ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
April 26, 2005
1:22 p.m.
MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative Tom Anderson
Representative John Coghill
Representative Nancy Dahlstrom
Representative Pete Kott
Representative Les Gara
Representative Max Gruenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 3
Proposing amendments to the Constitution of the State of Alaska
relating to appropriations from the budget reserve fund.
- MOVED HJR 3 OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 19
Proposing amendments to the Constitution of the State of Alaska
relating to and limiting appropriations from the Alaska
permanent fund based on an averaged percent of the fund market
value.
- MOVED HJR 19 OUT OF COMMITTEE
HOUSE BILL NO. 272
"An Act relating to card rooms and card operations."
- MOVED CSHB 272(JUD) OUT OF COMMITTEE
HOUSE BILL NO. 268
"An Act relating to overtaking and passing certain stationary
vehicles."
- SCHEDULED BUT NOT HEARD
HOUSE BILL NO. 276
"An Act relating to business license endorsements for tobacco
products, to holders of business license endorsements for
tobacco products, and to the employees and agents of holders of
business license endorsements for tobacco products."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HJR 3
SHORT TITLE: CONST AM: BUDGET RESERVE FUND APPROPS.
SPONSOR(S): REPRESENTATIVE(S) ROKEBERG
01/10/05 (H) PREFILE RELEASED 1/7/05
01/10/05 (H) READ THE FIRST TIME - REFERRALS
01/10/05 (H) W&M, JUD, FIN
04/18/05 (H) W&M AT 8:30 AM CAPITOL 106
04/18/05 (H) Moved Out of Committee
04/18/05 (H) MINUTE(W&M)
04/18/05 (H) W&M RPT 1DP 1DNP 4NR
04/18/05 (H) DP: WILSON;
04/18/05 (H) DNP: GRUENBERG;
04/18/05 (H) NR: SAMUELS, SEATON, MOSES, WEYHRAUCH
04/26/05 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HJR 19
SHORT TITLE: CONST. AM: PERMANENT FUND P.O.M.V.
SPONSOR(S): WAYS & MEANS
04/19/05 (H) READ THE FIRST TIME - REFERRALS
04/19/05 (H) W&M, JUD, FIN
04/22/05 (H) W&M AT 8:30 AM CAPITOL 106
04/22/05 (H) Moved Out of Committee
04/22/05 (H) MINUTE(W&M)
04/22/05 (H) W&M RPT 4DP 1NR
04/22/05 (H) DP: ROKEBERG, SAMUELS, MOSES,
WEYHRAUCH;
04/22/05 (H) NR: GRUENBERG
04/26/05 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 272
SHORT TITLE: CARD ROOMS & OPERATIONS
SPONSOR(S): REPRESENTATIVE(S) KOTT
04/18/05 (H) READ THE FIRST TIME - REFERRALS
04/18/05 (H) L&C, JUD, FIN
04/21/05 (H) L&C AT 3:15 PM CAPITOL 17
04/21/05 (H) Moved Out of Committee
04/21/05 (H) MINUTE(L&C)
04/22/05 (H) L&C RPT 2DP 2DNP 2NR
04/22/05 (H) DP: KOTT, ANDERSON;
04/22/05 (H) DNP: CRAWFORD, GUTTENBERG;
04/22/05 (H) NR: LEDOUX, ROKEBERG
04/26/05 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
REPRESENTATIVE NORMAN ROKEBERG
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of HJR 3.
TERRY HARVEY, Staff
to Representative Bruce Weyhrauch
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HJR 19 on behalf of the sponsor,
the House Special Committee on Ways and Means, which is chaired
by Representative Weyhrauch.
MICHAEL J. BURNS, Executive Director
Alaska Permanent Fund Corporation (APFC)
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: During discussion of HJR 19, provided
comments, urged the committee to support the resolution, and
responded to questions.
LAURA ACHEE, Research and Communications Liaison
Alaska Permanent Fund Corporation (APFC)
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: During discussion of HJR 19, provided
comments and responded to questions.
MICHAEL O'HARE, Staff
to Representative Pete Kott
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 272 on behalf of the sponsor,
Representative Kott.
PERRY GREEN
Anchorage, Alaska
POSITION STATEMENT: Provided comments during discussion of
HB 272 and responded to questions.
LINDA KOVAC
Chugiak, Alaska
POSITION STATEMENT: Provided comments during discussion of
HB 272.
CHIP WAGONER, Executive Director
Alaska Catholic Conference
Juneau, Alaska
POSITION STATEMENT: Provided comments during discussion of
HB 272 and responded to questions.
SUSAN A. BURKE, Attorney at Law
Gross & Burke, PC
Juneau, Alaska
POSITION STATEMENT: On behalf of Perry Green, responded to
questions during discussion of HB 272.
KATHRYN L. KURTZ, Attorney
Legislative Legal Counsel
Legislative Legal and Research Services
Legislative Affairs Agency (LAA)
Juneau, Alaska
POSITION STATEMENT: As the drafter, responded to questions
during discussion of HB 272.
ACTION NARRATIVE
CHAIR LESIL McGUIRE called the House Judiciary Standing
Committee meeting to order at 1:22:33 PM. Representatives
McGuire, Anderson, Dahlstrom, and Gruenberg were present at the
call to order. Representatives Coghill, Kott, and Gara arrived
as the meeting was in progress.
HJR 3 - CONST AM: BUDGET RESERVE FUND APPROPS.
1:22:53 PM
CHAIR McGUIRE announced that the first order of business would
be HOUSE JOINT RESOLUTION NO. 3, Proposing amendments to the
Constitution of the State of Alaska relating to appropriations
from the budget reserve fund.
REPRESENTATIVE NORMAN ROKEBERG, Alaska State Legislature,
sponsor, relayed that HJR 3 proposes to place before the voters
the question of whether to repeal subsections (b) and (c) of
Section 17, Article IX, of the Alaska State Constitution;
Section 17 pertains to the Constitutional Budget Reserve Fund
(CBRF), which was established in 1990 by the Sixteenth Alaska
State Legislature. In 11 out of the subsequent 13 fiscal years,
he remarked, the legislature has needed the three-quarter vote
required for appropriations from the CBRF in order to balance
the budget. He opined that subsections (b) and (c) of Section
17, while intended to restrict spending, have not actually
worked to that effect but have instead resulted in increasing
the budget; additionally, subsection (b) is complicated, has
been misunderstood and litigated, and has caused significant
difficulties, historically, as to its purpose. [Subsections (b)
and (c) of] Section 17 have failed their public purpose, he
concluded, and should therefore be repealed.
1:25:42 PM
CHAIR McGUIRE, after ascertaining that no one else wished to
testify, close public testimony on HJR 3.
REPRESENTATIVE GARA asked whether HJR 3 works together with
legislation sponsored by Representative Harris.
REPRESENTATIVE ROKEBERG offered his belief that the two pieces
of legislation are not compatible; HJR 3 maintains the CBRF, and
he strongly supports this concept as sound public policy. He
went on to say:
I believe we need a fund - that's been voted on by the
people and established by the people - to allow the
legislature to have funds available to balance the
budget, when needed, and additionally allow the
administration to use the shock-absorber effect and
the cash flow available for cash management purposes.
I believe the administration, over the past several
years, has testified to the fact that the State of
Alaska uses approximately $400 million a year and they
draw from the funds for their cash management
purposes, because of the ebb and flow of cash flow
within the state coffers.
So in perpetuity we're going to need a relatively
large amount of available cash in order to even meet
our daily cash flow requirements. And this ... fund
has been used for that purpose. It's saved us
significantly because we haven't had to utilize such
devices as tax-anticipation notes to go out and
finance cash flow requirements, which is quite common
in many states and ... is allowable under our
constitution. So we literally would have to borrow
money to meet our daily cash flow requirements,
without the fund. So the fund in and of itself has a
significant public purpose and I support the fund.
It's only those provisions of that fund that give
weight [to], or require, the three-quarter vote to
access the funds for budgeting purposes that I believe
that we should repeal.
REPRESENTATIVE GARA offered his understanding that in past
years, the minority has used the three-quarter vote requirement
to increase education funding, and said he is concerned that
without the leverage offered via the three-quarter vote
requirement, the minority will no longer be able to get extra
funding for education.
REPRESENTATIVE ROKEBERG opined that any policy formations on the
part of the legislature should be based on merit, not on a
constitutionally constructed "leverage." He added:
I think that's the point of this resolution. Why
should we create a constitutional mechanism to give
one group within the legislature additional leverage,
which historically is not found in most other
legislatures. There are a few states - there's a
report from the "Alaska Budget Report" - that have
supermajority requirements for budgeting, ... [and]
even such conservative groups at the Cato Institute
[think] that that might help reduced spending. Well,
there was study done in California, apparently, that
verifies, I believe, the position of most Alaskans,
recognizing that it tends to increase spending rather
than decrease it. But in terms of specific use of the
leverage mechanism as to a specific area of spending -
and you sited education needs - I don't believe that
that's appropriate.
You seem to make the statement that but for the
leverage, that funding would not have been
forthcoming. I take exception to that, significantly.
You could say that ... any bargaining was artificially
constructed for the mere purpose of gaining the vote,
whether or not it ultimately would have had the actual
impact in the budget or not. Absent that leverage, I
suspect and believe the legislature would act
appropriately and fund the needed amounts of
educational monies. As a matter of fact, this year,
the legislature, in the House, has enacted a $70
million K-12 educational budget appropriation without
the leverage ... [or] requirement of the three-quarter
vote. And you can debate whether that's adequate or
inadequate, [but] the fact is, it's historically one
of the highest amounts ever appropriated, and not
affected at all by the leverage mechanism.
1:31:33 PM
REPRESENTATIVE GARA disagreed with Representative Rokeberg,
adding:
We don't have a three-quarter vote this year. There
are members of your party that have come to us and
asked us to use our leverage to get the "fifty-one
twenty" amount, the amount that we just determined was
appropriate. Without the three-quarter vote, though,
we're stuck at "forty-nine nineteen." And that's
exactly the circumstance where ... I think it's
important to have the leverage as a minority party.
To move up education funding to the point where you
can actually make some progress, I think, would happen
this year if we had the three-quarter vote. We've had
enough majority members come to us who (indisc. -
coughing) join us for the " fifty-one twenty" vote on
the floor, but I think would if we had the three-
quarter vote.
REPRESENTATIVE ROKEBERG replied:
I believe Representative Gara makes my case. If you
in fact had 21 votes to meet that purpose, you could
prevail within the body of the House. You wouldn't
have to have the supermajority vote, then, so
conversely it works against you. That's the curious
thing about it. ... And you also indicate that without
the leverage of a three-quarter vote this year you're
not able to extort a policy position using the
minority leverage mechanism. ... That again makes my
case.
REPRESENTATIVE GARA remarked, "Just not able get adequate
education funding."
REPRESENTATIVE ROKEBERG pointed out that adequacy is in the eye
of the beholder. "I'm looking at this from a constitutional,
overall, more-global macro-view, if you will; you're bringing it
down to a specific point, which is all well and good, but I
think you give substance to my argument by even acknowledging on
the record that you're using it for this purpose," he concluded.
1:33:34 PM
CHAIR McGUIRE surmised, then, that Representative Rokeberg is of
the belief that when the [three-quarter vote] requirement was
originally passed, the idea was that it would restrain state
spending.
REPRESENTATIVE ROKEBERG concurred with that summation, that the
requirement would make access to the additional funding more
difficult and thereby create more fiscal discipline. But that
has not been the case, he opined, since the way it's been used,
more money is actually spent, and so its very purpose is
defeated.
CHAIR McGUIRE suggested setting HJR 3 aside.
REPRESENTATIVE GARA offered his belief that without the three-
quarter vote, the minority party won't be able to "extract some
sort of equity for their own districts." He asked why he should
be comfortable that HJR 3 will ensure party equity with regard
to [capital projects].
REPRESENTATIVE ROKEBERG noted that historically, until two years
ago, there were no monies available to majority members for
their districts, whereas minority members received "tens of
millions of dollars" for various projects. Therefore he would
argue that the minority benefited significantly while the
majority "got zero."
REPRESENTATIVE GARA remarked, "The majority gets their money in
the regular budget process, and then it's only with the three-
quarters vote that the minority ever gets any projects in their
districts."
REPRESENTATIVE ROKEBERG disagreed, and opined that
appropriations to districts have been based on merit and have
been justifiable; for example, the school deferred maintenance
list, produced by the Department of Education and Early
Development (DEED), has taken precedence. He offered his view
that the legislature has shown a markedly nonpartisan allocation
of funds, though he acknowledged that certain chairs of certain
committees have sometimes arranged for [larger] allocations for
their districts.
1:39:14 PM
REPRESENTATIVE ANDERSON opined that Representative Rokeberg
makes good points, and remarked on some of the funding
allocations made last year to certain districts in Anchorage.
REPRESENTATIVE ANDERSON moved to report HJR 3 out of committee
with individual recommendations and the accompanying fiscal
notes.
REPRESENTATIVE GARA objected. He said:
If we're going to give up the three-quarters vote, to
protect ourselves and allow some sort of fairness
between parties so that one party doesn't take all the
money, I would like something in the [Alaska State]
Constitution that says the majority party can only
take so much more capital money than the minority
party, so that we don't have sort of this "money-
feed." I proposed some language yesterday that said:
"On average, you shouldn't allow the majority party,
per district, to take more than ... 20 percent than
the minority takes." It seemed a little bit
cumbersome, but I would ask you, if you're going ask
us to give up ... the tool that we have to ask for
equity, then I would ask you to think about something
that would allow us to retain at least some measure of
equity in the future so that all the money doesn't end
up in republican districts, and [so] we don't have
what happened last year, which was this $125,000
allocation that just went to majority members.
REPRESENTATIVE ROKEBERG pointed out that $11 million was paid
specifically to minority projects as a result of what he
characterized as the leverage mechanism. He added:
I think the ultimate leveler ... between minority and
majority, whoever maintains that power, is something
that in the House the voters speak to every two years.
To put additional superstructures, either in the
[Alaska State] Constitution or in statute, I think is
inappropriate. You're taking the dynamic away by
binding future legislators about what they do, and
which is a constitutional violence, in my opinion.
CHAIR McGUIRE indicated that Representative Gara's suggested
[language change] seems attractive to her because she has seen
all of the minority members receive millions of dollars in the
past while her district didn't receive anything until just last
year. She remarked, however, that she agrees that "we shouldn't
be micromanaging it when it comes to a constitutional
amendment."
1:42:53 PM
REPRESENTATIVE GRUENBERG, in response to a question, said he
objects [to the motion to report the resolution from committee],
adding that he thinks it is important to protect the rights of
the minority in this particular case. He referred to language
in the sponsor statement that says, "If those in the minority
have the goal of budget reduction, the three-quarter vote
provides them with little or no power," and opined that such is
not true; rather, the three-quarter vote requirement can provide
even more power to a conservative minority.
1:44:38 PM
A roll call vote was taken. Representatives McGuire, Anderson,
Coghill, Kott, and Dahlstrom voted in favor of reporting HJR 3
from committee. Representatives Gruenberg and Gara voted
against it. Therefore, HJR 3 was reported from the House
Judiciary Standing Committee by a vote of 5-2.
HJR 19 - CONST. AM: PERMANENT FUND P.O.M.V.
1:45:03 PM
CHAIR McGUIRE announced that the next order of business would be
HOUSE JOINT RESOLUTION NO. 19, Proposing amendments to the
Constitution of the State of Alaska relating to and limiting
appropriations from the Alaska permanent fund based on an
averaged percent of the fund market value.
1:45:14 PM
TERRY HARVEY, Staff to Representative Bruce Weyhrauch, Alaska
State Legislature, relayed on behalf of the House Special
Committee on Ways and Means, sponsor of HJR 19, that the
resolution proposes changing the Alaska State Constitution to
require inflation proofing of the entire permanent fund through
the use of a system known as percent of market value (POMV).
After noting that this is the same legislation that passed the
house last year as House Joint Resolution 26, he explained that
if passed by the legislature, HJR 19 would place an initiative
on the next statewide ballot for approval. This is not about
the permanent fund dividend (PFD), he assured the committee;
rather, this is about using the most effective modern means to
manage $30 billion. The goal of the resolution is to ensure
that the fund is invested prudently and without interference.
The resolution aims to achieve this goal by giving fund managers
a target to hit, the flexibility to hit it, and the independence
to do it efficiently. In conclusion, he relayed that
representatives from the Alaska Permanent Fund Corporation
(APFC) were available to answer questions.
1:46:49 PM
MICHAEL J. BURNS, Executive Director, Alaska Permanent Fund
Corporation (APFC), Department of Revenue (DOR), offered the
following comments:
First of all, I would like to emphasize that the
[Board of Trustees of the Alaska Permanent Fund
Corporation] do not see POMV as a "fiscal plan"; POMV
would not allow the legislature greater access to the
earnings of the fund, and, in fact, in most years,
would lower the amount available for appropriations
compared to our current system. The trustees believe
that the implementation of POMV and the use of
permanent fund earnings are two separate issues.
[Percent of market value] is, one, predictable, but
much more importantly we think it is understandable by
the people of Alaska. Is it any wonder that people
are confused and easily mislead by the arcane nature
of our fund's distribution formula?
We manage the fund with a methodology simply based
upon real return. This is quite simply the total
return of the fund minus inflation - [this] gives us a
real return. This is how public and private
foundations, pension funds, and endowments, and their
trustees, directors, and managers view their fiduciary
duty and assignment. What is broken then? The
current statutory "realized income-based distribution
formula" is the culprit. As opposed to the "real
return" methodology, we are using the confusing and
misunderstood formula, or the Alaska version of,
"return" and "income."
MR. BURNS continued:
Let me walk you through that calculation just for a
moment. This starts with income, which is dividends,
interest, and rent. To that we add or subtract gains
and losses, both realized and unrealized. From that
we subtract operating expenses, from that we subtract
any appropriations, and we get to what is referred to
as "accounting net income." From this, we subtract
unrealized net income, and this gets us to realized
net income. From that we subtract any earnings
associated [with] ... the Amerada Hess [litigation]
monies. This gets us to statutory net income; this is
what's used in the distribution formula.
Confusing, out of date, and unworkable are but a few
of the adjectives that come to mind. How did we get
to this state of confusion? When the fund was created
it was prudent to restrict its investment authority to
a "bond only" strategy. That being the case, it is
important to remember that a bond portfolio generates
income in two ways: interest or coupon income
received, and capital gains from bonds sold at
appreciated prices. These are both traditional
realized income, and the distribution formula based
upon this concept made perfect sense - at the time.
However, because the fund's asset allocation now
incorporates investments that generate significant
unrealized gains as well as realized income, the
current payout methodology and protection of principal
no longer serve the fund as well as they once did.
The trustees believe that only a percent of market
value payout, limited by the sustainable yield from
the fund, can provide the necessary protection for the
fund while allowing current generations their
equitable share of fund earnings. Furthermore, they
believe that the only way to ensure full protection
for the fund is to place this limit in the
Constitution.
MR. BURNS concluded:
The percent of market value proposal is simple: no
more than 5 percent of the market value of the fund,
averaged over the previous five years, may be
appropriated from the fund. This leaves a minimum of
95 percent of the fund protected from spending in any
given year. As I noted earlier, POMV is not a fiscal
plan. And I must admit, with oil in the $50 range,
your interest [in] and focus on a fiscal plan may well
be elsewhere. But is this not the opportune time to
modernize and increase the transparency of the fund so
that it can not only be managed in harmony with its
distribution formula, but also understood by Alaskans
when other decisions have to be made? Modernization,
clarity, better protection - I urge the committee
members to support this proposal, and [I'm] prepared
to answer any questions that you may have.
1:52:03 PM
REPRESENTATIVE GARA suggested that a POMV proposal might pass if
people were assured that their PFDs wouldn't be reduced as a
result, and offered his understanding that such a stipulation
could be part of a POMV methodology.
MR. BURNS said that the APFC will do whatever the legislature
requires, but would prefer that it not be forced into realizing
income when doing so would not be in the best interest of the
investment performance of the fund. In response to a question,
he explained that the APFC does not wish to become involved in
the legislature's policy decision regarding PFD payout amounts.
CHAIR McGUIRE said that all the significant, major trusts in the
world of which she is aware have been managed for years and
years with great success in the way that HJR 19 is proposing for
the permanent fund. She indicated that although some are
concerned with how to assure the voters that adopting a POMV
methodology will not result in a decrease in their PFDs, her
concern centers on the financial aspects of managing the fund,
and remarked that she would rather the APFC focus on managing
the fund in such a way that it continues to grow and benefit all
of Alaska. She suggested that perhaps the two seemingly
differing concerns could both be addressed via a POMV
methodology that contains stipulations with regard to PFD
payouts.
1:58:25 PM
LAURA ACHEE, Research and Communications Liaison, Alaska
Permanent Fund Corporation (APFC), Department of Revenue (DOR),
remarked that under the APFC's point of view, a POMV methodology
gets to the issue of how money is paid out of the fund while
also limiting the amount paid out of the fund to what the
trustees believe is a sustainable yield. Therefore, although it
is possible that a POMV methodology might have an effect on PFD
amounts during years when the PFD calculation results in a
figure greater than 5 percent, it would be accurate to say that
the actual calculation for the PFD is not changing. She offered
her belief that the most logical approach is to change the
dividend statutes to conform to a POMV methodology so that the
APFC will no longer have to keep two sets of books as is
currently the case. She concluded by noting, however, that the
APFC will accommodate the legislature's wishes regardless of
whether they involve keeping two sets of books or maintaining
PFD payouts at a specific amount even under a POMV methodology.
CHAIR McGUIRE offered a hypothetical example wherein the current
PFD calculation results in payouts that exceed the proposed 5
percent amount, and asked what kind of an effect making those
higher payouts would have on future generations.
MR. BURNS offered his belief that the endowment concept coupled
with a POMV distribution formula will provide the fairest way
for all generations to benefit from the fund, that such will
result in generational equity.
MS. ACHEE indicated that for at least the next 10 years, the
APFC is not anticipating that the payout calculation will result
in an amount even close to 5 percent.
CHAIR McGUIRE indicated, however, that the possibility that a
payout calculation could exceed 5 percent in the future is still
of concern to her.
MS. ACHEE, in response to questions, explained what the various
charts provided in members' packets illustrate, and that at the
end of every month, the APFC accounts for both unrealized gains
and realized gains.
REPRESENTATIVE COGHILL asked whether, in converting to a POMV
methodology, the APFC will have to reevaluate the value of the
fund and, if so, whether there is the possibility that the value
of the fund will change.
MR. BURNS explained that the only unrealized gains that are
changed during the end-of-month accounting are marketable
securities, and that real estate is carried at cost plus
improvements, though for performance measures, the APFC does
mark up real estate internally. In response to a further
question, he said that [realized gains] from real estate are not
listed in the books until the real estate is sold, adding that
such is considered to be a generally accepted accounting
practice.
MS. ACHEE, in response to questions, reiterated her earlier
comments regarding the aforementioned charts and the fact that a
POMV methodology would not in and of itself change the current
dividend calculation.
MR. BURNS added that all a POMV methodology does is measure how
much permanent fund money is made available for appropriation by
the legislature.
REPRESENTATIVE COGHILL characterized the change proposed by HJR
19 as a spending limit, and concluded that as such, passage and
adoption of the proposed change could result in a lower dividend
for Alaskans.
2:12:44 PM
MR. BURNS concurred with that summation, adding that both the
current distribution formula and the proposed POMV methodology
make calculations based on five-year averages, and this acts to
buffer [the payout] from market swings.
REPRESENTATIVE GRUENBERG mentioned that his concern is that HJR
19 allows the legislature to invade the principal of the
permanent fund, and therefore he does not support [the
resolution].
MR. BURNS said that the concept of "principal" and "earnings
reserve" do go away under an endowment concept, and that is the
reason for using a conservative number to base the distribution
formula on. He went on to say:
Most of the projections that we put forth assumed a 5
percent real return after inflation, which is almost 8
percent. ... If you take a five-year growing fund at
that basis and have a five-year average, you're really
not paying out 5 percent. The math on a fund that
grows just at the rate of inflation is about 4.65. ...
So ... I think it falls within a very acceptable range
of not invading the historical concept of principal.
But that's not to say it certainly couldn't happen.
REPRESENTATIVE GRUENBERG opined that the people won't draw that
distinction, and concurred that under a POMV methodology, the
permanent fund will no longer have a dividing line between
principal and earnings.
MR. BURNS opined that a POMV methodology will provide the
permanent fund with more protection than it currently receives,
since the amount currently available for appropriation is
markedly higher than what it would be under the proposed POMV
calculation.
2:17:08 PM
CHAIR McGUIRE, after ascertaining that no one else wished to
testify, closed public testimony on HJR 19.
CHAIR McGUIRE relayed that she has been asked to forward the
resolution on to the House Finance Committee.
REPRESENTATIVE GRUENBERG mentioned that the House Special
Committee on Ways and Means might introduce a bill that would
institute a POMV methodology via statute.
2:18:54 PM
REPRESENTATIVE GARA mentioned municipal revenue sharing via a
municipal dividend; indicated that he doesn't want to impact the
principal of the permanent fund; and offered his understanding
that even under a POMV methodology using 5 percent, depending on
market conditions, it would still be possible to decrease the
principal of the permanent fund. He asked members to consider
incorporating a provision that stipulates there will be no
invasion of the principal.
2:21:03 PM
REPRESENTATIVE COGHILL offered his belief that simply saying no
more than 5 percent will be available for appropriations will be
sufficient, particularly if the APFC uses a prudent method of
evaluating the fund. He pointed out that nothing in the
resolution says that the entirety of that 5 percent must be
appropriated. In conclusion, he said he doesn't want to put in
the constitution items that are appropriately matters of
legislative policy discussion.
REPRESENTATIVE COGHILL moved to report HJR 19 out of committee
with individual recommendations and the accompanying fiscal
notes.
REPRESENTATIVE DAHLSTROM objected.
2:23:20 PM
A roll call vote was taken. Representatives McGuire, Coghill,
Kott, and Gruenberg voted in favor of reporting HJR 19 from
committee. Representatives Dahlstrom and Gara voted against it.
Therefore, HJR 19 was reported from the House Judiciary Standing
Committee by a vote of 4-2.
HB 272 - CARD ROOMS & OPERATIONS
2:23:46 PM
CHAIR McGUIRE announced that the final order of business would
be HOUSE BILL NO. 272, "An Act relating to card rooms and card
operations."
2:24:48 PM
MICHAEL O'HARE, Staff to Representative Pete Kott, Alaska State
Legislature, sponsor of HB 272, relayed on behalf of
Representative Kott that the growing popularity of poker is
obvious to everyone who's "surfed" television channels. Many
networks, from ESPN (Entertainment and Sports Programming
Network) to the Travel Channel, are regularly televising "Texas
Hold 'em" tournaments and enjoying skyrocketing popularity and
revenues. Men and women, old and young, are joining the poker
trend, which shows no sign of slowing down. Due to this growth
in interest, the intent of HB 272 is to allow social card games
to be played in a tightly controlled public environment. Alaska
can address the trend and [move] this popular pastime into
compliance with the safety and revenue laws of the state.
MR. O'HARE said that the types of games that would be allowed
would be non-banking card games, those games where players play
against one another rather than against the "house."
Additionally, the games - limited in the bill to poker, pan,
rummy, bridge, and cribbage - would be played using tokens or
chips, not negotiable currency. Licenses to own a card room may
only be issued in municipalities with a population of at least
30,000, and the total number of such licenses issued in any
given municipality may not exceed the total population of that
municipality divided by 30,000. The licensee will be required
to pay a nonrefundable application fee of $25,000 to the
Department of Revenue (DOR), post a cash bond of $500,000 with
the DOR at least 60 days in advance of commencing card room
operations, pay an annual license fee of $10,000 for each card
table, be fingerprinted, pay for all investigative costs
incurred over the initial $25,000 application fee, and host
quarterly tournaments with the proceeds to be distributed to a
nonprofit educational institution or group designated by the
licensee.
MR. O'HARE relayed that the licenses are good for five years and
will not be issued to an individual who has been convicted of a
felony; who has knowingly falsified an application; who, at the
time of application, is an officer, director, or managerial
employee of a person [who has been convicted of a felony or who
has knowingly falsified an application]; or who employs a person
[who has been convicted of a felony or who has knowingly
falsified an application or who has been an officer, director,
or managerial employee of such a person] in the management or
operation of card game operations authorized under the bill.
The bill allows the DOR to strictly enforce regulations imposed
on card room operations, while allowing card players to enjoy a
safe, regulated playing environment. The bill also gives back
to the community by creating jobs and supporting nonprofit
educational charities. He concluded by mentioning that members'
packets contain a fiscal note, a legal opinion regarding the
possible effects of HB 272 on "Indian gaming," and a spreadsheet
illustrating possible gross sales and employee information for
card room operations.
2:28:09 PM
REPRESENTATIVE KOTT, speaking as the sponsor of HB 272, added
that card rooms can now be found in 44 states, and suggested
that social card games are already occurring in most communities
in Alaska. He characterized HB 272 as very stringent with
regard to licensing requirements, the goal being to have only
reputable operators that will ensure successful operations
during the course of a license's five-year period. The $25,000
[application] fee is probably one of the most significant in the
state, he remarked, particularly given that it is nonrefundable
- the department can reject the application and still retain the
fee. Recapping some of the bill's requirements regarding
licensure, he explained that the criteria regarding population
is intended to ensure that a community has a sufficient
population base to support a card room operation.
REPRESENTATIVE KOTT noted, however, that currently there is no
limit to the number of card tables an operation may have, and
suggested that it will be the number of tables available in a
community which will have the most influence on revenue.
Referring to the federal Indian Gaming Regulatory Act (IGRA), he
characterized HB 272 as doing nothing more than expanding what
are considered Class II gaming activities under the IGRA to
include non-banking card games. He offered his belief that the
card games listed in HB 272 would not be considered Class III
gaming activities under the IGRA.
2:33:08 PM
REPRESENTATIVE KOTT opined that those who participate in card
games are quite a bit different than those who play bingo or
pull-tabs; they are a different caliber of player. One wins at
pull-tabs or bingo strictly by chance; in contrast, one wins at
card games by a combination of chance and strategy. He also
opined that card games are not true gambling, and that HB 272
will provide those that wish to participate in that level of
activity the opportunity to do so in a very safe, structured
environment.
2:36:24 PM
REPRESENTATIVE KOTT, in response to a question, offered his
understanding that [under the IGRA] there are three levels of
gaming operations, and that the state has authorized two of
those levels. The first level under the IGRA - class I gaming -
includes social gaming for minimal prizes and traditional Indian
gaming conducted at ceremonies or celebrations. The second
level under the IGRA - class II gaming - includes bingo, lotto,
pull-tabs, punch boards, tip jars, and non-banking card games,
as well as banking card games operated on or before May 1, 1988.
The third level under the IGRA - class III gaming - includes
casino-type gambling, pari-mutual horse and dog racing,
lotteries, and all other forms of gaming that are not class I or
II gaming. He relayed that in banking card games one plays
against the house, whereas in non-banking card games the house
simply distributes the cards [and chips or tokens] and takes a
percentage of each hand played.
REPRESENTATIVE DAHLSTROM said that although she respects the
sponsor and many of those who are in favor of HB 272, and
recognizes its revenue-raising potential, she is opposed to the
bill. She said she hasn't come across any information that
specifically delineates the differences between class II and
class III gaming, and so surmises from this lack that the
language used to describe a particular game could simply be
tailored to enable it to qualify under either class II gaming or
class III gaming, whichever the operator wished. She also
mentioned that she has read several articles and heard many
debates regarding the issue of Indian gaming - some say that the
bill won't "open anything up," and some say that it absolutely
will "open things up."
REPRESENTATIVE DAHLSTROM pointed out that Indian tribes retain
their authority to conduct, license, and regulate class II
gaming so long as the state in which the tribe is located
permits such gaming for any purpose. She opined that this
authority, depending on how a particular game is defined, could
be used to justify any type of gaming. She offered her belief
that once the state legalizes the type of games referred to in
HB 272, it will open up the Indian gaming issue. She said she
also strongly believes that the cost of the social ills
associated with gambling will outweigh any purported revenue
gain to the state. She concluded by saying:
I don't want to see our state becoming dependent on
the income that comes from this, becoming addicted to
that income, whether it be for nonprofit organizations
... [or] for education. ... I don't feel comfortable,
at all, doing that. And, again, I just think that the
issues that our state will take on, with addiction
[and] abuse of all types - all forms - are going to
have a huge monetary cost to our state as well as a
demoralizing cost to our state and our society and
[to] ... the message that we send to our young people.
2:41:48 PM
REPRESENTATIVE KOTT said he shares a lot of Representative
Dahlstrom's concerns, particularly those pertaining to the ills
society may face as a consequence of gaming activities, but
added that his research indicates to him that non-banking card
game operations are not in the same category as gaming
operations involving machines. He offered his belief that
because of the nature of the player involved in card room games,
an addiction component won't be present, and that those who play
card room games will generally be older individuals who
understand the game and therefore the same social ills that can
be found with other forms of gambling won't be present. On the
issue of Indian gaming, he opined that the legal opinion written
by Susan A. Burke of the law firm Gross & Burke indicates that
currently non-banking card games could already operate under the
IGRA even without the proposed legislation. He suggested that
after passage of the bill, should a tribe wish to engage in the
type of gaming the bill authorizes, the tribe would still have
to comply with all the bill's licensing requirements including
those pertaining to population.
2:45:13 PM
REPRESENTATIVE DAHLSTROM concurred with Representative Kott with
regard to the age of those who are most likely to engage in card
room gaming. Nonetheless, that doesn't make it right, she
remarked, particularly given how likely youth are to copy the
behavior of their elders. Cards games are games of luck, she
opined, and so the concept of relying on luck rather than on a
good education and hard work is a far inferior message to send
to Alaska's youth. She said she hopes that no one on the
committee is fooled into believing that the bill won't open up
gambling in the state.
CHAIR McGUIRE offered her understanding that the IGRA would only
apply to tribes in "Indian country"; that according to the
Venetie case, there is very little Indian country in Alaska; and
that class II gaming is already allowed in the state.
Therefore, she concluded, from a legal standpoint, the bill
doesn't open up the state to class III gaming issues, since it
only applies to non-banking card games, which are listed in the
IGRA's definition of class II gaming.
REPRESENTATIVE ANDERSON offered his understanding that almost
all 50 states allow some form of gaming or gambling, and that
nationally, almost $200 million is spent on Internet gambling.
REPRESENTATIVE KOTT, in response to a question, said he has no
intention of expanding the bill to include any other types of
gaming. He noted that one can currently use his/her credit card
to gamble on the Internet, and suggested that the state is
losing revenue because of this.
2:51:15 PM
REPRESENTATIVE ANDERSON said he supports the bill, and then
sought confirmation that the intent of the bill is to make sure
that those who play non-banking card games for entertainment
purposes are doing so in a safe and legal fashion. He also
raised the issue of alcohol consumption.
REPRESENTATIVE KOTT offered his belief that card games are a
form of entertainment; remarked that currently there are a
number of "underground" operations in existence; and suggested
that by ensuring that gaming operations are above board and
conducted in a limited, structured environment, with licensed
operators, and in the public light, they will then become more
profitable. And some of that profit will go to the state, he
reminded members; furthermore, passage of the bill will allow
the state to capture a good portion of the profit that is
currently flowing out of state via Internet [gambling]. He
concluded by surmising that although sometimes the stakes in
such games are quite high, no one wants to have 21-year-olds
going into card rooms with the intention of becoming
professional gamblers, since card games, after all, are still,
to some degree, games of chance.
2:54:42 PM
REPRESENTATIVE DAHLSTROM made reference to organized crime
syndicates. She then asked about the status of the Eklutna
corporation.
CHAIR McGUIRE offered her belief that the IGRA would not apply
to the Eklutna corporation, and said she would provide
Representative Dahlstrom with a copy of a legal opinion to that
effect.
REPRESENTATIVE DAHLSTROM surmised that the legal question on
this issue might still have to be settled, and remarked that the
Eklutna corporation has land everywhere.
REPRESENTATIVE KOTT offered his understanding that Ms. Burke's
legal opinion indicates that the only lands to which the IGRA
might apply are those within the Metlakatla reservation. He
suggested that one of the core issues is whether the bill will
create an expansion within Indian land and, if it does, then the
question of what constitutes Indian land will still have to be
settled.
2:57:04 PM
CHAIR McGUIRE offered her understanding that the root of that
question pertains to which groups chose to be a part of the
Alaska Native Claims Settlement Act (ANCSA); those that did gave
up the original boundaries of their land in terms of reservation
status.
REPRESENTATIVE COGHILL referred to page 2 [lines 1-7],
subsection (b), and suggested that the games listed therein
ought to be defined. He said one of his concerns is that
passage of the bill will not ensure that underground operations
will disappear.
REPRESENTATIVE KOTT said that although he doesn't know what
"pan" is, for example, there are those that do, and noted that
bill establishes a five-member card room [advisory] board that
will provide guidelines for the department. Additionally, the
department will regulate the amount that can be wagered.
REPRESENTATIVE COGHILL said his concern is that if they are
going to legalize something, then it ought to be defined.
3:01:44 PM
REPRESENTATIVE GARA said his concern is that passage of the bill
will lead to the establishment of large scale casinos, which can
lead to dirty politics at the local and state level. He asked
Representative Kott to comment on that issue. He also asked
why, as a matter of state policy, is there a need for state
sponsored/regulated card rooms. What is wrong with the current
system wherein friends can simply gather together and play
cards?
REPRESENTATIVE KOTT noted that playing cards for money is
currently illegal, whether it happens among friends or among
those that are strangers to each other. He suggested that card
rooms offer a competitive environment wherein one can play
against those one doesn't know. With regard to large-scale
casinos, he pointed out that such businesses would have to
approach the legislature for a change in state law and a [state
gaming] commission would have to be established to provide
stringent oversight of any class III gaming. He characterized
HB 272 as innocuous because the department will be able to
handle everything that the bill currently requires, and because
he doesn't believe the bill leaves any room for corruption. He
also said he doesn't see that Alaska has the population base to
support a large-scale casino.
3:06:18 PM
REPRESENTATIVE GARA asked whether, under the bill, there is a
limit on the amount that one could lose in one of the games
authorized under the bill.
REPRESENTATIVE KOTT reiterated that the department will
establish minimum and maximum betting limits, and suggested that
typically in a card room, it is difficult to lose large amounts
of money.
REPRESENTATIVE ANDERSON noted that the bill contains language
regarding the Department of Public Safety (DPS), and that other
forms of class II gaming currently have no limit on wagers.
REPRESENTATIVE KOTT concurred [with the latter point], and
offered his belief that if one begins to lose consistently at a
particular card table, he/she will move to a different table.
He said he envisions that signup lists will be made available in
order for people to join in a particular game. He predicted
that there won't be any dramatic losses among players at card
room operations.
3:09:56 PM
CHAIR McGUIRE referred to the language stipulating that the
department will be setting the minimum and maximum wager
amounts, and surmised that the bill could be altered to further
stipulate that the department will set a limit on the amount of
tokens or chips that may be purchased. Such a change could go
towards ensuring that no one ends up mortgaging his/her house,
for example.
REPRESENTATIVE DAHLSTROM remarked that assisting the DOR with
card room issues is not going to be at the top of the DPS's list
of things to spend its limited resources on.
REPRESENTATIVE KOTT suggested that perhaps off-duty DPS
personnel could be hired by card room operators to provide
oversight. He then made reference to the bill's stipulation
that card room operators must host quarterly tournaments wherein
the proceeds are donated to a nonprofit educational institution
or group of the operator's choosing - though no institution or
group may be designated to receive those proceeds more often
than once a year - and mentioned that there will be an amendment
forthcoming that will stipulate that the donation would be gross
proceeds rather than net proceeds.
3:12:36 PM
PERRY GREEN offered to share his experiences regarding how card
rooms operate, and mentioned family members in an example. He
remarked that California and Washington have had card rooms
operating without incident for many years, and that television
networks are now televising poker games. He then claimed that
there are 60 million new poker players in Alaska, went on to
explain that pan is a Filipino card game similar to rummy, and
opined that passage of HB 272 will result in less need for
police because "after-hours places" will no longer be operating.
He offered his understanding that the only thing a card room
operator does is facilitate the game in a safe environment with
security available, characterized employee wages as very
descent, and suggested that card rooms provide an entertainment
venue for those who can no longer partake of outdoor
recreational activities.
MR. GREEN stated that he is "an expert in card rooms,"
characterized "this" as a wonderful idea, and went on to
describe the card rooms that he is familiar with and the type of
people that he has seen frequenting such places:
The card rooms in California have the same people
going all the time. The retired people go in the
morning, they play four or five hours - the average
age is between 70 and 75 - and then as people get off
work, you have a different group of people who come
in, and, on the weekends, you have people who come
there weekends. I've never seen an incident in a
poker room, as long as I've been around poker rooms,
that ... [has] anything to do with any kind of
addiction - not addiction ... as you ... know it.
MR. GREEN opined that card rooms are nothing more than a form of
entertainment that people are drawn to because they are tired of
watching [reality shows on television]. He relayed that Alaska
Airlines Magazine has an article on "hold 'em" poker, and he
then made the claim that 60 billion people now play that game.
He opined that it is not very American to deny a person the
ability to play cards, and then showed members a magazine
devoted to poker. After relaying that he played poker for money
both as a child and in the U.S. Army, he again asserted that
there is no addiction among those who play cards. He predicted
that passage of HB 272 will result in those who now participate
in illegal gambling and drug use going to state-regulated card
rooms instead.
MR. GREEN mentioned that a few years ago, he organized a poker
tournament for the Anchorage Chamber of Commerce so that it
could raise money for a memorial statue; he went on to describe
that tournament, and mentioned that he helped raise $60,000. He
offered his understanding that Bill Gates started on-line
gaming, and explained that "right now, they're forming leagues"
around the country, adding that each state will have a
professional league. He then listed names of people he said he
has played cards with.
3:22:08 PM
MR. GREEN, in conclusion, opined that [the bill] will be good
for Alaska because it will provide job opportunities for people
to make as much as $30 per hour when working as a dealer.
Mentioning the issue of Indian gaming, he too noted that the
bill merely addresses non-banking games - in other words, just
class II gaming. He opined that playing cards is wonderful
entertainment, particularly for those who are older, and said he
hasn't seen anyone who plays poker on welfare, and suggested
that nonprofits will benefit from the passage of HB 272. He
concluded by offering his belief that those who frequent card
rooms do so not because of gambling habits but because such
establishments are fun places to be.
REPRESENTATIVE GARA asked why it's important to play cards in a
commercial setting in which one doesn't know the other players.
MR. GREEN said that the players do get to know each other, but
suggested that one is better able to test one's ability by
playing against unknown players. In response to further
questions, he claimed that passage of the bill could create over
400 new jobs, and that it will expand the tourism industry,
particularly with regard to Asian tourists.
3:31:56 PM
CHAIR McGUIRE noted that representatives from the DOR were
available to answer questions.
LINDA KOVAC opined that all the possible damages associated with
legalized gambling far outweigh any possible benefits, and that
[adoption of the bill] would just be a baby step towards full-
blown gambling, eventually even for the Eklutna corporation.
She offered that the legislature should instead focus on putting
a ban on Internet gambling. She relayed that she grew up in
Colorado and that when gambling was allowed in her neighborhood,
it went downhill with the influx of a bad element. The same can
be said of the neighborhood in upper Michigan where her folks
were from, she added, noting that older people are losing their
homes to gambling casinos. She suggested that members should
keep in mind all the terrible results that could come about
should the bill be adopted.
3:33:52 PM
CHIP WAGONER, Executive Director, Alaska Catholic Conference,
relayed that his organization's position is generally to not be
in favor of extending gambling in Alaska because of the harm
that can come to those who play. He asked how many people would
be allowed to play at a table and who decides that issue.
REPRESENTATIVE KOTT offered his understanding that there
wouldn't be any more than or six or seven people.
MR. GREEN clarified that generally nine people sit at a "hold
'em" table.
REPRESENTATIVE KOTT, in response to a question, clarified that
the bill does not limit how many tables an operation may have,
but suggested that an operation would need to have at least 70
or 80 percent of its seats filled at all times in order to make
a profit; thus the number of tables an operation has would be
limited only by how many tables the operator wanted to pay for -
at $10,000 per table - and by how many tables a particular
population base could support.
MR. WAGONER said that according to the catholic church's
teachings, gambling in and of itself is not a sin, but if
someone gambles to the point of self-ruination or the ruination
of his/her family, then it is considered to be a sin. He
suggested that the question which must still be answered is,
what will be the effect on those who participate in the gaming
taking place in card rooms. He noted that there has been
testimony both that engaging in such behavior is addictive and
that it is not; however, there are very few credible gambling
studies that can show which social effects are the result of
gambling. He surmised that most social ills related to gambling
come about as a combination of gambling and some other factor.
MR. WAGONER indicated that his organization's concern is related
to the fact that there is a certain small percentage of gamblers
who are considered to be problem gamblers and/or pathological
gamblers; such gamblers are the ones causing all of the social
problems associated with gambling, including increased costs in
the realm of health and social services. So the concern is that
it is not yet known what those costs will be - the costs to
individuals, to families, to the Department of Health and Social
Services (DHSS), and to the Medicaid system.
MR. WAGONER characterized HB 272 as proposing a sea change from
current law with regard to gambling. He elaborated:
Right now you have charitable gaming, where the
charity takes a certain percentage of the take so to
speak. This bill doesn't do that. They have a
quarterly game once in a while, but they don't take a
certain percentage. It's different than anything else
you currently have on the books. If you're going to
allow card rooms, why don't you keep it within the
current statutory scheme as opposed to straying
outside of the boundaries that you currently have?
Another option would be, if you want to limit social
costs but you want to allow this kind of gaming, ...
to then stop one of the current forms of gaming, [such
as] ... pull-tabs, [which], certainly to my way of
thinking, [don't] have the same social amenities as
card rooms [do] - most of the people I see at the ...
pull-tab parlors are sitting all by themselves. So
you might consider that: ... balance out the social
costs by eliminating pull-tabs and having card rooms.
I would like to see studies that show ... who uses
pull-tabs. When somebody walks into a card room or
when somebody walks into a pull-tab [parlor], however,
just because of the way they're dressed, you can't
tell what their economic situation is.
MR. WAGONER relayed that a study conducted by the Governmental
Accounting Office (GAO) indicated that with the more
sophisticated type of gambling, different types of crimes tend
to be committed; for example, instead of a breaking-and-entering
crime taking place, an embezzlement would occur. He remarked
that were he a member of the committee, he would want to see
more facts and figures before striving to institute such a huge
policy change for the state. He again indicated that he has not
seen any evidence that card rooms won't cause any ill effects or
increase the state's social costs.
3:41:32 PM
REPRESENTATIVE DAHLSTROM said she has done extensive research on
the effects of gambling, particularly with regard to two states
- Louisiana and Florida - and relayed that she would pass the
information she's gathered on to Mr. Wagoner.
REPRESENTATIVE KOTT mentioned that there have been studies done
regarding the social ramifications associated with gambling via
electronic machines, but added that he's not seen anything
similar specifically related to card rooms. Given the catholic
church's involvement with bingo, he remarked, it is ironic that
the catholic church has taken the position it has regarding card
rooms. He opined that bingo is a more addictive form of
gambling than card rooms, and ventured that those who generally
play pull-tabs probably aren't in any position, financially, to
be playing. He reiterated his belief that those who frequent
card rooms are not the same type of people who play pull-tabs.
REPRESENTATIVE GARA asked whether regulating card rooms in the
same fashion as bingo halls are being regulated would alleviate
the Alaska Catholic Conference's concerns.
MR. WAGONER said that the Alaska Catholic Conference is
concerned about those that could be hurt by gambling, and
reiterated that he has not yet seen any research pertaining
specifically to card rooms and that if he were a member of the
committee, he would want to see such information before making a
decision on the bill.
REPRESENTATIVE GARA asked whether the proceeds from bingo halls
go to nonprofits.
MR. WAGONER said that according to his understanding, a certain
percentage does go to charity.
REPRESENTATIVE KOTT concurred, but pointed out that other forms
of class II gaming are not required to pay the large licensing
and application fees that are being proposed for card room
operations.
CHAIR McGUIRE, after ascertaining that no one else wished to
testify, closed public testimony on HB 272.
3:47:44 PM
SUSAN A. BURKE, Attorney at Law, Gross & Burke, PC, offering to
respond to questions, relayed that she has expertise in the area
of Indian gaming and that the aforementioned legal opinion was
one she'd provided Mr. Green in response to his hiring her firm
to research the question of what effect HB 272 would have on
Indian gaming in Alaska.
REPRESENTATIVE DAHLSTROM asked the bill drafter to comment on
the discussion she's heard thus far regarding the possible
expansion of Indian gaming in Alaska and the Eklutna
corporation.
KATHRYN L. KURTZ, Attorney, Legislative Legal Counsel,
Legislative Legal and Research Services, Legislative Affairs
Agency (LAA), said:
There are two issues there that I heard come up. The
first one is the distinction between class II gaming
and class III gaming. Class II gaming includes non-
banking card games only; it's defined in the federal
statute saying it includes non-banking card games.
Class III includes the banking card games. There may
be ... some room for interpretation as to what
constitutes a banking or a non-banking card game, and
the Indian Gaming Regulatory Commission has issued
opinions classifying particular proposed activities as
one or the other. ... The Alaska Supreme Court may or
may not fall right in line with them, [since] ...
those are regulatory opinions.
REPRESENTATIVE DAHLSTROM surmised, then, that there is room for
interpretation, that this issue would go to a court, and that it
is not yet known how the issue would be interpreted.
MS. KURTZ concurred, and offered her understanding that a
distinction made earlier regarding what constitutes non-banking
card games and what constitutes banking card games is whether
players are playing against each other or against a banker,
which might be another player. Therefore, any forthcoming
interpretation would depend on how a particular game or proposed
game is played. On the question regarding the Eklutna
corporation, she said that the IGRA contains a definition of
Indian [land] such that Indian [land] includes not only lands
within the limits of an Indian reservation, but also any lands
title to which is either held in trust by the United States for
the benefit of an Indian tribe or individual, or held by any
Indian tribe or individual subject to restriction by the United
States against alienation and over which an Indian tribe
exercises governmental power. However, although there has been
a good deal of case law regarding the question of what
constitutes Indian country, it is not all specific to that
definition, she cautioned, and so she is not sure that there is
a clear answer to the question of whether the definition applies
to the Eklutna tribe or any other tribe. She added: "I cannot
tell you that Metlakatla is it; looking at this definition,
there may be more, and it's legally a very contentious area."
REPRESENTATIVE DAHLSTROM said those comments confirm her concern
that they do not as yet have a definite answer regarding what
effect HB 272 will have on Indian gaming in Alaska.
Representative Dahlstrom asked Ms. Kurtz whether she's heard
anything during the hearing that she knows is not true.
MS. KURTZ, noting that she hadn't been monitoring the hearing
with the goal of ascertaining the truth of everyone's
statements, said she was not prepared to answer that question.
REPRESENTATIVE GARA asked whether playing cards among friends
for money is illegal under current law.
MS. KURTZ relayed that statute currently contains a definition
of gambling, and suggested that members research that statute to
determine whether a poker game among friends for money
constitutes gambling in terms of it being an illegal activity.
3:53:53 PM
REPRESENTATIVE GARA asked whether, if a location is classified
as Indian land, [passage of the bill] would open the door to
class III gaming on Indian land.
MS. KURTZ relayed that a 4/21/05 memorandum she'd written for
Representative Kott does not address whether HB 272 would expand
the permissible scope of class II gaming in the state of Alaska,
adding that she is not prepared to offer a legal opinion on that
issue. She noted that [according to Ms. Burke's opinion], the
1995 9th Circuit Court of Appeals case, Rumsey Indian Rancheria
of Wintun Indians v. Wilson, speaks to the issue of scope of
gaming, class III; mentioned a possible circuit [court] split;
and reiterated that it is a complex issue and therefore she
doesn't want to try and give a definitive answer.
REPRESENTATIVE GARA rephrased his question.
MS. KURTZ posited that this is a subject about which lawyers
might disagree.
CHAIR McGUIRE offered her understanding that Ms. Burke's opinion
suggests that an Indian tribe cannot engage in class III gaming
at all unless the state in which the tribe is located permits
class III gaming. Furthermore, she surmised, according to the
Rumsey case, even if a state does permit class III gaming, an
Indian tribe may only engage in such if it does so in conformity
with a negotiated tribal-state compact entered into by the tribe
and the state.
MS. KURTZ suggested that Ms. Burke's reference to that case was
merely a caution that the state has a legal obligation to
negotiate a compact "once the door is open." In response to a
question, Ms. Kurtz clarified that her memorandum is merely
pointing out that the bill provides for non-banking card games
while the [federal] statute says that non-banking card games are
class II games.
CHAIR McGUIRE surmised, then, that since class II gaming is
already permitted in Alaska, passage of the bill - assuming that
the games listed therein are only class II games - would not
raise the issue of whether expansion is possible.
MS. KURTZ said she doesn't have an answer to the question of
whether "this" would permit an Indian tribe to engage in class
II gaming other than what is currently authorized under Alaska
statutes.
3:59:07 PM
MS. BURKE, in response to questions, offered that the
aforementioned split in the circuit courts has to do with
whether a state that allows one kind of class III gaming and one
kind of class III gaming only opens the door for Indian tribes
to engage in or to negotiate with the state over all kinds of
class III gaming. The 8th Circuit Court of Appeals has ruled
that if a state allows any single form of class III gaming,
regardless of what type of game it is, then that state would be
obligated to negotiate with an Indian tribe for a compact that
would cover any class III game. The 9th Circuit Court of
Appeals, however, has taken a much narrower view, saying that
the state has no obligation to negotiate with an Indian tribe
over any kind of class III type of game that the state doesn't
permit anyone else to engage in. For example, if California
allowed anybody to operate a keno game or if the state lottery
itself operated a keno game, California would be authorized to
negotiate with an Indian tribe for keno but not for other types
of class III gaming.
MS. BURKE pointed out, however, that this just addresses the
issue of class III gaming, and since the state of Alaska doesn't
allow any form of class III gaming, the state has no obligation
to negotiate with a tribe over class III gaming - the door is
closed and will remain closed as long as the state does not
authorize any class III game. Furthermore, in Alaska, since it
falls under the purview of the 9th Circuit Court of Appeals, any
negotiations with Indian tribes regarding class III gaming would
be limited to only those kinds of class III game the state
chooses to permit in the future.
4:03:01 PM
MS. BURKE, in response to comments regarding the Venetie case,
relayed that the IGRA does not make reference to "Indian
country," which is a term used in other federal statutes dealing
with the extent to which tribes have civil and criminal
jurisdiction to prosecute crimes within tribal territory and to
provide civil courts. The Venetie case was all about the
latter, with whether [the tribe] had taxing power; the court
ruled that it did not. The IGRA, in contrast only speaks to
"Indian lands" and has it's own definition. One of the
qualifications for being Indian land for purposes of the IGRA is
that the tribe has to exercise governmental power over the
particular land on which the tribe wants to engage in Indian
Gaming. So, for example, if there was a native allotment in an
area and it was held by an individual subject to restrictions
against alienation, that might qualify as Indian land under the
two criteria [stated by Ms. Kurtz], but it would be an open
question as to whether [that person/entity] is actually
exercising governmental powers over that land. Is it possible
that there are lands that would qualify under all three criteria
as Indian land? Sure, she remarked, but pointed out that the
bill does not pertain to slot machines or traditional Las
Vegas/Atlantic City type casinos; rather it only pertains to
class II gaming.
MS. BURKE said she has concluded from her research that HB 272
would not open the door to Indian gaming with regard to card
games any further than it already is. The IGRA says that tribes
may operate card games that are either explicitly authorized by
state law or not explicitly prohibited by state law. She opined
that even without passage of HB 272, assuming a tribe could find
land that qualifies under the IGRA's definition of Indian land,
the tribe could apply to the Indian Gaming [Regulatory]
Commission for a permit to operate non-banking card games. She
also reiterated her belief that the bill would in no way open up
class III gaming on Indian lands.
REPRESENTATIVE GARA asked whether it would be a good argument to
say that Indian gaming for profit wouldn't be allowed in the
state because currently class II gaming in the state is limited
to "the nonprofit sector."
MS. BURKE said no, adding that there is case law which says that
engaging in class III gaming even for nonprofit purposes is
enough to open up all class III Indian gaming. She relayed that
federal statute says that an Indian tribe can engage in a
particular class of gaming if the tribe is located in a state
that permits that type of gaming for any purpose by any person,
organization, or entity.
The committee took an at-ease from 4:12 p.m. to 4:13 p.m.
MS. BURKE, in response to a question, assured the committee that
she believes all of her legal opinions are sound, solid,
accurate opinions.
4:14:11 PM
REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 1,
which read [original punctuation provided though some formatting
changes have been made]:
Page 1 Change Title to Read:
"An Act Allowing Certain Municipalities to Adopt
Ordinances Allowing Card Rooms and Card Operations"
Page 9 line 12 after "information" insert:
"if the municipality has adopted an ordinance,
ratified by a majority of the municipal voters voting
on the question, authorizing card rooms and card games
in that municipality"
CHAIR McGUIRE asked whether there were any objections to
Amendment 1. There being none, Amendment 1 was adopted.
REPRESENTATIVE KOTT made a motion to adopt Amendment 2, to
insert the word "gross" at the end of line 6 on page 12;
Amendment 2 would clarify that the designated charity receives
the gross proceeds. There being no objection, Amendment 2 was
adopted.
REPRESENTATIVE KOTT made a motion to adopt Amendment 3, to
replace the word "annually" on page 14, line 2, with the word
"biennially". There being no objection, Amendment 3 was
adopted.
4:16:05 PM
REPRESENTATIVE ANDERSON moved to report HB 272, as amended, out
of committee with individual recommendations and the
accompanying fiscal notes.
REPRESENTATIVE DAHLSTROM objected.
A roll call vote was taken. Representatives McGuire, Anderson,
Kott, Gruenberg, and Gara voted in favor of reporting HB 272, as
amended, from committee. Representative Dahlstrom voted against
it. Therefore, CSHB 272(JUD) was reported from the House
Judiciary Standing Committee by a vote of 5-1.
ADJOURNMENT
4:17:12 PM
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 4:17 p.m.