Legislature(2003 - 2004)
04/16/2003 07:00 AM House W&M
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
April 16, 2003
7:00 a.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Jim Whitaker, Co-Chair
Representative Cheryll Heinze
Representative Norman Rokeberg
Representative Bruce Weyhrauch
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
Representative Vic Kohring
OTHER LEGISLATORS PRESENT
Representative Ralph Samuels
Representative Harry Crawford
COMMITTEE CALENDAR
HOUSE BILL NO. 236
"An Act imposing a tax on employment; and providing for an
effective date."
- HEARD AND HELD; ASSIGNED TO SUBCOMMITTEE
HOUSE BILL NO. 240
"An Act establishing a state lottery."
- HEARD AND HELD; ASSIGNED TO WORKGROUP
PREVIOUS ACTION
BILL: HB 236
SHORT TITLE:EMPLOYMENT TAX FOR EDUCATION
SPONSOR(S): REPRESENTATIVE(S)WILSON
Jrn-Date Jrn-Page Action
04/02/03 0739 (H) READ THE FIRST TIME -
REFERRALS
04/02/03 0739 (H) W&M, FIN
04/02/03 0739 (H) REFERRED TO WAYS & MEANS
04/10/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/10/03 (H) -- Meeting Canceled --
04/16/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
BILL: HB 240
SHORT TITLE:ESTABLISH STATE LOTTERY
SPONSOR(S): ECON DEV, INT'L. TRADE & TOURISM
Jrn-Date Jrn-Page Action
04/04/03 0769 (H) READ THE FIRST TIME -
REFERRALS
04/04/03 0769 (H) EDT, W&M, FIN
04/07/03 (H) EDT AT 5:00 PM CAPITOL 120
04/07/03 (H) Heard & Held
04/07/03 (H) MINUTE(EDT)
04/09/03 (H) EDT AT 5:00 PM CAPITOL 120
04/09/03 (H) Moved CSHB 240(EDT) Out of
Committee
04/09/03 (H) MINUTE(EDT)
04/11/03 0933 (H) EDT RPT CS(EDT) NT 1NR 3AM
04/11/03 0933 (H) NR: DAHLSTROM; AM: KOTT,
MCGUIRE,
04/11/03 0933 (H) HEINZE
04/11/03 0934 (H) FN1: (REV)
04/11/03 0934 (H) REFERRED TO WAYS & MEANS
04/16/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
WITNESS REGISTER
LARRY PERSILY, Deputy Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Testified on HB 236 and answered questions;
during hearing on HB 240, addressed fiscal note for
CSHB 240(EDT).
REPRESENTATIVE TOM ANDERSON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented gaming portions of CSHB 240(EDT)
and answered questions.
ACTION NARRATIVE
TAPE 03-7, SIDE A
Number 0001
CO-CHAIR JIM WHITAKER called the House Special Committee on Ways
and Means meeting to order at 7:00 a.m. Representatives
Whitaker, Hawker, Heinze, Weyhrauch, Wilson, and Moses were
present at the call to order. Representatives Rokeberg and
Gruenberg arrived as the meeting was in progress. Also present
were Representatives Samuels and Crawford.
[Not on tape, but taken from the committee secretary's log
notes, was that there would be no public testimony on either
bill today.]
HB 236-EMPLOYMENT TAX FOR EDUCATION
[Contains discussion pertaining to SB 137, the companion bill.]
CO-CHAIR WHITAKER announced that the first order of business
would be HOUSE BILL NO. 236, "An Act imposing a tax on
employment; and providing for an effective date."
Number 0120
REPRESENTATIVE WILSON, sponsor of HB 236, told members she'd
brought the bill forward because of the state's current fiscal
situation. There are no stable sources of revenue in the state;
the Constitutional Budget Reserve (CBR) is almost depleted; the
state's fixed expenses such as insurance, fuel costs, Medicare,
Medicaid, and so forth keep increasing; and the population is
growing rapidly. When the economy is down, there is an
increased need for services. She said this leaves two practical
answers: cut more from the budget or find a stable source of
revenue. Thus HB 236 establishes an employment tax for
education; its companion bill in the Senate is SB 137.
REPRESENTATIVE WILSON, calling this a work in progress, noted
that she'd requested a legal opinion from Legislative Legal and
Research Services as to whether the proceeds could be dedicated
based on precedent. She reported that there was a school tax
prior to statehood, but it was repealed in 1980; in 1962 the
proceeds were paid into the general fund. She said Legislative
Legal and Research Services told her that the new school tax
could not go into a dedicated fund, but the legislature could
create a special account within the general fund to receive the
proceeds and would then be able to appropriate the proceeds to
education and better keep track of the amount collected. Noting
that the Department of Revenue had many questions about how the
money would be collected and so forth, she offered to go through
the bill section by section.
Number 0417
CO-CHAIR HAWKER moved to adopt the proposed committee substitute
(CS), Version 23-LS0921\H, Kurtz, 4/14/03, as a work draft.
There being no objection, Version H was before the committee.
Number 0437
REPRESENTATIVE WILSON explained that Section 1 creates a new
chapter in Title 43 that imposes an employment tax of $100 a
year on each individual 19 years or older who receives
compensation of at least $1,000. It requires employers to
withhold the tax from the employee's paycheck; a return must be
filed [by the employer], who sends the money to the Department
of Revenue. A provision deals with whether the amount is
deducted from two or more paychecks, which she said spreads the
impact for low-income people and deals with paychecks that are
less than $50. Section 1 also makes employers liable for the
tax unless there is proof provided by the employer - in the form
of a paycheck stub, for instance - that the tax already has been
withheld. In order to include the self-employed, it requires
individuals who are subject to the tax but haven't had taxes
withheld by an employer to file a return.
REPRESENTATIVE WILSON noted that Section 1 permits employees to
claim a refund from the state if there was an overpayment
because the employee was unable to prove to the employer that
the money was withheld already; she said the department believes
this is the most effective manner to deal with overpayments.
This section also requires the money collected to be deposited
into the general fund (GF) and accounted for separately. It
permits the legislature to appropriate the proceeds for
education, and defines the tax year as July 1 through June 30,
the state's fiscal year.
Number 0704
REPRESENTATIVE WILSON discussed Section 2, the transition
provision. The initial tax is to be remitted and [a return
filed] before the 15th day of the fourth month that the tax is
in effect. This is so employers don't have to file every single
time they [deduct money], she said, thus reducing the filing
frequency for small employers. Furthermore, the timeframe gives
the department and the taxpayers more time to prepare for the
tax, simplifying filing, and improving customer service during
the start-up phase. Section 3 provides for an effective date.
Number 0900
REPRESENTATIVE WEYHRAUCH asked whether this tax would be owed by
an individual who is self-employed, has a business license, has
a simple LLC [limited liability company], has no employees, and
earns a couple of thousand dollars a year.
REPRESENTATIVE WILSON replied yes, under proposed Sec. 43.45.021
[page 2, lines 16-18, subsection (d)].
Number 1008
REPRESENTATIVE WEYHRAUCH asked whether it is a function of
employment or compensation, and then surmised that a person who
receives more than $1,000 and is over the age of 19 would pay.
REPRESENTATIVE WILSON affirmed that.
REPRESENTATIVE WEYHRAUCH asked whether the education tax is the
way it was in the old statute, repealed in approximately 1981.
REPRESENTATIVE WILSON said yes.
REPRESENTATIVE WEYHRAUCH asked why, if the intent is to use the
funds for education, the [bill's] title doesn't say so. He
surmised that it is a "legislative sentiment."
REPRESENTATIVE WILSON said she didn't know whether it should be
in the title.
Number 1145
CO-CHAIR HAWKER offered his experience that most payroll systems
are designed on a calendar-year basis consistent with income tax
reporting requirements of the Internal Revenue Service (IRS),
whereas this bill uses [the state's] fiscal year. He asked
whether Representative Wilson is comfortable that business,
computer, accounting, and reporting systems can accommodate
multiple tax years. He also asked whether the mechanism for
refunds is consistent with the current mechanism for refunds of
overpayments of ESC [Employment Security Contribution] taxes.
REPRESENTATIVE WILSON said [the mechanism in the bill] was
recommended by the Department of Revenue. She deferred to Mr.
Persily for further response.
Number 1348
LARRY PERSILY, Deputy Commissioner, Department of Revenue,
indicated he would present his testimony first. Noting that the
original bill version used the calendar year of January 1
through December 31, he pointed out that Version H is similar to
the committee substitute for SB 137 in [the Senate], which uses
July 1 [as the beginning of the year] and has an effective date
of July 1, 2003. Mr. Persily told members that although this
starting date doesn't give the department much time, the
department believes this date can be met.
MR. PERSILY offered to prepare a fiscal note [for Version H]
either when the bill moves out of committee or while it is under
consideration, and said the department would have to spend "a
fair amount of money fairly quickly," depending on when this
bill passes this session. He estimated a need for about
$900,000 as a "supplemental" for fiscal year 2003 (FY 03), with
a lapse date to carry into FY 04, and offered the expectation
that a lot of the work would be contracted out to set up the
program, a web site, interaction with employers, and outreach.
He said employers will need withholding information by June in
order to set this up for their first payroll in July. Other
than that, the fiscal note would be fairly similar to the one
for the original HB 236. He emphasized that with Version H,
funds would be needed this year to get started so that the
program runs well in FY 04 and there is a full realization of
the estimated $39 million a year in revenue.
Number 1623
CO-CHAIR HAWKER asked about the ability to accommodate multiple
tax years and whether there has been any communication or
concurrence with industry, employers, or vendors of accounting
and payroll software in this regard.
MR. PERSILY acknowledged that this is a little unusual, but
offered his belief that it wouldn't be a problem to change the
software settings to recognize July 1 as the [beginning of the]
fiscal year, just as the state does. He suggested a bigger
problem for employers might be getting into the habit of closing
out the fiscal year for their employees on June 30; this might
take a couple of years to get used to.
CO-CHAIR HAWKER inquired about communications with vendors or
people who write their own payroll packages or market them
commercially.
MR. PERSILY, in response to this and further questions, said
there have been conversations with "a couple," and the first
reaction was that July 1 was unusual, but could be accommodated.
Existing systems can handle it, but a change would be necessary
because most have January 1 as a default. "But the ones we have
talked to didn't believe it would be an insurmountable problem
to change that date," he added. "They would just like as much
notice as possible."
Number 1821
REPRESENTATIVE WILSON explained that many e-mails were received
from people who didn't want the money taken out of their first
two paychecks of the year, right after they'd spent all their
money on Christmas. She said, however, that she was open to
putting it back to January 1.
Number 1943
REPRESENTATIVE SAMUELS asked whether someone who has two
different seasonal jobs would have to go through the refund
process [if too much money had been withheld] or could he/she
stop the tax from being taken out [by the second employer].
MR. PERSILY highlighted the provision for showing the second
employer that the tax has been paid, by showing a pay stub, for
example. If it were taken out twice, the process would be
similar to the way unemployment taxes are refunded; for those, a
person fills out a form and sends it in to request a refund. If
an employer or employee made a mistake and there was an
overpayment, forms would be available [at the department's web
site] and the person could file for and receive a timely refund.
Number 2014
REPRESENTATIVE GRUENBERG asked about people who have substantial
income from investments.
REPRESENTATIVE WILSON answered that this is [a tax] on people
who work, not on money earned from a portfolio. She suggested
that people [with investment income] may be retired, for
example.
REPRESENTATIVE GRUENBERG asked whether it was Representative
Wilson's specific intent not to include those people [with
investment income], no matter how much money they make. [There
was no audible response.]
Number 2102
REPRESENTATIVE WEYHRAUCH asked whether there had been any
brainstorming about whether the tax could be deducted from a
permanent fund dividend (PFD) check.
REPRESENTATIVE WILSON said it had come up. Reiterating that
this is a work in progress, she said she is open to suggestions.
Number 2139
REPRESENTATIVE GRUENBERG surmised that this would "catch" some
people who earn money in the state but aren't eligible for the
PFD. He asked whether that was the intent as well.
REPRESENTATIVE WILSON answered in the affirmative. She said she
wanted to be able to collect from people who come to Alaska to
work and make a good income, perhaps during summer or on the
North Slope, and then leave; these people wouldn't be included
if this were just connected to PFD checks. She said 25 percent
of the people who work in Alaska aren't residents.
Number 2231
MR. PERSILY brought attention to a problem with withholding $100
from the PFD. If it is assumed that someone will receive a PFD
and there is no withholding of wages, the person may later be
deemed ineligible for a PDF because of residency, child support
[owed], or prison time. Meanwhile, the opportunity may have
been lost to withhold wages during the summer, for example, when
people often are able to find jobs. Mr. Persily told members
that the department has tried to keep the fiscal note for
operations as small as possible. He suggested it makes sense to
use payroll withholding as a mechanism or, for people who
receive compensation but not wages, to have them "self-report
and self-pay."
Number 2341
CO-CHAIR WHITAKER assigned a subcommittee to meet and report
back the next week with a proposed CS. He named Representatives
Weyhrauch, Gruenberg, and Hawker as members, with Representative
Hawker chairing; he asked that Representative Wilson
participate.
[HB 236 was held over.]
HB 240-ESTABLISH STATE LOTTERY
Number 2423
CO-CHAIR WHITAKER announced that the final order of business
would be HOUSE BILL NO. 240, "An Act establishing a state
lottery."
[The bill was sponsored by the House Special Committee on
Economic Development, International Trade and Tourism, which
Representative Heinze chairs. During the 4/9/03 hearing in that
committee, Representative Anderson had presented the gaming
portions of what became CSHB 240(EDT). In packets were the
original bill, which pertained only to a state lottery, and
CSHB 240(EDT), which added charitable gaming and was officially
before the committee.]
CO-CHAIR WHITAKER announced that this would be a discussion
among committee members, that staff may not be recognized, and
that [unspecified] committee substitutes that were available
would not be brought before the committee. He asked
Representative Anderson to address fiscal issues pertaining to
electronic gaming machines (EGMs), including the fiscal notes.
Number 2706
REPRESENTATIVE TOM ANDERSON, Alaska State Legislature, pointed
out that Mr. Persily [one of the preparers of the Department of
Revenue's fiscal note dated 4/15/03] was present and could
answer technical questions. Representative Anderson told
members it appears the "EGM amendment" [CSHB 240(EDT)] brings
the fiscal note to $50 million. There is a start-up cost, as
well as factors relating to accounting and services rendered by
the division that will oversee electronic gaming. He offered
his understanding that the Department of Revenue had attempted
to compare revenue from other states such as South Dakota, and
that Mr. Luckhaupt, the legislative drafter, had expertise in
gaming law.
REPRESENTATIVE ANDERSON indicated this bill mirrors [much of]
South Dakota's legislation. Calling himself one of the authors
in terms of looking at electronic gaming, Representative
Anderson alluded to CSHB 240(EDT) and said Oregon and Rhode
Island were also reviewed. He suggested it was difficult for
the Department of Revenue to find a mirror image [when preparing
the fiscal note], since aspects of CSHB 240(EDT) deviate from
South Dakota's and Montana's formats.
REPRESENTATIVE ANDERSON pointed out that CSHB 240(EDT) has a
payout of 30 percent to the state; 30 percent to the vendor,
which would be a club licensee or a full liquor-licensed
dispensary - a bar that serves people over the age of 21; and
10 percent to the government of the locale where the EGM is
played. He suggested this is a unique and salient aspect of the
new bill version.
REPRESENTATIVE ANDERSON referred to the analysis attached to the
department's fiscal note, emphasizing that some things can't be
measured yet, including the first year's play, who will play,
the level of tourism, the level of migrant workers from out of
state, and so forth. He offered his belief that the Department
of Revenue can testify that this should bring in a high amount
of income.
Number 3034
LARRY PERSILY, Deputy Commissioner, Department of Revenue,
discussed the fiscal note. He first addressed the $52-million
estimate for fiscal year 2009 (FY 09), indicating that by then,
it is believed activity will have ramped up after several years
of people getting used to this and playing the game. He said
the $52 million breaks down into three components, approximately
as follows: $50 million for the state's share from EGMs, which
is the video terminals in bars and private clubs; $1.5 million
in revenue to the state from [provisions included in] the
original HB 240, which provides for a twice-a-year lottery with
a "50-50" prize drawing; and $0.5 million in fees collected from
licensing operations of EGMs. The largest chunk would be the
state's share from [EGMs].
MR. PERSILY explained that in comparing this with other states,
using South Dakota as a reference, adjustments were made for
population differences, including the number of people over the
age of 21 - the only ones who may play. This legislation has a
municipal opt-out provision similar to those for alcohol; thus a
municipality may vote to exclude video terminals from the
community. However, [the fiscal note] assumes no municipalities
opt out. If any do, it will reduce the $50-million total. He
added that there are "prior to" expenses for the program. He
opined that if anything, the amount might be lower, and that he
didn't believe it would be higher.
Number 3252
CO-CHAIR WHITAKER inquired about the projected revenue from a
lottery and EGMs and the expected loss of pull-tab revenue.
MR. PERSILY answered that from the twice-a-year raffle, the
estimate is about $1.5 million; about $50 million a year is
expected from EGMs. Noting that the department hadn't come up
with a specific number, he added that from looking at other
locations, the department believes it would significantly cut
into pull-tab [revenue]. Referring to page 3 of the fiscal note
analysis, he pointed out that the department had looked at
Saskatchewan, where pull-tab gaming declined 63 percent after
electronic gaming was introduced. Mr. Persily offered the
expectation that even if pull-tab revenue dropped by half,
charities would lose $10 million to $12 million, and the state,
under the current tax regime, would lose about $1 million.
Number 3351
REPRESENTATIVE ROKEBERG asked how much the charities would
receive under the EGM scenario.
MR. PERSILY answered that the charities would receive the same
percentage as the state - 30 percent - but that is before
expenses; there would be some sizable expense in owning those
machines. He opined that the charities would still come out
ahead if the estimates are correct, however, and would make
more, even after expenses, than they do now with pull-tabs. He
added, "As we pointed out, it'd be nice to see in the
legislation some limitation on expenses so that charities did
see a net gain."
Number 3508
MR. PERSILY, in response to a question from Representative
Weyhrauch, related the belief that if EGMs are put in, people
will spend a lot less money on pull-tabs and spend more on
[EGMs]; how much that would affect pull-tabs is just an
estimate. However, if a charity was able to obtain a location
to operate electronic gaming, it probably would make more money
than through pull-tabs. There could be a loss for specific
charities that couldn't find a bar to operate in, since there
would be more charities with permits that wanted their games
played than there would be locations to do so. But charities in
total probably would receive more money from electronic gaming,
as the state would.
MR. PERSILY clarified that the bill doesn't end pull-tabs,
bingo, or raffles. Those would remain in statute, and charities
could still run them. In response to Representative Wilson, he
explained that FY 09 is when the height of revenue is expected -
about $50 million, before expenses, to the state from EGMs;
about $1.5 million from the twice-a-year lottery, which is
probably a high estimate; and about $0.5 million from fees
collected from vendors. That is why there is a total of $52
million.
Number 3744
REPRESENTATIVE WILSON asked how much would be the total net gain
from the EGMs for the state.
MR. PERSILY responded that the state would get about $50 million
in income before expenses and the expenses would be
approximately $2.5 million. He added that there could be some
additional expense for advertising.
REPRESENTATIVE WILSON commented that it has been statistically
proven that once gaming, EMGs, and lotteries are in place a
significant expense is incurred in advertising to keep these
programs going. She pointed out that other states have spent a
lot of money on advertising on TV, and billboards, for example.
Number 3849
MR. PERSILY clarified that the figure he mentioned with respect
to expenses does not include any funding for advertising. He
stated that whatever advertising that would be necessary to
promote the game would be in the state's best interest to
increase or maintain the revenue. There would need to be an
advertising component added to the fiscal note, he commented.
CO-CHAIR WHITAKER stated for the record that Representative
Joule had joined the meeting.
Number 3913
REPRESENTATIVE JOULE asked how communities would decide if they
wanted to offer gaming.
MR. PERSILY responded that in Section 21 there is a provision
that allows for a community to vote as to whether they want
electronic gaming machines within their boundaries.
Number 3938
REPRESENTATIVE JOULE asked if there was ever any consideration
given to reversing the process. In other words, a community
would have to vote to allow EGMs in their communities.
Number 4011
REPRESENTATIVE HEINZE said that Dennis Jackson, former director
of the Idaho state lottery and currently the chairman of the
National [North American] Association of State and Provincial
Lotteries is on line. She noted that he worked with Mr. Persily
while he was here last week, and could be a great source of
information.
CO-CHAIR WHITTAKER explained that Mr. Jackson was on line
earlier, but is not at this time.
Number 4053
REPRESENTATIVE WEYHRAUCH asked Mr. Persily what other revenue
sources the state has that generates approximately $50 million
per year other than oil.
MR. PERSILY replied that if there is an advertising component
added to the fiscal note the amount received would be comparable
to HB 236, the employment tax bill, which would produce
approximately $39 million. In further response to
Representative Weyhrauch, Mr. Persily related that all the fees,
taxes, and assessments paid by the commercial fishing industry,
in a good year, would total gross receipts of approximately $50
million before refunds to communities.
CO-CHAIR HAWKER related his understanding that the state would
receive an amount theoretically equivalent to what the charities
receive before operating costs [are deducted]. He inquired as
to the prize payout factor that was used in the fiscal note
calculations.
MR. PERSILY answered, "Eighty-five percent." In further
response to Co-Chair Hawker, Mr. Persily informed the committee
that pull-tabs in Alaska average a 78 percent payout and thus
this proposal would payout a better percentage than pull-tabs.
He noted that 85 percent would be a bit less than Montana,
Oregon, and South Dakota. He mentioned that [the 85 percent
payout] is in between other states' payout for video gaming, but
a little higher than the existing payout for pull-tabs in
Alaska.
Number 4319
REPRESENTATIVE ROKEBERG pointed out that the legislation
provides for 10 percent revenue sharing with municipal
governments on the EGM portion. He inquired as to why that
percentage was chosen and why municipalities should participate.
REPRESENTATIVE ANDERSON informed the committee that he had been
the head of the Anchorage Cabaret Hotel Restaurant & Retailers
Association (CHARR), and one aspect of CHARR's mission was to
generate sources of revenue for charities with whom they work.
The CHARR reviewed the option of EGMs and several legislators
contacted CHARR suggesting the review of alternative revenue
sources, such as EGMs. As CHARR reviewed alternative revenue
sources, a task force comprised of various folks from the
community was formed. Although CHARR's task force report didn't
endorse EGMs, it analyzed EGMs in other states and suggested
that a municipal distribution would be beneficial. He explained
that sharing income [derived from EGMs] was the intent.
REPRESENTATIVE ANDERSON, in further response to Representative
Rokeberg, related that he believes the intent of the amended
legislation is that if an EGM is played, there would be a
determination regarding where the EGM was played. If the EGM
was played in an organized borough or first class city, the 10
percent would go to that organized borough or first class city
while the 10 percent derived from EGMs in an unorganized borough
would go to state.
REPRESENTATIVE ROKEBERG inquired as to how this proposal would
compare with other states that adopted the EGM play. He
surmised that there is a relationship between the state
distribution/income vis-a-vis the local share.
REPRESENTATIVE ANDERSON directed attention to page 5 of the
fiscal note where the explanation delineates the differences
between Montana, Oregon, South Dakota and the [proposal embodied
in HB 240].
TAPE 03-7, SIDE B
REPRESENTATIVE ANDERSON continued by noting that he hasn't
investigated the levels going to local communities. However, he
related his belief that this legislation is unique compared to
other states because of the extra distribution. He reiterated
that [this legislation] proposes a unique 4-way split.
REPRESENTATIVE HEINZE informed the committee that Mr. Jackson is
now back on-line.
CO-CHAIR WHITAKER informed Mr. Jackson that the committee is
discussing the fiscal implications of EGMs as well as a state
lottery for Alaska.
Number 4521
DENNIS JACKSON, GTECH Corporation, informed the committee that
he is the former lottery director for the State of Idaho. He
explained that GTECH is the world's largest manufacturer of EGMs
and supplier of computerized systems that control lotteries and
video lottery machines. Mr. Jackson said that he would be happy
to act as a resource, although he didn't believe it wouldn't be
appropriate to advocate any solutions for Alaska.
REPRESENTATIVE HEINZE inquired as to the experience Mr. Jackson
has had in other states with lotteries versus EGMs regarding
what each brought to the charities and the general fund.
MR. JACKSON informed the committee that currently there are 39
states with some type of lottery. Only two states, Hawaii and
Utah, have no gambling at all. In terms of revenue to the
state, he estimated that around 18-20 percent of every $1
wagered on the lottery goes to the state. For instance, the
Idaho state lottery returns about $20 million to the state
government and those funds are used for education. The video
lottery produces significantly higher [returns]. He estimated
that electronic gaming in Alaska would probably result in
returns in the of amount $60 million year.
Number 4220
REPRESENTATIVE HEINZE recalled that Mr. Jackson viewed
Commissioner Persily's quotes as low. She asked if Mr. Jackson
still believes that to be the case.
MR. JACKSON confirmed that he believes Commissioner Persily's
estimates to be a bit conservative, based on his experience in
other states. However, he highlighted that states' returns
range from conservative to highly optimistic, which he
attributed to the type of legislation passed and how restrictive
it is. He reiterated that he believes Commissioner Persily's
estimates are conservative, although they aren't wrong.
COMMISSIONER PERSILY said that the fiscal note may be
conservative and the department would rather err on the
conservative side.
Number 4033
REPRESENTATIVE ANDERSON recalled Representative Rokeberg's
earlier question regarding the two states that have local
distributions.
COMMISSIONER PERSILY, in response to the question regarding
whether other states share any revenue from EGMs with
municipalities directly, said he didn't know and deferred to Mr.
Jackson.
MR. JACKSON confirmed that there are states in which the
proceeds from [EGMs] are shared with municipalities, although it
isn't standard as a general rule. Generally, if there is an
entity other than the state government that shares in the
proceeds, it is a municipality or some gambling prevention fund.
Number 3838
MR. JACKSON, in response to Representative Heinze, clarified
that he believes if a lottery is to be a success, that is to
produce the maximum revenue for good causes as intended, then
the legislation should allow [the lottery] to operate as a
business. This is a unique enterprise for state government.
Generally, the only places in state government that have a
profit motive are gambling or liquor sales. Those lotteries
that are successful, that is those that generate the maximum
return for good causes, have "good" legislation that allows the
lottery oversight entity to make good business-like decisions.
REPRESENTATIVE HEINZE informed the committee that Mr. Jackson
had worked with her to develop the two CS's he thought would be
good legislation for EGMs and lotteries.
Number 3702
REPRESENTATIVE WILSON inquired as to how much money some states
have set aside for problems associated with gambling.
MR. JACKSON answered that the amount of money set aside for
problems associated with gambling varies. For example, Nebraska
[puts aside] the first $500,000 and then 1 percent of sales.
Generally, [the funds set aside for these purposes] is up to 1
percent of the revenue [generated by the] gambling.
REPRESENTATIVE HEINZE asked if Mr. Jackson had any idea how much
a lottery would impact pull-tab sales.
MR. JACKSON said he was sure there would be some
"cannibalization" of pull-tab sales. However, he couldn't
provide any estimates because it would depend upon whether
lottery products would be offered in the same venue as pull-tab
sales. Typically, lottery products are sold in convenience
stores and small grocery stores versus the adult settings of
bars and taverns where pull-tabs are generally sold. Therefore,
there wouldn't be a tremendous loss of sales because pull-tabs
and lottery products aren't offered in the same venue.
Number 3438
COMMISSIONER PERSILY, in response to Co-Chair Hawker, related
his understanding that Co-Chair Hawker is interested in how much
more [revenue] would be available for distribution to the state,
municipalities, and vendors as the payout percentage drops [or
changes]. If the payout factor changes from 85 percent to 75
percent, he guessed it would be substantial.
CO-CHAIR HAWKER turned to the three benchmark cases provided on
page 5 of the fiscal note and pointed out that the prize payout
rate is in excess of 90 percent. He requested a sensitivity
scale report for evaluation. He inquired as to the basis for
the conclusion that every Alaskan over 21 years of age will on
average invest $403.
COMMISSIONER PERSILY answered that South Dakota was used as a
reference case. "Slightly less than Montana, much higher than
Oregon," he related. There is no scientific evidence that
specifies how much an Alaskan will invest in electronic gaming,
and therefore the department reviewed other states. In further
response to Co-Chair Hawker, Commissioner Persily explained that
South Dakota was chosen as a reference because the games in use
there operate close to what is envisioned in this legislation.
Furthermore, South Dakota is a smaller state.
Number 3039
REPRESENTATIVE ROKEBERG inquired as to Mr. Jackson's opinion of
Alaska having a biennial lottery.
MR. JACKSON said that the twice a year legislation isn't what
those in the industry would refer to as a lottery, but rather a
raffle. He opined that such wouldn't be successful in achieving
any dividend return to the state. Mr. Jackson suggested that
Alaska should consider joining a multi-state lottery and those
drawings are generally held twice a week.
REPRESENTATIVE ROKEBERG asked if Alaska could be connected to
these other states through the Internet.
MR. JACKSON replied yes, and noted that Alaska is a bit unique
in that there may be lottery terminals located where there are
no telephone lines. He explained that a lottery system usually
works through a terminal connected by a telephone line connected
to a central computerized system. He suspected that in Alaska
that system would probably have to be wireless. He indicated
that he had thought [an option for Alaska would be] Powerball, a
multi-jurisdictional game, which is currently played in 24
jurisdictions. If Alaska joined, Alaska would be part of a
game played by other jurisdictions and some 70 million people.
In further response to Representative Rokeberg, he confirmed
that there are other small population states that are part of
the Powerball association. He explained that the larger the
Powerball jackpot the more likely people are to play. He
informed the committee that the following states are involved in
Powerball: Oregon, Idaho, Montana, South Dakota, Nebraska, New
Mexico, Arizona, Indiana, West Virginia, and Rhode Island.
Generally, the small population states are involved in
Powerball.
Number 2725
REPRESENTATIVE ROKEBERG asked if the state sells its own prizes
or games at the same terminal as the Powerball, would there be a
third party administrator system that would handle the
administration [of the game] on line.
MR. JACKSON replied yes. He envisioned that if a lottery was in
place in Alaska, the state would seek a competitive bid from
companies that run these computers and have a large library of
games from which the company would recommend specific games to
fit the state's needs or desire.
REPRESENTATIVE ROKEBERG turned to electronic gaming and related
his understanding that legislation is designed such that
individual vendors would purchase or lease machines and there
would be a central computer system. He asked if electronic
gaming machines are available for both purchase and/or lease.
Furthermore, would it be possible for the State of Alaska to
contract with another state to tie into that state's system and
have that state manage the operation.
MR. JACKSON said that as a general rule, states that have video
lottery under state control, of which there are few states, have
machines that are connected to a central computerized system
maintained by a vendor. He said he guessed that it would be
problematic to "piggyback" with another state because typically,
the system is located in a state and that state pays a fee,
which is usually a percent of sales. He commented that he
wasn't sure that it wouldn't be best for a state to have its own
system.
Number 2414
REPRESENTATIVE ROKEBERG requested that Mr. Jackson comment on
the ramp-up time for both the lottery and an EGM system. He
related his assumption that if there was a request for proposals
(RFP) out for a contract administrator a lease purchase would be
less capital intensive, and therefore he asked if those are
available in the industry.
MR. JACKSON replied yes. He predicted that most people who
would compete for this business would suggest that this system
based on participation -- a percentage on sales of the lottery
or the net win on the video lottery. Therefore, the vendor
would be the state's partner and thus the vendor would have an
interest in sales as does the state. Furthermore, [the vendor
would have a vested interest] in providing a good maintenance
program for the machine. With regard to the timing, he
indicated that from the moment of request it would probably be
possible to obtain a computerized system within four to six
months. However, the process from the time Alaska would issue
an RFP [request for proposals], the time for the company to
review it and respond, and the time for a question and answer
period, and evaluation by the state would be around one year.
REPRESENTATIVE ROKEBERG requested that Mr. Jackson review the
pitfalls in drafting legislation, particularly in relation to
the administrative side.
MR. JACKSON commented that he has reviewed Representative
Heinze's legislation, which looks good. He reiterated the need
to operate [a gambling venture] in a business-like fashion.
Sometimes, due to the controversy surrounding this business,
legislation will restrict advertising or attempt to tax lottery
proceeds. The aforementioned legislates the business into a bad
business, and therefore he suggested not going that route. Mr.
Jackson said that the legislation should relate to the lottery
commission and director that this business should be conducted
in a manner that is consistent with the sensibility of the
citizens of the state. Furthermore, the legislation should
include strong language with regard to security. He opined that
there should be a security director employed by the lottery
commission and this security director should perform background
checks on operators, employees, et cetera in order to avoid
people with a dubious past. He indicated that he helped
Representative Heinze with her legislation and it embodies much
of what he believes is the best legislation for Alaska.
REPRESENTATIVE HEINZE noted her appreciation to Mr. Jackson and
Jerry Luckhaupt, Attorney, Legislative Legal Services and
Research, for their work on this legislation.
Number 1856
REPRESENTATIVE ROKEBERG pointed out that the fiscal note
specifies the need for investigators, accountants, and
supervision. Representative Rokeberg said that HB 240 is
somewhat unique because of the use of Title 4, beverage
dispensary licenses as a background or basis. Therefore, he
asked if this legislation would also include restaurant and
eating place licenses. He asked if there are some ways in which
administrative costs for the lottery could be cut by reviewing
the functions of the Alcoholic Beverage Control (ABC) Board in
relation to background checks and the licensure procedures under
Title 4.
COMMISSIONER PERSILY said there could be some savings. However,
he pointed out that the legislation proposed an EGM operation
run within [the Department of Revenue] while there would be a
separate lottery commission to run the twice a year raffle. In
a letter to the co-chair of the House Special Committee on Ways
and Means, the department suggested that it might be appropriate
to combine those into one operation. However, there would be no
savings with regard to investigation staff because no
investigation staff was included for the lottery commission.
For the electronic gaming portion, the department requested five
positions for investigations. For comparison, he informed the
committee that in Montana there are 13 investigators and in
Oregon there are 30-40 investigators. With regard to combining
it with the ABC Board, Commissioner Persily pointed out that it
has four investigators for the entire state and thus are already
stretched thin. Therefore, he didn't believe there would be any
savings realized by combining this with the ABC Board. However,
he recognized that it might make sense to put the lottery and
electronic gaming together under one operation.
REPRESENTATIVE ROKEBERG said that it seems that some of the
activities, such as the background checks, are already being
undertaken by the ABC Board. Therefore, he opined that there is
significant synergy because these machines would be placed in
Title 4 establishments. He requested that Commissioner Persily
comment on the notion of the present staff administering pull-
tab and bingo operations.
COMMISSIONER PERSILY agreed that [the ABC Board] would perform a
background check for a liquor license, and therefore it wouldn't
be necessary to do it twice if the individual is also running an
EGM. In further response to Representative Rokeberg, he
explained that the charitable gaming section within the Tax
Division has eight positions to police and enforce, license, and
audit the returns for raffle, bingo, and pull-tabs. In calendar
year 2001, charitable gaming in Alaska grossed about $350
million.
REPRESENTATIVE HEINZE interjected that the new amendment
[committee substitute] covers the above.
Number 1417
COMMISSIONER PERSILY returned to the question regarding why
South Dakota was chosen as a reference case. He explained that
South Dakota limits [EGMs] to 10 units per establishment and the
machines are only allowed in bars, just as this legislation
proposes. With regard to the potential to make money off
tourists, Alaska isn't unique in having a tourist component. In
fact, Alaska's tourist component is small compared to other
states. For instance, South Dakota has about twice as many
tourists as Alaska. Furthermore, the issue with Alaskan
tourists is that most arrive on cruise ships that have casinos.
Therefore, the fiscal note doesn't factor in a large amount of
money coming from the tourists as compared to other states.
Number 1251
CO-CHAIR WHITAKER remarked that it should be clear to the
committee that there are some challenges with regard to the
fiscal discussion on this issue. Representative Heinze has a
committee substitute and it would behoove the committee to study
it. Co-Chair Whitaker acknowledged that there are people who
are very concerned about gambling and EGMs. He also
acknowledged that from a moral perspective, this is a very
controversial issue. Therefore, he announced that the committee
members have half an hour during which they may discuss the
moral implications and the cost associated with EGMs and/or a
lottery.
REPRESENTATIVE CRAWFORD related his belief that [with this
legislation] "a bad moon is coming over Alaska." He informed
the committee that he grew up in Louisiana where he saw what the
gambling industry did. Therefore, he suggested that before
Alaska enters into this, one should take a long hard look at it
because there have been many implications that haven't been
addressed today. He pointed out that South Carolina has banned
electronic gaming after several years experience with it. South
Carolina at one point had 34,000 EGMs. He noted that one of the
governor's of South Carolina lost his job because he fought
against gambling interests. He recalled that in Louisiana $1 of
every $3 donated to political campaigns comes from gambling
interests. Therefore, he predicted that [the gambling industry]
would be the dominant factor in political campaigns [if gambling
is allowed in Alaska]. Former South Carolina governor David
Beasley said in his state of the state speech that studies show
that every dollar spent on gambling costs another $3 to pay for
its consequences. Furthermore, every dollar placed in a machine
is a dollar less for local businesses, family budgets, food, and
clothes. Representative Crawford noted that the great refrain
is "You can't legislate morality." However, he questioned what
one would call the body of law forbidding drug use,
prostitution, and a variety of human behaviors legislatures have
deemed inappropriate for the state. Routinely [legislators] are
asked to decide between right and wrong, and this is another
case. Representative Crawford requested that [gambling] be
banned once and for all. He related his personal experience
with some of his renters in Louisiana and how gambling consumed
them to the point he had to evict them. This is such an
insidious question being considered in this legislation. He
highlighted some of the ill partners to gambling such as suicide
and prostitution. Representative Crawford said that this is a
moral and an economic issue, and this state can't afford
[electronic gaming] because the [state] would pay out far more
in other costs than the few dollars that [gambling] might bring
in.
Number 0709
MR. JACKSON agreed there is no question that there are people
with compulsive problems related to gambling. How large the
problem is depends upon with whom one talks or the poll
reviewed. As a member of the industry, Mr. Jackson pointed out
that [gambling] is one of the largest growing businesses in the
country. He said this is a decision that Alaskans must make and
he wouldn't attempt to influence the state one way or the other.
Number 0449
REPRESENTATIVE ROKEBERG related that it's clear that Alaska
already has gaming, and therefore the question is whether the
state wants to expand it or maintain the status quo. He
recalled that there have been at least two advisory votes on
which the people of Alaska rejected legalized gambling, the last
being in 1990. However, he recalled that those votes were
considering casino gambling. With passage of the federal Indian
Gaming Act, there has been a revolution in this country with
regard to the pervasiveness of casino gambling throughout
country. Fairly recently, the legislature reviewed the gaming
laws in Alaska in light of the federal act to restrict Alaskan
tribes from entering into gaming as a matter of public policy.
He related his belief that the growth of Indian gaming across
the country has broken down a lot of barriers. For instance,
only two states don't have some form of gaming. This issue
should be reviewed in context of the national policy and what
has happened in other jurisdictions.
TAPE 03-8, SIDE A
Number 0007
REPRESENTATIVE HEINZE said that she has a list of all the
lotteries in North America and wanted to share the following
information. The Arizona lottery provided $355.91 million to
education alone; the California lottery provided $14 billion to
education, the Colorado lottery provided $8.5 million to
education, the Connecticut [lottery] provided $4.8 billion to
the state's general fund, and the Indiana [lottery] provided
$387.5 million for education. She offered to provide this
information to anyone interested.
REPRESENTATIVE WILSON said the legislature needs to be careful
with its approach to this because there is no desire to make
things worse in the state. She said she understood how pointing
to how much [gambling] contributes to education in other states
can look good. However, she expressed the need to review how
much of an increase in education spending occurred in those
states. Alaska is very unique in that it has the highest
suicide rates, alcohol problems, and fetal alcohol syndrome
incidences in the nation. Representative Wilson recalled living
in North Carolina when the neighboring State of Virginia
implemented a lottery. In Virginia, during the first year
everyone played the lottery. However, after the first year
people from high and middle income levels quit playing the
lottery. Overall, lower income people continued to play because
it was the only way they could make it "big." Furthermore,
grocery stores saw a decrease in income, which meant that people
were spending their grocery money [gambling]. The State of
Virginia found that the social problems of the state increased
dramatically. In Canada, a group established the "Responsible
Gambling Council," which is a nonprofit bipartisan organization
to help communities deal with the problems [associated with
gambling]. She related the following quote [from the
aforementioned council]: "The study also revealed that gambling
problems are clearly related to poor health. About one in four
moderate or severe problem gamblers reported being under a
doctor's care for emotional or physical problems due to stress.
And more than one in three reported feeling seriously depressed
at times. About one in fifteen ... severe problem gamblers had
considered suicide." She continued, "The authors also
identified a significant relationship between gambling and
substance abuse. The proportion of Ontario adults who reported
having an alcohol or drug problem increased from 6.1 percent
among nongamblers to 24.2 percent among those with severe
gambling problems." Representative Wilson pointed out that
Alaska is ratcheting down [funding] in prevention areas related
to alcohol centers, although there should be increased [funding]
in these areas due to the problems in the state. However, if
gambling is implemented in this state, [the legislature] should
determine how [funding] could be increased in these areas
because she predicted an increase in the problems associated
with [gambling].
REPRESENTATIVE WEYHRAUCH informed the committee that "National
Indian Gaming Industry" appointed Robert Loescher who is a
valuable local resource.
Number 0755
REPRESENTATIVE CRAWFORD recalled hearing that the revenues the
state receives from video lotteries is a tax on the willing, but
he said it would soon become a tax on the desperate because the
"willing," the upper and middle income people, tend to drop out.
However, lower income people are hurt the worst and hit the
hardest by any gambling scheme. Representative Crawford related
the following statistic about South Carolina. Each year South
Carolina is $424,000 poorer because of machine gambling; that is
the cost to the general populace. The players individually use
a total of $610 million annually. South Carolina dug itself
into a hole and he said he didn't want Alaska to do the same.
He returned to what happened in his home state of Louisiana
which failed to outright ban gambling. However, Louisiana went
to a local option and all but five of sixty-four parishes have
banned video gaming. Representative Crawford opined that [this
legislature] isn't taking the necessary time to consider this.
Number 1012
REPRESENTATIVE HEINZE informed the committee that on the
Internet the National Association of State Lotteries website
contains a wealth of knowledge regarding some of the questions
being discussed today.
REPRESENTATIVE ANDERSON pointed out that in the most current
Newsweek magazine, there is a report that specifies that
approximately $6 billion was spent on Internet gaming in the
U.S. alone. He said he didn't believe Internet gaming generates
any taxes or fees that go to any state. He echoed the earlier
comment that gaming already exists in Alaska.
Number 1214
MR. JACKSON related that whenever "we" do demographic studies of
lottery players across the county, which all states do rather
regularly, in almost every state it is found that the average
lottery player mirrors the average citizen of state in age,
income, and education. In Idaho the average lottery player is
around age 35 with some education past high school and earns
approximately $30,000 a year. Mr. Jackson related that when
[GTECH] studies people across the nation, there are a small
percentage of people who merely want to play and there are small
percentage of people who believe that no amount of money is
worth the evil of gambling. Therefore, most people are in the
middle and wouldn't want to restrict someone else's opportunity
to play. In the last study, 2-3 people polled said that
lotteries are an acceptable way to raise money.
Number 1447
REPRESENTATIVE CRAWFORD clarified that he was referring to
problem gamblers who are in the lower income and thus would be
more impacted. The surveys are of every player, and therefore
the occasional player skews the averages.
CO-CHAIR WHITAKER announced that there would be a working group
on this matter. He appointed Representatives Heinze, Rokeberg,
Whitaker, and Moses to discuss this subject and, if the working
group so desires, bring legislation to the committee for
consideration.
[HB 240 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
8:59 a.m.
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