Legislature(1997 - 1998)
02/02/1998 01:30 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 199 - CHARITABLE GAMING & GAMING ON FERRIES MR. JOE AMBROSE, staff to Senator Taylor came forward to present the sponsor statement for SB 199. He stated the main idea behind the bill was making charitable gaming more accountable. He said the bill would authorize the use of video gaming machines capable of being linked to a central computer system. He said this would greatly increase our ability to account for the millions of dollars spent annually on charitable gaming including pull tabs. He said one of the major concerns expressed over the use of pull tabs is the lack of accountability and susceptibility to theft, fraud and other criminal activity. Many charities appear to be receiving less than their fair share, according to the sponsor. MR. AMBROSE said this bill directs proceeds differently than currently done with pull tabs. It gives 30 percent to the charity permittee; 30 percent to the vendor; 15 percent to the state and 25 percent to the municipality in which the machine is located. If the machine is located in an unorganized borough, that share would go to the state. MR. AMBROSE said the bill contains a provision allowing the Alaska Marine Highway to be licenced for video gaming if they so desire. He concluded that it is the sponsor's conviction that as Alaska's charities become familiar with video gaming and it's accountability, they will phase out pull tabs in favor of this new technology. SENATOR MILLER asked if he believed these games will replace pull tabs. MR. AMBROSE replied that is the goal. The issue was discussed in the last legislature but there was concern expressed by the smaller communities and charities. He thinks even these groups will eventually opt to run the new games due to better accountability and simpler administration. SENATOR ELLIS asked if the bill covered video poker or video slots or both. MR. AMBROSE said strictly video poker, video keno and blackjack, not slot machines. SENATOR ELLIS asked if those games were specifically mentioned in the legislation or if other types of gaming could be done in this format. He said he has heard that casinos are moving toward video gaming for all types of games of chance. MR. AMBROSE said the bill generally referred to keno, blackjack and poker but allows the department to regulate the types of games allowed. MR. STAN FILLER, from Sitka representing the Cabaret, Hotel, Restaurant and Retailers Association (CHARR), supported the bill. He cited charitable gaming as an excellent source of revenue for communities. He quoted $22.4 million as the total proceeds from gaming in 1995 and said this bill will help generate even higher proceeds for charities and nonprofits. He said eventually all groups will benefit from the increased accountability of these games. In view of decreasing funding from the state and federal governments, he sees this as a long term revenue source for communities in the future. He said revenue would be provided to local businesses, local government, and the State of Alaska. He estimated the first year revenue at 107 million dollars with a 20 percent increase the following year. He said this was a conservative estimate and added that every state that has implemented this type of gaming has by far surpassed their original expectations. He restated the point that the state needs new revenue sources due to lower oil prices. He said this would provide that necessary funding without the imposition of a state income or sales tax. He said this bill will also allow the Marine Highway to operate these games and retain 100 percent of the revenue generated. He said the state currently has no direct means of profiting from the visitor industry and this would help capture some of the money he believes is leaving the state via on-line gaming. He said on-line vendors have little or no accountability and there is no guarantee of scrupulous practices. Implementing this bill will ensure a safe gaming environment for Alaskans and substantially benefit Alaskan businesses. He said the design of these games prevents tampering and provides 100 percent accountability for all transactions and revenues. He said these games would be restricted to licenced beverage dispensaries and adults over the age of 21. Rural areas could set up a secure station for these games if there was no licenced location available. He concluded that these conditions would prevent minors from accessing these machines and the overall security and accountability of gaming would be enhanced. Mr. Filler repeated that this bill would provide much needed revenue for all groups concerned and urged the support of the committee. CHAIRMAN TAYLOR responded to SENATOR ELLIS'S earlier question, saying only games authorized by the department could be played. SENATOR PEARCE pointed out that on page 17, section 26, line 17 the bill allows keno, video poker and blackjack. She said it seems these particular games would have to be allowed. CHAIRMAN TAYLOR agreed. CHAIRMAN TAYLOR asked the witness what the proceeds of video gaming are used for in the State of Oregon. MR. FILLER believed it was education. CHAIRMAN TAYLOR inquired about other states but MR. FILLER was unsure. SENATOR PARNELL was curious about one of the goals of the bill. He asked if CHARR had a position on the supplement versus replacement of pull tabs by these new games. MR. FILLER said they had no position but their main concern was improving accountability in regards to all gaming activities within the state. SENATOR ELLIS was astounded by the figures quoted on growth in gaming in Oregon. He asked for information behind this explosion in growth, wondering if it might be attributed to a population increase or maybe a proliferation of these games in liquor establishments. MR. FILLER thought it may be due to an increase in tourism. In his town, more than 30 percent of sales tax is paid by visitors to the community and he imagines this also happens in other states. SENATOR ELLIS asked MR. FILLER if he was familiar with studies suggesting participation in gaming is limited to a small segment of the population. The witness was not familiar with the studies. CHAIRMAN TAYLOR stated pull tabs are just about everywhere. He asked if he was operating a pull tab game and was required by law to keep track of pay outs from a particular jar (as is the case now), when the tickets dwindle and the pay out is not complete, what prevents him from giving this information to a friend? MR. FILLER knew nothing to prevent this. SENATOR PARNELL asked if there was anything in the bill that would stop this from happening. CHAIRMAN TAYLOR said this is a major problem in the accountability and enforceability of the old system. He said this would not be possible in the new system. He added there probably are ways in which the games can be manipulated now that hadn't even been discussed. MR. FILLER agreed that there might be problems but, as it is now, the charity gets their money up front and any money lost will be his. He added that if anything improper occurs with the game he could lose his liquor licence. He repeated his earlier point that it is a good revenue-generating enterprise for many communities. MR. JACK GRIFFIN, from Anchorage and Homer, told the chairman that California gaming proceeds go to education. He believed the increase in gaming in other states is largely due to a decrease in illegal gaming. He said there are 25 - 30 illegal, after-hours gaming parlors in Anchorage alone. He said these places do not generate any money for the state nor the federal government and he believes if this bill passes the increase in gaming, and subsequently revenue, would be immediate and substantial. CHAIRMAN TAYLOR asked if people in Alaska can use a credit card to place bets in other states via the Internet. MR. GRIFFIN said he had read about this in the Anchorage paper but did not know about it firsthand. SENATOR ELLIS asked about the term "video lottery machine," wondering if the machines could play several games and perhaps eventually be linked for the purpose of a statewide lottery. CHAIRMAN TAYLOR replied that he did not know enough about the technology to answer. He said his sole purpose for the bill was to plug the cracks in the system and clean up gaming so the money ends up where it is intended. He said he is firmly opposed to expansion but wants to see the present system cleaned up. MR. JACK GRIFFIN said in California the state lottery has its own state lotto machines. He believes with today's sophisticated technology it might be possible to hook a game like this into a statewide lottery. SENATOR ELLIS clarified that he was not suggesting this should happen, only wondering if it was possible. He asked about MR. GRIFFIN'S comment regarding illegal gambling. He asked if his testimony was that these activities would decrease if this bill passes or if he thought illegal gambling would disappear. MR. GRIFFIN believed the activities would go down, but not go away. Number 380 MS. DEBORAH VOGT, Deputy Commissioner for the Department of Revenue came forward and expressed concern with the administration of this program. She said the additional duties that would be placed on the department would be hard to meet with their current diminished resources. She feared having to decide what types of games would be permitted since she sees high stakes on all sides. She said her division is primarily a tax division now and she does not see it as a policy making division. The fiscal note submitted does not set out different expenses but reflects the increase in personnel she envisions necessary to deal with this, perhaps four people. She feels the Legislature should set the agenda on what types of games should be played and other policy decisions. She does not believe this to be the role of the Department of Revenue. MS. VOGT questioned if this would result in a substantial increase in gambling in the state or just a shift from one method to another. She agreed with CHARR that other states have seen a dramatic increase in revenue and commented that we currently have the highest per capita gaming in the U.S. She thinks this bill would push revenue even higher. She brought up the effect on Indian gaming and believed it was a concern better answered by the Department of Law. She said gaming was limited in the state in order to keep out big casinos. CHAIRMAN TAYLOR said he did that. CHAIRMAN TAYLOR asked how many people are currently employed to take care of pull tabs. MS. VOGT responded four but MR. BOB BARTHOLOMEW, also from the department, interjected it was in fact seven people and MS. VOGT agreed. CHAIRMAN TAYLOR said the projections show a significant increase in gaming revenue and asked if the department believed they were getting an accurate count on all the gaming going on in the state. MS. VOGT replied they have a good handle on charitable gaming but knew about illegal gaming only through rumor and anecdote. She said they would like to do a closer audit on pull tabs and impose tighter controls but granted there is the opportunity for abuses. CHAIRMAN TAYLOR said the original legislation he introduced a few years ago wiped out pull tabs entirely and asked how MS. VOGT would feel about a sunset provision that faded them out over the next few years. MS. VOGT it would be easier to administer and it was a decision for the people on his side of the table. CHAIRMAN TAYLOR asked what other types of clean up she'd like to see within the system and MS. VOGT responded that she would support the efforts of SENATOR SHARP for simplification but would like to see his bill limited to that alone. She reasoned that some of CHAIRMAN TAYLOR'S colleagues would like to see gaming limited, where others would like to see expansion and she is only after simplification. MR. CARROLL RANEY said he thinks of the revenue for municipalities and schools. He sees this as a controlled vehicle to fund charities and municipalities and provide relief for taxpayers. MR. EDWARD JAMES, representing Eddie's Sports Bar, agreed with the previous comments and said it is a bill where everyone is a winner. He said it has worked in Oregon and with declining oil revenues it is something we should look at. SENATOR PARNELL asked how much a game would cost an establishment to install. MR. JAMES estimated perhaps $2,000 - $3,000. SENATOR PARNELL asked if he currently operates pull tabs and MR. JAMES said he does. SENATOR PARNELL then asked if he had a problem replacing them with video machines if that was the choice and MR. JAMES replied they would complement each other but would prefer the machines as they are self-contained. SENATOR PARNELL asked how many bowls of pull tabs he has and MR. JAMES replied one box per bartender. MR. DENNIS POSHARD, representing the Department of Transportation, came forward and CHAIRMAN TAYLOR asked if the Marine Highway had looked at this bill as a means to generate revenue. MR. POSHARD replied that they had and were in the process of researching the estimated profit as well as the costs of buying or leasing the machines. CHAIRMAN TAYLOR suggested it might provide additional revenue. He said cruise ships have them and it is doubtful they are losing money on them. He restated his primary concern to clean up the whole system and said a permittee may contract up to five games, ten machines each with certain limitations. SENATOR PEARCE asked for the Department of Law and MR. VINCE USERA, representing the department came forward to answer her question about Indian gaming. MR. USERA stated that the Indian Gaming Regulatory Act (IGRA) mandated the State must negotiate in good faith to allow recognized Indian tribes on Indian lands to run any game available to other groups in the state. He said it was difficult to be precise and the question was somewhat up in the air due to the Indian Country issue. He said the prior enforcement mechanism for IGRA was federal court but this has been negated by the Supreme Court in the Seminole decision. He said the Department of the Interior is currently promulgating regulations that would allow the Secretary of the Interior to endorse a compact if the state refused to do so. He said this has the potential for forcing the state to negotiate for these games. He said, for the most part, tribes would not have limitations on the number of games, they would also have a better chance for large-scale capitalization and this may result in large casinos being set up. TAPE 98-4 SIDE B Number 001 SENATOR PEARCE clarified that the Secretary of the Interior is in the process of setting up regulations that usurp the state authority to control casino gambling? MR. USERA replied yes, but if certain types of games are not allowed at all they would also be prohibited to the Indian tribes. It is only in the case that a type of game was allowed to another group that the state would have to negotiate in good faith with the Indian tribes. SENATOR PEARCE asked if the fact that the legislation is permissive might allow the Secretary of Interior to say that the legislature has not limited gaming and therefore casinos would be permitted. MR. USERA said that case law supports the proposition that negotiation would only be necessary in games already allowed. SENATOR PEARCE asked if it was all right for the department to do the allowing. MR. USERA said that was not an issue as long as it was allowed. CHAIRMAN TAYLOR explained it as a question of equal protection. MR. Usera agreed, repeating it would not trigger the allowance of any other types of games. CHAIRMAN TAYLOR said he was working under that understanding and did not want to cause any expansion, only to clean up the existing system. MR. USERA said the last time this was brought up the Seminole case had not been decided. Now that the case has been decided, the focus is on the possible actions by the Secretary of the Interior, not the Supreme Court. SENATOR PEARCE asked who would own the machines and if the permittee could simply go out and buy them. She fears some charities may be less than enamored with that idea. CHAIRMAN TAYLOR replied that if you consider the returns, the machines pay for themselves fairly quickly. SENATOR PEARCE noted that the percentage return to the organization is dramatically less than before, 30 percent versus 70 percent. CHAIRMAN TAYLOR said he believes that when the numbers are run they will make more money. He pointed to the lack of accountability within the system now and said we have somewhat of a handle on it only by listening to testimony. He thinks the new system with machines keeping track of all the money will be better and the public will be better off. He said he always considered pull tabs paper slot machines and would like to see them all shut down in favor of this new, simple, technology that won't require five or six more people to administer. CHAIRMAN TAYLOR supported MS. VOGT'S clean up measures and wants to see the fine tuning happen so "everyone gets first count" as one witness said. MR. JOE RILEY, an Anchorage bar owner, recounted how in 1959 it was declared there would be no gambling in Alaska but the next day exceptions were made for the Nenana Ice Classic, and then churches and charitable organizations. He said he doesn't sell pull tabs. He does not like them as they have too many loose ends. He thinks by the time the charity gets the money from the game it has dwindled from the original amount. MR. JACK LEWIS, representing the Anchorage Restaurant and Beverage Association and owner of the Sourdough Mining Company and the Peanut Farm, passed out brochures about the Oregon lottery. He argued that we now has information we did not previously have regarding the track record of this type of gaming. He pointed out that in negotiations with the oil companies, Alaska has a weak position. He believes if we have other sources of revenue we will hold a better bargaining position in negotiations of our natural resources. He concluded that other states have exceeded their projected revenues in every case. SENATOR PEARCE stated she has always supported the use of machines to improve accountability but had never envisioned the charities having to buy them. She made a conceptual amendment to use the video lottery machines to replace pull tabs. CHAIRMAN TAYLOR asked if there were any objections and if SENATOR PEARCE wished to place a time frame on the amendment. SENATOR PEARCE said January 1st, 1999. CHAIRMAN TAYLOR asked if everyone understood the amendment. SENATOR ELLIS said the committee had not heard from a single charitable organization and this amendment might change their position on whether or not they support the bill. He said a large capital investment would be necessary and he would not feel comfortable voting on this amendment until he had heard from them. He pointed out they had already heard from bar owners, the state and other supporters but not from these people who would also be directly affected by the bill. CHAIRMAN TAYLOR agreed it will cause a reduction in opportunity since it requires a person be over 21 and in a licenced establishment. He said theses issues were raised two years ago and it is true that a shrinkage of opportunity may occur. He also agreed the cost will increase up front but he thinks this can be resolved between the permittee and the licenced establishments to the satisfaction of both parties. SENATOR ELLIS said he believed CHAIRMAN TAYLOR to be familiar enough with the amendment to know that this will eliminate pull tabs in certain places. He added that even so the revenue, as well as the potential for growth, will be much greater from these video machines. He thinks the state will see a net increase in the gaming dollars. CHAIRMAN TAYLOR said there is no way to gauge that as no other state has eliminated pull tabs and replaced them with machines. He believes that the current system is fairly sloppy and the charities, municipalities and the state will see a greater benefit from the new system. He does not know if this will be due to an exchange of dollars from one mode of gaming to another or an increase in gaming overall. CHAIRMAN TAYLOR asked if there was sustained objection to the conceptual amendment. SENATOR ELLIS maintained his objection, saying it would be an undue burden on the charities to switch from pull tabs to machines that may cost $2,000 - $3,000. He said he would withdraw his objection if they heard from the charitable community that they would be amenable to this change. SENATOR PEARCE said, all things considered, the cost of the machines would be covered for active charities. CHAIRMAN TAYLOR called for the roll and the amendment passed four to one. CHAIRMAN TAYLOR said this legislation would next move to Finance. SENATOR MILLER made a motion to move SB 199 as amended out of committee with individual recommendations. Without objection, the bill passed from committee.