Legislature(2005 - 2006)CAPITOL 17
03/17/2006 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB477 | |
| HB51 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 227 | TELECONFERENCED | |
| += | HB 477 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 51 | TELECONFERENCED | |
HB 477-CHARITABLE GAMING 3:33:50 PM ACTING CHAIR KOTT announced that the first order of business would be HOUSE BILL NO. 477, "An Act relating to charitable gaming." REPRESENTATIVE LYNN moved to adopt CSHB 477, Version 24- LS1696\G, Luckhaupt, 3/3/06, as the working document. There being no objection, Version G was before the committee. 3:34:26 PM MIKE O'HARE, Staff to Representative Kott, Alaska State Legislature, speaking on behalf of the sponsor, paraphrased from the following written testimony [original punctuation provided]: This bill is an effort to ensure that crimes within the charitable gaming community are investigated and prosecuted fully and passionately. Many of these charities effected by these crimes are discouraged by the results of investigations and lack of prosecutions of these cases in the past. HB 477 changes Alaska Statute 05.15.010, requiring the Department of Public Safety to investigate theft and the Attorney General to prosecute these crimes. This requirement will hopefully deter criminal activity associated with charitable gaming and keep it clean, and all of the charities will get their rightful share of the proceeds. HB 477 also adds provisions to the existing charitable gaming statutes AS 05.15 that will enable permitted charitable gaming organizations and operators to present to the state biennial instead of the annual reports currently required by law. Currently both the State and gaming operators must expend considerable resources each December to process and prepare permits. Changing to biennial reporting will be much more efficient for everyone. The permittee currently expends considerable resources to prepare each annual permit application. The State spends considerable resources examining each permit application. The State loses neither revenues, nor enforcement capability with this change. HB 477 also amends AS 05.15.090 to include in the department's detailed report containing a summary of all reports required of permittees and operators. This report must also include information concerning any investigations or prosecutions undertaken by the department of Public Safety or the Department of Law as required under amended AS 05.15.010. HB 477 also removes the Alaska Administrative Code AAC 160.580(e) This code refers to the allowable number of bingo games and limitations on the number of bingo sessions as well as a one hour break between bingo sessions. This section was originally enacted to prevent the "Bingo Wars", where competing organizations would raise pay-outs in order to compete with other games. This 60 minute break is inconvenient, expensive and inefficient Players must sit and wait for an hour Bingo is a social event in many communities This mandatory halt disrupts the process as the stoppage is in no way connected to the schedules of the people that gather together to play. Removing this section will allow operators to adjust to the tempo and schedules of their customers. With regard to the Hour break - utilities are being run..the lights and the heat are still on, staff must wait while still getting paid, etc The removal of this section will increase the enjoyment for those participants in bingo and reduce the costs associated with providing the service. Any reduction of costs would benefit those charities that deserve the proceeds. MR. O'HARE then informed the committee of the three fiscal notes from the following departments: Department of Revenue, Department of Public Safety, and the Department of Law. 3:38:28 PM REPRESENTATIVE LYNN related his belief that changing from annual reports to biennial reports means that it will take twice as long to determine whether something improper is occurring. MR. O'HARE related his understanding that the permittees will be required to submit an annual summary report to the Department of Revenue (DOR). REPRESENTATIVE CRAWFORD turned to the elimination of the 60- minute time-out, which will result in more gambling and more revenues for the operators. He expressed his opposition to anything that expands gambling. ACTING CHAIR KOTT offered his understanding that currently operators can expand the number of sessions and games, and therefore he didn't believe this change would cause a great degree of expansion. 3:42:35 PM JEFF PRATHER, Gaming Group, Juneau Office, Tax Division, Department of Revenue, explained that the sessions are limited to 35 games or $5,000 in payouts. There can be no more than 4 sessions in a 24-hour period. ACTING CHAIR KOTT surmised then that no matter the length of the break between sessions, the gambling can't be expanded beyond the aforementioned restrictions. REPRESENTATIVE CRAWFORD related his understanding that the elimination of the 60-minute time-out allows the use of a bingo gaming machine. He inquired as to the pros and cons of such. MR. PRATHER said that he didn't know anything about bingo gaming machines being available between sessions. Mr. Prather related his understanding that there are electronic bingo paper machines, which are machines for which one can have numerous cards that the machine can track. LARRY MEYERS, Deputy Director, Tax Division, Department of Revenue, explained that the traditional game of bingo is often played with paper, and therefore the hour break would allow closure of the game before the next game. However, electronics has sped up the process such that a player can purchase more games with electronic bingo paper. Mr. Meyers mentioned that there has been some effort to bring in new types of machines that would allow continuous play. ACTING CHAIR KOTT asked if those machines allowing continuous play would have to be approved by the department. MR. MEYERS replied yes. He informed the committee that the department is constantly seeing new types of products that it must review in order to determine whether they meet the intention and the purpose of the gaming statutes. ACTING CHAIR KOTT opined that with technology, bingo sessions have become shorter over the years. However, the aforementioned restrictions remain. REPRESENTATIVE ROKEBERG related his understanding that Section 9 only annuls 15 AAC 160.580(e), and therefore the other aforementioned restrictions will remain in regulation. 3:50:30 PM REPRESENTATIVE LYNN reiterated his concern regarding the change from the annual to biennial report. MR. MEYERS said that annual reports make the job easier for the department, although it's more paperwork. With the biennial report, the department will have to rely on reports from permittees and any action against an operator or his/her bond will have to wait until the final report is filed, which could take up to two years. The aforementioned makes the regulator's job a bit more difficult, especially if there is a complaint. A similar situation will exist with the report from the certified public accountants (CPAs). Therefore, the biennial report may result in the department and other law enforcement not being able to act in as timely a fashion when there are problems. 3:54:18 PM ROBERT LOESCHER, Vice President, Juneau ANB Camp 2, informed the committee that ANB Camp 2 has charitable gaming permits under which it operates in Juneau. Mr. Loescher related support for HB 477. In regard to biennial reports, he explained that currently during the last week of December the charitable gaming entities have to re-file the entity's permit application and put together the year-end report. For charitable organizations, which consist of volunteers, the aforementioned is a "pressurized time." The department receives all the reports and applications at once, which he indicated places pressure on the department as well. Therefore, biennial report was suggested. He highlighted that the biennial reports don't negate the quarterly reports the department receives from every charitable gaming organization nor does it eliminate the 1 percent fee to the state. In fact, the fees would be paid two years in advance under the current legislation. The impact on the department would also be lessened by staggering the year in which the re- filing would occur for the applicant. In conclusion, Mr. Loescher opined that this legislation would help charitable gaming by keeping the costs down while maintaining the quarterly reporting and the 1 percent annual fee as well as the permit application fee two years in advance. 3:58:00 PM ACTING CHAIR KOTT asked if the quarterly reports are similar to the full reports. MR. LOESCHER explained that the quarterly report includes all the aspects found in an annual summary report. The quarterly report delineates the revenues gained and the activities of the charity during that quarter. The annual report is merely a summary of the four quarter reports. He opined that under the biennial report, the department will have more time to deal with the reporting from the charities than under the current yearly reporting scenario. Mr. Loescher viewed this legislation as a benefit to the state. ACTING CHAIR KOTT surmised then that under HB 477, the charitable gaming entities would submit a two-year report, which would be a compilation of the previous eight quarters. If there was an anomaly in that quarterly report, the department could analyze and review it. MR. LOESCHER confirmed Acting Chair Kott's understanding. REPRESENTATIVE LYNN questioned why the annual report is required if the quarterly reports are the same. MR. LOESCHER explained that the annual report combines the quarterly reports in a summary and is helpful for the department in regard to reporting to the legislature about how much revenue it's making. REPRESENTATIVE LYNN commented that he would like to talk with the administration about these reporting requirements later. 4:01:33 PM MR. LOESCHER noted that he worked with the sponsor's staff and the department in regard to the necessary conforming statutory changes, which are encompassed in Version G. He then went on to relate the difficulty in investigating theft or embezzlement within charitable gaming as well as the difficulty in being able to prosecute the perpetrators and recover losses. Therefore, the law should include provisions that allow charitable gaming officials to go the Department of Public Safety (DPS) and local law enforcement for investigation and prosecution, when appropriate. As a result of the inability to investigate and prosecute cases, fidelity bond coverage is very limited and thus the entity may only recover partially or not at all. Therefore, Mr. Loescher requested that the legislature provide a provision in the bill that would allow DPS and local law enforcement to investigate, and when appropriate, prosecute cases of theft and embezzlement. MR. LOESCHER, in response to Acting Chair Kott, recalled that recently a key employee of ANB who managed the gaming operations embezzled over $50,000. All relevant information was given to local law enforcement, but to date there has been no action from local law enforcement or the state. Moreover, the fidelity bond company has only been willing to offer a small amount against the loss. Mr. Loescher surmised that local law enforcement hasn't taken any action because this type of crime is a "low priority." Furthermore, there is nothing in current statute that provides DPS, the attorney general's office, or district attorney authority to become involved. ACTING CHAIR KOTT asked if this type of crime would fall under the jurisdiction of the state or local authorities. MR. LOESCHER opined that it falls under the jurisdiction of the state because charities are enabled, authorized, and permitted by state statute. ACTING CHAIR KOTT inquired as to how many of these offenses Mr. Loescher is aware. He expressed interest in determining how many cases would be turned over to DPS to investigate in order to determine the amount of time this would require of the departments. This legislation, he highlighted, mandates that DPS investigate these cases and the Department of Law prosecute the offenders. MR. LOESCHER estimated that perhaps there would be two to three such cases in a five- to seven-year period. However, when it happens a lot of money is usually involved. He related his understanding that the charities are willing to gather information for the local police, but these cases don't seem to proceed past the local law enforcement level. Those involved haven't found any way to sue, which is why the state is being requested to assist the charities dealing with theft and embezzlement. 4:11:58 PM MR. LOESCHER reiterated the difficulties with regard to the one- hour break that in charitable gaming include incurring the cost of the facility and the employees during that break. Moreover, it's an inconvenience to the customers. Furthermore, the reason to have this regulation has diminished. Mr. Loescher recalled that the one-hour break was a rule that was the result of a departmental task force several years ago and thus he opined that the department wouldn't be easily convinced to delete this rule. Therefore, the legislature is being asked to do so. 4:17:47 PM STEPHEN BORCHERDING, General Manager, Gold Cache Bingo, Anchorage, Alaska, paraphrased from the following written testimony and verbal additions [original punctuation provided]: I am writing this letter to express my concerns about HB 477 and ask that you reconsider its introduction and/or your support for this bill. I can not foresee any significant benefit to the charities or the regulators of this industry in its three basic sections. My concerns are as follows: Public Safety Requirement The Department of Revenue is already tasked with, and is required to investigate any complaints by the industry or its consumers. HB 477 requires all complaints of theft or embezzlement to be handled by the Department of Public Safety, and would eliminate the investigative powers and duties of the Department of Revenue, specifically the gaming unit, with regard to theft. Theft and embezzlement are already under the jurisdiction of public safety. The department of revenue does not have jurisdiction over these criminal acts, but it does have the ability to investigate the claims, build cases, utilize its judgment and, based on its expertise in this area, present its findings to the proper authorities. Under HB 477 any complaint of theft or embezzlement, whether justified or not, will be immediately turned over to a department that does not have the expertise or the resources to properly investigate these claims. Additionally, section 5 of HB 477 provides for essentially a "blotter report" of ongoing investigations. Since the power of reasonable judgment by the Department of Revenue is removed, any and all complaints, justified or not, about organizations, individuals, or operations will show up on this report. Ongoing operations and individuals may be victimized by erroneous complaints, bad publicity, or unscrupulous competitors. I am a huge proponent of keeping gaming free of corruption, so I believe in keeping the investigative powers in the hands of the experts. Biennial Reporting The industry itself, for the most part, has made it clear that we are not in favor of loosening regulations or restrictions. We have continually shown through our actions that we not only support tighter regulations, we actually help the Department of Revenue draft and implement them. HB 477 not only loosens some restrictions, it may actually promote, or open the door to large scale corruption. Biennial reporting creates holes in the system that may be exploited. According to the Department of Revenue, the majority of issues investigated by the Gaming Unit are as a direct result of current reporting requirements. The Gaming Unit's investigations or audits of reports are the best tool they have for deterring illegal activity. More importantly, according to the Gaming Unit these reports are used quite often to assist permittees with their various gaming activities. The Gaming Unit routinely uses its reports to help educate permittees on the rules and regulations, resulting in a cleaner and more profitable industry. In addition, HB 477 does not make provisions or change other Statutes that may also be affected by biennial reporting: Licensing, operator contracts, odd year applications, reports by self directed or MBP organizations, biennial State gaming reports, as well as the formidable amount of regulations that will have to be re-written. The proponents of this bill have insisted that biennial reporting will relieve the Department of Revenue of some of its burden. The bill, however, only seems to apply to operators. There are only 22 operators in Alaska, and there are 1,200 total permittees. I do not see the significant relief of burden. In fact, this legislation would create more of a burden, according to the Department of Revenue. And one of the things that was brought up on the previous testimony was that quarterly reports are the same as the annual report, that is not completely true. The annual report is an audited report by a CPA, the quarterly reports are not. So, the annual report may show differences that the quarterly reports ... may not show. I do not believe this section will relieve the Department of Revenue of any of its work load and will more than likely create additional work, especially in the area of auditing. It will open up an avenue for large scale corruption, especially in the hands of an unscrupulous operator and it will hinder the department's ability to assist struggling charities. And that's one of the parts of the department that these reports help .... The Department of Revenue has done a wonderful job of helping those charities, through reading their reports, to be able to stay in compliance and become profitable. The other thing I would like to address on that section is that not all charities are required or permits are required to file quarterly reports, as was stated earlier. Only permittees that have hit ... $50,000 a quarter are the only ones that are required by law to turn in a quarterly report. If they don't do $50,000 or if they don't report, now we're talking about two years where a charity would not have to report because they could just simply claim that we weren't doing $50,000 a quarter whether they were or were not. So, a two-year scenario opens up several holes that I'm not very comfortable with being in this industry. One Hour Session Break First of all this is not a statute. It is a regulation. And this particular regulation was introduced and adopted at the request of the industry. (An example of our commitment to self-regulating) This regulation was put in place to prevent the exploitation of the Bingo session payout limitations of $5,000 per session. Bingo halls, in the past would routinely offer $10,000, $15,000, $20,000 or more sessions and claim that they were simply running sessions concurrently. In addition to side stepping the spirit of the law, these concurrent sessions created an auditing nightmare for the non-profits and the State. The competition to offer these large scale sessions and the inevitable price wars that resulted from them, nearly destroyed Bingo operations in Anchorage. It is my understanding that this section of the bill was included under the auspices that remote community Bingo halls suffer because players do not want to wait around for an hour to play again. In the 16 years I have been in this industry and throughout my extensive travels to various villages and remote bingo halls, I have never heard this complaint. If anything, I would feel that the one-hour break between sessions gives you an opportunity to make more money, either through your snack bar sales, vending, pull-tab sales, and so on and so forth. The proponents of HB 477 and specifically section [9] are pushing another agenda that opens the door for an unprecedented expansion of Gaming. If this section passes, it will move us one step closer to the use of Class II electronic bingo machines, (SLOT MACHINES) that could be played under the umbrella of concurrent Bingo sessions, 24 hours a day, 7 days a week. It is my understanding that machines of this nature are already in Alaska, warehoused and ready to go and the Department of Revenue has been continually pressured to approve their use. Section 9 moves these machines a little closer to the warehouse exit door. PLEASE DO NOT BE FOOLED BY THE RHETORIC. My opinions on this bill were formed after numerous conversations with my peers and others in the industry and as a result of my extensive experience in Alaska's Charitable Gaming Industry. Although I do not represent all of the organizations. I do, however, represent and speak on behalf of the several native non-profit organizations that I am tasked with managing. Please help stop HB 477. I thank you for your consideration. 4:26:42 PM JACK POWERS paraphrased from the following written testimony: I want to start by saying that I support Steve Borcherding's testimony 100%. Between his organization and mine we probably represent the largest MBP and operator in Alaska. On that subject, I would be interested to find out from the Department of Revenue exactly out of the 22 operators--how many large operators exist in the state? By large I mean operators that are fully bonded and have contracts with over four permittees. I would venture to guess that there are very few. But back to HB 477; as far as involving the State Troopers at the front end of gaming investigations. This bill, in essence, would make it possible for anyone to claim anything and the troopers would have to investigate. They would have no choice. A simple phone call from an "anonymous" caller would require an investigation if this passes, regardless of whether the claim seems credible or not. Not to mention that the key regulator involved in gaming, the Department of Revenue, may not even be in the loop before an investigation is initiated by a secret call or email to troopers. The Department of Revenue are the experts in gaming. On the other hand the State Troopers are not as informed about gaming laws and individuals in the gaming industry as the department--so it seems that this bill puts the cart before the horse. Moreover, the bill supposedly intends to 'clean up gaming' with these provisions, but then at the same time loosens all the reporting requirements upon which prosecution would depend. There is nothing to stop an unscrupulous individual from intentionally not reporting via quarterly reports and then have two years before the department could catch any mistakes. Some are saying that the annual audits are just too time consuming and expensive for most charities. Well, they would be just as expensive if done "biannually" rather than annually. The auditor would charge by the amount of work, so two years worth of audits would cost twice as much. Also, I see removing the hour break in between bingo sessions as a mistake in many ways. Bingo players use that hour in various ways--they grab a bite to eat, play pull-tabs or socialize with friends. Without the hour break I can see business running bingo non-stop, 24 hours a day. It opens the door to setting up bingo machines which could be set up anywhere. I can see bingo machines set up next to pull-tab kiosks in the middle of the mall. While I appreciate the intent of HB 477, because of the manner in which it is written, it will create more issues that it will solve. MR. POWERS then turned to Mr. Loescher's testimony and said that he doesn't know of any operator who hasn't received the permit, even a temporary one, to operate. With regard to the annual report, Mr. Powers characterized it as easy since it's merely a compilation of the quarterly reports. Moreover, the annual report isn't due until March, which provides plenty of time for CPA review. He mentioned that the annual report, unlike the quarterly report, must be accompanied by an independent CPA review. In conclusion, Mr. Powers opined that running a full- scale operation such as bingo hall necessitates having independent operators, comptrollers, and cameras in the ceiling as it's a fairly large business. 4:34:00 PM ACTING CHAIR KOTT inquired as to how one could have bingo games 24 hours a day 7 days a week under HB 477 when there will continue to exist restrictions with regard to the number of sessions, prizes, and games that can be played. MR. POWERS replied that up to 35 bingo games per session and four sessions a day are allowed. Therefore, if one offered 35 blackouts/cover alls, which can last up to an hour, could result in play for 35 hours. In response to comments regarding the age of the clientele at bingo halls, Mr. Powers related that a younger crowd is coming on Friday and Saturday nights. He asked, "Wouldn't you rather have young people sitting in a nice clean, drug-free bingo hall with no alcohol than being up around the corner at a bar?" 4:37:17 PM GREGORY PETERSON, General Manager, Alaska Indoor Sports Distributing, related his belief that the Gaming Unit does a great job enforcing the rules and regulations of the gaming industry, and therefore no change is necessary. Therefore, any mandate to review or investigate should remain within the Gaming Unit. Furthermore, the Department of Revenue should review licenses and permittees on an annual basis because this is one of the few cases in which the Gaming Unit can review for compliance. He characterized it as a "good solid process" that shouldn't change. Mr. Peterson highlighted that this legislation only covers operators, of which there are only 22 while there are 1,200 permittees. With regard to the reporting, he opined that the quarterly reports are very general for which there is no reconciliation process or bank statements provided whereas annual reports require a more rigorous process that is more than a compilation of quarterly reports. Mr. Peterson opined that he doesn't want to "go backwards." He stated that the gaming industry has always been in favor of tighter regulations, while this legislation loosens existing regulations from which the gaming industry wouldn't benefit. He then turned to the proposal to remove the one-hour break between sessions and characterized it as creating a "loophole" to expand gaming in the state. Furthermore, in the 10 years he has worked with the permittees across the state he said that he has never heard any complaints about the one-hour break. In conclusion, Mr. Peterson urged the committee not to pass HB 477 from committee. 4:41:24 PM LIEUTENANT JAMES HELGOE, Division of Alaska State Troopers, Department of Public Safety, directed the committee's attention to the new language in Section 1 of HB 477, which is of concern. As written, it would make the Division of Alaska State Troopers the investigating agency for all thefts and embezzlement by a permittee, operator, employee, or consumer regardless of local police jurisdiction or the credibility of the complaint. Therefore, DPS, he related, believes it would be better to have existing local law enforcement agencies along with Department of Revenue task force to investigate such alleged criminal misconduct. The Department of Public Safety would investigate when asked and when there is no local law enforcement agency. 4:43:07 PM REPRESENTATIVE ROKEBERG inquired as to whether a local jurisdiction can enforce state law. LIEUTENANT HELGOE replied that local law enforcement agencies enforce state statute on a regular basis. 4:43:46 PM ACTING CHAIR KOTT noted that there was no quorum to take action on the legislation. He then closed public testimony and announced that HB 477 would be held over. 4:45:22 PM
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