Legislature(2019 - 2020)GRUENBERG 120
02/25/2020 03:00 PM STATE AFFAIRS
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HB 239-ESTABLISH STATE LOTTERY BOARD/LOTTERIES 3:02:41 PM CO-CHAIR KREISS-TOMKINS announced that the first order of business would be HOUSE BILL NO. 239, "An Act establishing a state lottery; providing for participation in multi-state lotteries; establishing the Alaska State Lottery Board in the Department of Revenue; relating to confidentiality of information regarding lottery winners; requiring background investigations by the Department of Public Safety; and providing for an effective date." 3:03:05 PM REPRESENTATIVE THOMPSON relayed that the lottery that would be established under HB 239 would generate a much-needed source of revenue for the state. He said that he recognizes the concerns about the expansion of gambling and the effects that it would have on the lives of Alaskans. He maintained that he shares the concerns; he has worked hard to craft legislation that considers the factors most closely associated with behavioral addiction; and the proposed legislation would prohibit the type of activity that exploits those factors. He referred to the invited testimony of several experts familiar with the lottery industry and problem gambling issues to address committee members' questions. 3:04:20 PM SETH WHITTEN, Staff, Representative Steve Thompson, Alaska State Legislature, referred to documents in the committee packet: an email dated 2/5/20 listing lottery sales in states with populations similar to Alaska's; and a Gallup, Inc. poll report [7/22/16], entitled "About Half of Americans Play State Lotteries," which offers a demographic breakdown of the buyers of lottery tickets along with information on problem gambling. 3:05:41 PM JONATHAN CLONTZ, Chief Executive Officer (CEO), Wyoming Lottery Corporation, relayed that Wyoming passed a law authorizing a state lottery in 2013; the lottery was launched August 2014. He stated that it was a small lottery due to Wyoming's low population - about 375,000 adult residents. He described Wyoming's lottery: one in-state game - "Cowboy Draw" - which is a cash lottery game; and multi-state games - "Powerball," "Mega Millions," and "Lucky for Life." Wyoming's lottery does not include instant-win games or video lottery terminals; it does not allow the use of debit cards or credit cards for purchases; and there is a limit on the number of tickets which can be bought at one location. As required by statute, the Wyoming Council on Problem Gambling (WCPG) was established in partnership with the Wyoming Department of Health. MR. CLONTZ related that Wyoming borrowed money from a local bank so as not to expend state general fund resources; the loan was paid back several months early, at which time revenue began to come into the state. There is a nine-member board of directors appointed by the governor, and it operates as a quasi- governmental instrument of the state. The state is continuing to make the lottery a well-rounded full portfolio lottery. 3:08:33 PM REPRESENTATIVE SHAW asked what Wyoming's net profit per year was for the past three years from the lottery. MR. CLONTZ responded that last year  over $6 million was transferred to the state; about $4 million was transferred in 2018; and about $2.5 million was transferred in 2017. The total for the three years was about $12.5 million. CO-CHAIR FIELDS asked for data on the distribution of lottery users over economic demographics. He asked, "Are poor people participating at a higher rate than other groups?" MR. CLONTZ answered that the Wyoming Lottery Corporation performs trigger studies on various issues to assess player behavior and impacts on society. He stated that staff look at the demographics of players - age and income; sometimes that information is difficult to get. The results of two trigger studies revealed that the most prominent player category was ages 45-60 and middle-income. CO-CHAIR KREISS-TOMKINS asked for an explanation of "trigger study." MR. CLONTZ explained that a trigger study is an internal study "triggered" by an issue that warrants study, such as researching the interest in a new game or examining problem gambling in a certain community. It is performed in-house or through contract. 3:12:51 PM REPRESENTATIVE HOPKINS asked whether Wyoming participates in multi-state lotteries and how the revenue-sharing is handled. MR. CLONTZ replied that Wyoming's lottery was launched with Powerball and Mega Millions; once it received permission from [the Multi-State Lottery Association (MUSL)] it began to sell Powerball and Mega Millions products. He explained that the member states pay a percentage into the jackpots according to their sales; participating in the multi-state games relieved Wyoming of the pressure of paying out a full jackpot. He relayed that Wyoming could not launch an in-state game until it had a reserve account built up to pay out full jackpots. REPRESENTATIVE HOPKINS asked whether the multi-state lottery tickets bring in as much revenue per ticket as the in-state lottery tickets, considering they are taxed the same. MR. CLONTZ responded that there are set pay-out percentages - about 50 percent for the multi-state games as determined by MUSL; Wyoming makes 21-22 percent from those games. For Wyoming's in-state game, the pay-out percentage is set at 68 percent. The game is "branded" to suit the state; therefore, the state wants people to win that game more; it wants to encourage player loyalty to the brand. Wyoming does not make as much in profit - 13 percent - compared with the multi-state games; however, the volume of play is consistently higher. 3:16:39 PM REPRESENTATIVE HOPKINS asked for the cost of administrative overhead for the state lottery and hired staff. MR. CLONTZ answered that the nine-member board borrowed $3 million for start-up; it hired staff; it contracted for marketing, legal counsel, and information technology (IT); and it paid for background investigations for retailers. He explained that most of the services for the Wyoming lottery had to be outsourced. REPRESENTATIVE THOMPSON asked how long it took to pay back $3 million. MR. CLONTZ said that the board estimated it would take 24 months, but it only took 16 months. The board made the decision to pay off the debt before transferring revenue to the state. 3:20:09 PM CO-CHAIR KREISS-TOMKINS asked what the projections are for net revenue to Wyoming from the lottery, and whether revenue is expected to plateau. MR. CLONTZ answered that Wyoming is already seeing a leveling off. There is always a spike in sales when jackpots are very high; however, since the billion-dollar jackpots [came into being], it takes a much higher jackpot to generate the same level of excitement. He said that when jackpots are low, sales are low; the Wyoming Lottery Corporation utilizes promotions to stimulate sales and interest. He expressed that the lottery needs another game in its portfolio that is a non-jackpot reliant game. He reiterated that instant games are prohibited; and too many draw games "start to cannibalize each other." He maintained that the corporation must strike a careful balance. He estimated that revenue will most likely level off to $4-5 million per year; adding another game may increase the revenue $1.5-3 million. 3:24:02 PM REPRESENTATIVE STORY asked whether scratch games are not allowed because of charitable gaming in Wyoming. MR. CLONTZ answered no, that is not the primary reason. He explained that Wyoming is a conservative state; passing legislation for a lottery was difficult; there were promises made to not allow instant games because of a great concern for problem gambling among residents. He said that he has not seen evidence that the traditional draw games lead to gambling problems; it occurs in connection with video lottery, casino table games, and instant-win games. He offered that it is likely that the prohibition may be removed in the future. REPRESENTATIVE STORY asked about the WCPG and the issues it addresses. MR. CLONTZ reiterated that state statute required the council to be established in partnership with the Department of Health. The council found that Wyoming had many addiction treatment specialists, but none specifically trained in problem gambling. In the statute there is a requirement that up to $200,000 per year be considered by the board of directors to be placed into the problem gambling fund; the funds come from expired unclaimed tickets. Money is set aside every year to be used in association with problem gambling. The Department of Health addiction treatment specialists identified gambling addiction treatment training and sent staff to be trained. The corporation contracted with a research company to study the issue of problem gambling in Wyoming. The findings revealed that it was not a significant issue, and in areas where there were problem gambling issues, they were secondary and tertiary to other addictions. The Wyoming Lottery Corporation established a problem gambling hotline; the hotline received six calls and four were due to the callers not being able to read the print on their tickets. The council meets regularly, conducts governance work, and attends conferences, but generally there is not much for them to do. He stated that the corporation has restricted the number of tickets a person can buy in one transaction to 125, as a deterrent [to excessive gambling]; and it does not allow the use of debit and credit cards. The corporation partnered with the Department of Family Services to integrate with its child support registry so that lottery winners owing back child support could be identified and the money transferred to that agency. 3:30:56 PM REPRESENTATIVE STORY mentioned that she would like to see a copy of any council reports to the Department of Health. MR. CLONTZ agreed to provide them. 3:32:18 PM BISHOP WOOSLEY, President, North American Association of State and Provincial Lotteries (NASPL) and Director, Arkansas Lottery, summarized his experience with the Arkansas Lottery and his position on NASPL. He said that NASPL is an active organization representing 53 lotteries across North America; its function is to disseminate information benefitting the state and provincial lottery organizations through education and communication. When appropriate, NASPL advocates for positions of the association in matters of general policy on lotteries. REPRESENTATIVE THOMPSON asked for a description of the Arkansas Lottery and whether it has draw tickets only or expanded gaming. MR. WOOSLEY answered that the Arkansas Lottery launched in September 2009; it began with instant ticket games - which constitute 80 percent of sales; it then added draw games - 20 percent of sales - which included Powerball, Mega Millions, two daily draw games, the regional game, Lucky for Life, and an in- state lotto game called the "Natural State Jackpot." He clarified for Representative Story that instant tickets constituted 80 percent of sales and draw games 20 percent. REPRESENTATIVE HOPKINS asked whether the other states in the association support their nonprofits through charitable gaming. MR. WOOSLEY answered that it varies from state to state; it depends on the geographic location and the needs of the state. The Arkansas Lottery supports scholarships for higher education; other states support state general revenue, veterans, highways, or a variety of charitable causes. He said that the newer lotteries focus more on education. REPRESENTATIVE HOPKINS stated that in Alaska, scratch tickets are held by a permit holder; the permit holder can give a certain percentage of the revenue from the scratch tickets to the charitable and nonprofit sector. He asked whether Mr. Woosley was familiar with any other states having a similar arrangement for draw tickets. MR. WOOSLEY answered negatively. 3:37:50 PM MR. WHITTEN referred to an article on the Alaska Charitable Gaming Alliance (ACGA) website, not included in the committee packet, entitled "Governor Dunleavy's Senate Bill 188 expands multiple levels of gambling," which read in part: Rep. Steven Thompson, (R-Fairbanks), also has newly proposed gaming legislation in the form House Bill 239, that would establish a lottery under a State Lottery Board. In Thompson's case, there is neither significant and costly new government infrastructure, nor an alarming expansion of gaming. The best part of his effort has been he included the Alaska Charitable Gaming Alliance. Rep. Thompson communicated his interest in meeting with our president, Sandy Powers, to seek counsel on how his proposed legislation would affect charitable gaming. He has been transparent and thoughtful. REPRESENTATIVE STORY asked whether Arkansas has a problem gaming council or similar organization overseeing issues related to lotteries. MR. WOOSLEY answered, not specifically. He maintained that when the Arkansas Lottery was started, it was required to submit $200,000 per year toward problem gambling; after six years, the Arkansas legislature eliminated that requirement. Arkansas now commits to supporting a problem gambling helpline and receives National Council on Problem Gambling (NCPG) certification through NASPL for all games. He added that the legislature has its own separate committee overseeing the Arkansas Lottery. REPRESENTATIVE STORY asked Mr. Woosley to provide any information he has about the [problem gambling] issues and supports in place in Arkansas. CO-CHAIR FIELDS asked for the annual cost of administering charitable gaming in Alaska. 3:41:04 PM DAN STICKEL, Chief Economist, Tax Division, Department of Revenue (DOR), responded that he will provide that information to the committee. MR. WHITTEN stated that in fiscal year 2018 (FY18) the gross sales for charitable gaming were $375 million; of that amount, $35 million went to nonprofit organizations and $55 million to administration. He offered to verify those numbers for the committee. 3:42:53 PM KEITH WHYTE, Executive Director, National Council on Problem Gambling (NCPG), relayed that NCPG was founded in 1972 and is the national advocate for programs and services to assist problem gamblers and their families. He stated that NCPG is neutral on legalized gambling. He mentioned NCPG's membership: gaming corporations and agencies, regulators, tribal governments, healthcare, banks and other financial institutions, and individuals - many of whom are in recovery from gambling problems. MR. WHYTE continued by saying that NCPG provides services to help problem gamblers and their families: a national helpline number; training and education of counselors; and a variety of education, prevention, and treatment programs. He mentioned that NCPG works with the lottery, casino, and charitable industries to develop programs and policies helping them to minimize harm. MR. WHYTE maintained that he has 25 years of experience in the gambling industry, both as executive director of NCPG and the director of research for the American Gaming Association. CO-CHAIR FIELDS asked whether the gaming industry funds NCPG. MR. WHYTE answered, partly. He said that since it is a membership organization, it is funded from dues. He added that half of its revenues come from membership dues - the majority of which are from gambling entities such as state lotteries, casinos, and tribal governments. The other half is from its annual conference, sales of education materials, and a few grants. He maintained that there is no federal funding for problem gambling programs. He reiterated that NCPG is neutral on legalized gambling, does not accept restrictions on funds it receives, and is very open and transparent in working with the industry. Through membership, gambling entities make a just contribution to helping mitigate the social costs that they help generate. REPRESENTATIVE THOMPSON mentioned his understanding that problem gamblers are enticed to gamble more when there are instant winners through scratch-off or video games, compared with once- a-week draw games. He asked if that understanding was correct. MR. WHYTE answered yes. He said that in general, the structural characteristics of each form of gambling has a complex relationship with gambling addiction; frequency is one of those characteristics and is associated with increased development of gambling problems. He offered additional structural characteristics - speed of play and size of jackpot. He stated that the construct is multi-dimensional. REPRESENTATIVE STORY asked for more information on the social costs of gambling. MR. WHYTE replied that it is inevitable that some people who gamble will develop problems. The costs of gambling problems are not just borne by individuals, but by their families, their communities, businesses, and ultimately the taxpayers. Based on national data, it is estimated that the number of people with gambling problems in Alaska is about 12,000. A very conservative social cost estimate would assign $1,700 per severe problem gambler per year for a total of about $20 million in social costs. Social costs are primarily in criminal justice and healthcare: about 70 percent of people with severe gambling problems commit white collar crimes to finance their gambling; people with gambling problems are more likely to visit emergency departments, have poor physical and mental health, and have other consequences of addiction. People who have one addiction are more likely to have another. He stated that most private insurers do not routinely reimburse for a diagnosis of problem gambling; most social costs fall directly to the state. He emphasized that every dollar spent on prevention and treatment saves two or more dollars in social costs. He mentioned that to date, the citizens of Alaska are not funding any problem gambling programs. 3:50:54 PM REPRESENTATIVE STORY asked for examples of NCPG working with the gambling industry to minimize harm. MR. WHYTE answered that staff developed a responsible gambling verification program for the lottery industry, which includes employee training, retailer training, advertising, and funds for problem gambling. He stated that the program consists of policies and procedures that will attempt to minimize the risk of addiction for lottery products that are being sold. He maintained that NCPG can never eliminate gambling addiction but can attempt to mitigate and treat it. He said that both Wyoming and Arkansas faced tremendous challenges, which Alaska would face as well: no funds were spent on problem gambling prior to the onset of a lottery and no problem gambling services were available; this exacerbates social costs. He mentioned written testimony, not included in the committee packet, that outlines the lowest possible standards for Alaska to address the social costs as it establishes its lottery. He stressed that research demonstrates that the expansion of gambling increases both participation and gambling problems. He maintained that putting countermeasures in place - responsible gambling programs - and integrating them into Alaska's behavioral health services is the only ethical and economical way to approach this public health issue. MR. WHITTEN offered that he would submit Mr. Whyte's written testimony to the committee. [HB 239 was held over.]