirements placed
on operators.
Section twenty-five: modified by amendment #6 to
reduce the minimum period for which a gaming manager's
certificate and an MBP's permit can be revoked to one
year instead of two and making the penalty the same as
it is for operators. Initially it had been proposed as
a two-year minimum, dropping that back down to one
year.
Section twenty-six: modified by amendment #7 to
increase the gross receipt maximum to properly convert
to the equivalent maximum that exists under current
law. It had been originally thought the limits should
be $1.2 million, but when the department later
recalculated it it appeared the limit should be $1.3
million to keep it equivalent.
Section thirty: modified by amendment #9 to exclude
Federal excise taxes collected from the definition of
"gross receipts". The original legislation had defined
gross receipts as excluding local sales tax, and the
other issue was Federal excise tax. It becomes most
important on pull-tabs, being one quarter of one
percent and there is question as to how that is being
enforced. It is being excluded from the definition of
"gross receipts".
Section three: a new section added and the title
updated by amendment #11 to make it clear that gaming
records collected by the department are public
information and they only have to be disclosed ninety
days after receipt of those records. It further
reiterates that the department must, after ninety days,
make sure those records are available.
Mr. Williams then concluded his testimony and advised the
Co-chair that the Department was available to respond to
specific questions.
Senator Adams referred to amendment #4 and said it was not
in the CS, asking what was the pleasure of the chair
regarding this matter.
Co-chair Sharp said that was the amendment that would have
allowed up to two years for charities to spend the proceeds
instead of one year which sort of lapsed the reporting of
proper expenditures into future years and making it more
difficult to track. The Department was not enamoured with
that possibility. He suggested the Department come forward
and explain further.
Bob Bartholomew, Deputy Director, Income and Excise Audit
Division, Department of Revenue was invited to join the
committee. He asked Senator Adams to repeat his question.
Senator Adams referred again to amendment #4, which was not
included in the CS and asked what was the problem with
deleting one to two years?
Mr. Bartholomew explained that under the current statutes
and regulations the non-profit organizations could request
an extension from the Department to have an extra year to
spend the charitable proceeds they receive. There are many
requests received and they are approved. The intent was to
get the money to the non-profits and the money then be used
for whatever their purpose was. There is an option in law
today that allows the organizations to carry it forward.
There was a strong feeling that two years was a more
reasonable time frame to allow them to spend the proceeds.
It is just more difficult to track but nothing the
Department could not live with.
Co-chair Sharp asked if the Department wanted to treat it as
an exception request item rather than just a standard item
and automatically allow it?
Mr. Bartholomew indicated it was the Department's first
choice.
Senator Adams asked the Department's position on the ten
amendments in the CS?
Mr. Bartholomew said the Department supported the amendments
and has worked through them, feeling they do improve the
bill.
Senator Adams MOVED CSSB 273(FIN) "T" version be adopted in
lieu of the original bill for working purposes. There being
NO OBJECTION it was ADOPTED.
Co-chair Sharp indicated there were two individuals signed
up to testify regarding the bill.
Senator Torgerson said he had a few questions of Mr.
Bartholomew. He asked if the Department would be supplying
the reply forms for everyone to report on?
Mr. Bartholomew said that if the bill were to pass they
would definitely redesign the forms, work with the industry
and then have them out and available by January 1.
Senator Torgerson asked about everyone filing annual reports
by certain time periods and having to have certain
information in those annual reports. He thought there would
have been some kind of clarification that they could not
just go out and do some kind of annual report and send it to
the Department.
Mr. Bartholomew responded that the authority given the
Department under the regulations, section two of this bill,
was where the reports were defined and also the method of
accounting. They now have the regulatory direction to
provide that.
Senator Torgerson asked clarification of the "gaming
manager" for a smaller operation. The person actually
operating the game is not the one responsible for the money
or the accounting or anything else. He thought that was
going to be defined as to someone who has something to do
with the money. (pause on tape) The example he gave before
was "a person that is employed by a non-profit to run the
gaming program we are now requiring them to be
fingerprinted." All this person does is take the money and
put it in the bank. A separate person is the primary person
in charge. Then there is a separate person who is the
accountant. Then there is a board of directors who runs the
whole organization. Is it the intent to fingerprint
everybody? (pause on tape)
Mr. Bartholomew said it was the intent of the gaming manager
sections to be able to make sure there is one person who can
be held accountable to make sure the gaming activities
comply with the statute. Currently that is the requirement
for the operator run businesses. They are required to be
licensed. It is the MBP permits and self-directed
operations where there are situations people are hired as
gaming managers. This was defined in the CS on page seven,
line nine. He advised Senator Torgerson that he would have
to decide whether the person who should be the gaming
manager is either the person he described or someone else
within the organization. That is what they tried to put in
the definition. Section thirty-three defined "gaming
manager" as the "principal individual who manages". They
are trying to narrow it down to one individual and it would
have to be identified who that one person was. Section
eleven, page seven, line nine provided further guidelines.
Senator Torgerson asked if section eleven was in conflict
with section thirty-three? (pause on tape) Which one would
have precedence? He said not necessarily one who was
employed as manager had a responsibility to balance the
books.
Mr. Bartholomew said if one were an MBP they were absolutely
required to appoint a gaming manager. If one was self-
directed the intent was only if one were compensated as a
gaming manager.
Senator Torgerson again referred to page seven, line nine,
"the accurate accounting of total amount of gross receipts"
and there is a definition of "gaming manager". This is in
conflict with the definition of "gaming manager" on page
fifteen. He thought these were two different definitions.
Deborah Vogt, Deputy Commissioner, Department of Revenue was
invited to join the committee. She explained the definition
on page seven related to only MBP's where it was required
there be a gaming manager. With a self-directed charity the
definition is a little looser and requires the person have
both the responsibility for the reporting and the management
of the game and be compensated for it.
(Miscellaneous conversation between Ms. Vogt and Mr.
Bartholomew.)
Senator Torgerson said he would be happier if the same
definition on page seven was the definition of "gaming
manager".
Mr. Williams explained that the definition of the "gaming
manager" was to define in general terms what a "gaming
manager" represented. The specific statement on page seven,
lines nine through twelve, said that if there was a gaming
manager that generally oversees everything their
responsibilities must include particular duties. This was
recommended language by the industry. There was a broad
definition and then some specific responsibilities that were
added of what a "gaming manager" was supposed to do.
Senator Torgerson asked if the person he described was
supposed to know which one of the definitions he fell under?
He said he was referring to someone being in violation, not
one that was to be fingerprinted.
Mr. Bartholomew said the bill required that if there were a
compensated manager in a gaming operation then a gaming
manager would have to be appointed. If the intent was to
have a self directed gaming activity, do they have to be
subject to getting a license or certificate or not?
Currently, someone in the organization would still be
required to come to the Department and get a certificate as
a gaming manager. That is how it is presently structured.
The only way a gaming manager would not be required was if
no one was compensated for that managerial role.
Co-chair Sharp indicated that a "clerk" would not fall into
that category. He said Senator Torgerson was referring to
someone who just stands and sells the pull-tabs, collects
the money and turns in it to someone else. They would not
be classified as a manager under these terms.
Senator Torgerson said that an operation having half-a-dozen
employees, one person in charge of those employees, could be
just the manager and not the person in charge. That person
would not have anything to do with accurate accounting or
other things which instead would be handled by the board of
directors or the primary person in charge. He said that was
the person who should not have to be fingerprinted. There
was, however, no problem with the person in charge being
fingerprinted if that was the intent of the bill.
Mr. Bartholomew referred the Senator to the definition
outlined on page fifteen. This section would narrow it to
one person. He said there might be a loophole as far as the
primary person being able to appoint someone other than whom
was truly in charge and the Department may have to look at
the definitions again to get the right balance.
Senator Torgerson did not agree and said one could be the
principal person in charge and not receive compensation.
Mr. Bartholomew agreed and said the definition would have to
be changed and allow flexibility for the principal
individual to be other than the person who is compensated.
Ms. Vogt voiced her concern as to the ambiguities as to who
is the person in charge and who is to be licensed or not.
It would have to be cleared up. Senator Torgerson said he
would be happy to work with the Department regarding this
matter because it does not cover the concern he has.
Co-chair Sharp referred to the situation Senator Torgerson
described. The only recourse the Department has if things
are not being accounted for they can revoke the manager's or
operator's license. But it is not intended to hold a
"clerk" as a "manager".
Mr. Williams further explained the concept saying they were
trying to license individuals that were being compensated
and running the gaming operations. If they failed to live
up to their legal obligations of submitting the charitable
share or otherwise complying with the law the Department had
means by which they could prevent them from continuing in
that role or moving into another entity to serve in that
role. He noted the initial emphasis was on MBP's and this
legislation would require they use a gaming manager. It
further defined a "gaming manager" as someone who controls
the gaming operation and is compensated. MBP's were the
only ones required to have a gaming manager.
Senator Torgerson said he still felt the bill as worded did
not comply with what Mr. Williams further explained.
George Wright, manager Alaska Native Brotherhood, Camp 2,
Gaming Operations, Juneau, was invited to join the
committee. He explained he was also member in charge of an
MBP. He said they had looked extensively at the bill and
concurred with the comments made by Senator Torgerson
regarding fingerprinting. He also felt that the one who
handled the money from the time of sales until it went to
the bank that person was the one who should be on file. The
individual who reviews paperwork only should have the right
to privacy. He said the bill as is would not benefit
charities. He quoted Senator Pearce from 1995: "The
Legislature clearly directed ... that the flow of money be
shifted in favour of the charities. The privilege of
conducting charitable gaming in Alaska is to benefit the
charities." He said the bill presently before the committee
did not benefit the charities. He said the argument
regarding the seven percent on pull-tab gross does meet the
same minimum standard as the thirty percent of the adjusted
gross. That could only be true in calculation except for
those communities that have sales tax. He pointed out that
no consideration was made for sales tax exemptions. He
noted that the City of Juneau already takes five percent of
the gross. Mr. Wright voiced concern over the one percent
return in bingo. One point five percent of the gross in
bingo, with no accountability of the operator's proceeds was
a phenomenal amount of money. In reviewing of his files he
said ANB had approximately nine bingos in a year. If they
calculated the one percent, according to the new rule, the
Fourth of July bingo operator would deposit $442 to the
charity and $42,000 into his own pocket. He felt this was
criminal and this legislation would deprive the charities
proceeds. This bill would legalize what the Department of
Revenue had been fighting forever. It should be insured
that charities get their fair portion. He further referred
to the recommendation of the Task Force in 1995 to increase
the Department of Revenue's gaming budget to protect the
charities. He said it was wrong to legalize what the
operators have been doing in the past.
In further discussion with Co-chair Sharp, Mr. Wright said
that under this bill he would be setting himself up for a
good retirement.
Senator Torgerson asked Mr. Wright what $137,000 represented
as part of the gross. Mr. Wright responded that was after
the price payouts. He further explained that was actual
funding raised based on his spreadsheet. He said the gross
was considered after prizes were paid. His charity
received forty-five percent of all bingo operations.
Senator Pearce asked Mr. Wright to repeat his statement. He
repeated: "...forty-five percent of all bingo operations."
Senator Pearce asked if that was forty-five percent of the
net after the payout or forty-five percent of the total
gross? Mr. Wright said it was forty-five percent of the
adjusted gross, after the prize payout. Senator Pearce
further asked if the remaining fifty-five percent was used
for administrative costs and payment to the State and Mr.
Wright concurred. He said it could also be as high as sixty
percent depending on the amount of people drawn. He advised
the committee that everything he deposits goes into his
charity's account.
Senator Torgerson asked what the average of other operators
was? He said he would be happy to amend the bill to give
forty-five percent of gross receipts to charities.
Mr. Wright responded that after his meeting with the
Department of Revenue yesterday he felt the minimum should
be eleven percent. He said there was a gaming war in bingo
going on in Anchorage because everyone was competing for the
"dollar". He said the prices had been driven down to
approximately twenty-five cents per six cards. In other
places in Alaska the price for six cards was between one and
three dollars depending on the prize payout. He felt the
bill was aimed at cleaning up Anchorage's problem but it was
not giving any consideration to the rest of the State. He
further advised the committee that if the bill passed out
today in it's present condition approximately nine out of
thirteen charities in Juneau would have to close due to the
City's tax. Also, competition would be allowed to come in
with deep pockets and they have no reporting and
accountability requirements and could spend their money on
anything they wanted to. However, a local permittee would
have to meet their needs and would not have an unlimited
supply of funding. He said once the market was cornered one
could set the table stakes as they wished.
Co-chair Sharp asked the next testifier to be brief because
this was a working meeting and not one in which testimony
was going to be taken.
Roger McCoy, contractor for sale of pull-tabs for non-profit
organizations was invited to join the committee. He has
five years experience. He specified he would address the
language intent of the bill as referred to pull-tabs only.
He said current law took into account the allowable expenses
for operation of each and every sales outlet for operators,
MBP's and self-direct sale by permittees. There was a
minimum of thirty percent of the adjusted gross set for non-
profit organizations. In the case of vendors there was a
minimum of seventy percent was set for the non profit
organizations and a maximum of thirty percent for the
vendor. Mr. McCoy said this bill would no longer take into
consideration the expense costs of operators, MBP's or self
direct sale by permittees, but did base the permittees'
profit percentage on gross receipts or ideal gross,
regardless of the location or sales within the State. Other
language inserted stated the Department of Revenue would
revoke the permit of a vendor, operator, MBP and the non-
profit organization if the specific percentage due to the
permittees were not paid within a specific time period. He
further said that since operational expenses differ from
sales outlet to sales outlet, community to community, none
of the percentages of pay out prize money was the same. He
asked how one Statewide average pay out percentage be used
to determine the Statewide percentage to a non profit
organization. He said due to this language vendors would no
longer sell pull-tabs for non-profit organizations.
Operators, MBP's and self-directed sales by permittees would
not be able to meet or provide the seven percent sales to
the non-profit organizations which would require the
Department of Revenue to revoke the permits of those
operators, MBP's and the non-profit organizations. He
referred briefly to his exhibit breaking down the two most
common games played by vendors. He noted the current law
and SB 273 and how they applied. He said if there were lost
tickets, bad checks or anything else happened to the game
the vendor would lose. Ninety percent of pull-tab stores
would have to close their doors. The other ten percent left
would be able to make it because all of the competition
would no longer be in business. He explained that no
consideration had been given in the bill for the cost of
liability insurance, wages, workmen's compensation and the
general cost of doing business going up. Non-profits would
no longer be able to rely on revenue for their
organizations.
Co-chair Sharp thanked Mr. McCoy for his examples he
submitted to the committee. Mr. McCoy noted for the Co-
chair that the winner pay out was eighty-three percent. Co-
chair Sharp indicated there was then room for adjustment.
Mr. McCoy noted high operation costs and too many pull tab
operations in competition. He said no one was making it.
Co-chair Sharp noted again for the record that
teleconference was "listen only" and any comments could be
submitted in writing. Senator Phillips objected and said
all teleconference sites should be allowed to testify or
some arrangement should be made for the further taking of
testimony.
Co-chair Sharp said he would set aside the bill. He had no
commitment to hear public testimony today. He has heard
testimony from all over the State previously on this bill.
A new CS with amendments submitted from all individuals
involved was now before the committee. He said this bill
has been opened to the public process since June of last
year.
Senator Donley concurred with the Co-chair. Co-chair Sharp
further indicated that the file contained full documentation
from every major vendor in the State. He said he wanted to
make sure the charities get their monies up front and off
the top and that was what this bill proposed to do. He is
not interested in increasing the intake of the charities at
the expense of anyone else, only to simplify the reporting,
which should save operators a few dollars. He said his
intent was to move the bill if there was nothing else to
come before the committee.
Senator Donley voiced concern over two areas of the bill.
One was already addressed by the Co-chair and the other was
in section three of the bill, which opened records for
public scrutiny. He wanted to make sure the language meant
what it said and whether or not the Department actually
opened the records up within ninety days. Co-chair Sharp
recalled Bob Bartholomew to join the committee and asked for
the Department's interpretation of this section.
Mr. Bartholomew responded that the previous testimony had
been accurate. He explained that any delays were due to the
fact that many reports were under review. What the
Department has agreed to do, even though the gaming records
were currently public, was ninety days after they were
received, do a review and regardless of whether they were
under review or being considered for audit, they be made
available. The financial information would be made
available immediately, either electronically or by making
copies. Individuals could come in, look at the records and
then make copies of what was specifically needed. Senator
Donley indicated that this explanation was more consistent
with existing statutory requirements.
Senator Donley referred to section twenty-seven, page
fourteen and said he had tried to encourage charities to do
this on their own ten years ago. He said it would offer
them incentive to do their own gaming operations rather than
use operators, thus to maximize their profit. He agreed
that it was a relevant public policy concern that was
glaring in the existing statutory scheme. However, it was
not a problem created by this legislation. It may be a good
idea, he said, to level the playing field now that there was
little essential distinction between "managers" and
"operators".
Mr. Bartholomew responded, saying that truly self-directed
permittees would be the ultimate goal, and probably there
were not as many of these permittees as would be preferred.
Operators needed more permits. Therefore, it would allow
more charities to participate. On the flip side, if they
were competing with an MBP there may be an unfair advantage.
He said he did not know if the difference of how an operator
was required to have more permits in play would cause an
undue burden.
Senator Donley said he did not want the discussion be
limited to the idea of increasing the permits the operator
could play. He wanted the discussion to include reducing
the maximum dollar amount for the MBP's to encourage them to
take in more members so that greater numbers of charities
could gain from the law. Mr. Bartholomew concurred. He
said there were some MBP's that were close to being self-
directed. There were others that were more of a
professional gaming management. He felt that could not be
split, however, if the cap were lowered on what an MBP could
play some self-directed operations would be affected.
MBP's, he said, were supposed to be a co-op of permits, set
up to run as if it were self-directed. He advised the
committee that in reality a couple of there were and most of
them were not.
Senator Donley said the whole purpose of the bill was to
encourage the small percentage that was actually running the
games themselves, but it had not really worked effectively
that way. The vast majority went the professional manager
route.
Senator Torgerson wanted discussion on section twenty-eight
and referred to testimony presented earlier regarding
sixteen percent ideal gross. He asked if sixteen percent
was an arbitrary number? He said that if the numbers were
going to continue at sixteen percent then vendors would have
to be taken out because they would not operate at that
price.
Mr. Bartholomew responded regarding the vendor percentage of
sixteen, saying the prizes could vary from sixty percent to
eighty or eighty-five percent of gross. For both the pull
tab percentage at seven percent and the vendor percentage at
sixteen percent, the department looked at a prize pay out
that was working at about seventy-seven or seventy-eight
percent. For the bill to be revenue neutral a prize pay out
would be at about seventy-seven or seventy-eight percent.
He also said the department received conflicting
information. People tell them that if the prize pay outs
are lowered below seventy-seven percent no one will game.
(Tape change from #47, side B to #48, Side A at 10:20 a.m.)
Mr. Bartholomew continued saying that another issue needing
to be clarified was the effective expenditures. Current
law, without this bill, State minimums required to be paid
to non-profit organizations excludes expenditures from the
equations. Only a percentage of the adjusted gross, which
is gross less prizes, had to be paid. He said that this
bill, going to a percentage of gross, only regulated the
State minimum. Expenditures were not brought into the
equation and it was not a change in the current law. Profit
about the minimum was not regulated. Instead that was open
to the non-profits and the gaming industry. He clarified
that the department recommended, in regulating gaming,
assuring the charities get the minimums and reducing the
resources needed to regulate gaming.
Senator Torgerson asked about MBP's only being required to
pay seven percent back to the charities. Mr. Bartholomew
indicated that was correct. He asked further explanation of
the example given today, that MBP's would only have to pay
$155 to the beneficiary, but a vendor would have to pay
$355.04. Mr. Bartholomew said it was definitely not the
intent to force out vendors. The vendor structure, as
currently in law today, said they must pay seventy percent
of the adjusted gross. An MBP must pay thirty percent of
the adjusted gross. The difference, he said, was because
vendors did not have to lease a new hall, had no
expenditures and no payroll. An MBP does have rent, payroll
and other expenses.
Senator Torgerson asked the number of pull-tabs sold by
MBP's and vendors. Mr. Bartholomew said 1995 information
indicated vendors sold $22 million gross receipts of pull-
tabs, MBP's sold $22 million gross receipts and operators
had $88 million gross receipts. He further noted that MBP's
volume probably had gone up and operator volume down.
Senator Donley said he felt the legislation was important
even though he would support reducing some of the dollar
amounts to maximize the opportunities to more charities in
the State. He would support further delving into the
maximums and whether they were appropriate or not and if
they were the best public policy.
Senator Phillips MOVED CSSB 273(FIN) and WITHOUT OBJECTION
it was REPORTED OUT with individual recommendations.
Co-chair Sharp called the next bill, SB 285.
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