SB 170-GAMING; ELECTRONIC PULL-TABS  1:58:08 PM CHAIR BJORKMAN reconvened the meeting and announced the consideration of SENATE BILL NO. 170 "An Act relating to gaming; relating to bingo; relating to pull-tabs and electronic pull- tab systems; and providing for an effective date." 1:58:40 PM KONRAD JACKSON, Staff, Senator Jesse Bjorkman, Alaska State Legislature, Juneau, Alaska, provided a brief recap of SB 170 on behalf of the sponsor. He said that SB 170 adds electronic pull tabs to Alaska's charitable gaming statutes, updates rules for gaming participants (excluding players), adjusts prize payouts and bingo operations, and grants the department authority to investigate legal and illegal gaming activities. 1:59:48 PM CHAIR BJORKMAN stated that SB 170 is essential to help nonprofits and charities continue benefiting from charitable gaming, as rising costs have reduced their fundraising from paper pull tabs. He said allowing electronic pull tabs would restore their ability to raise funds for community programs and ensure equal access and maximum benefit for Alaska's charitable groups. 2:00:51 PM CHAIR BJORKMAN announced invited testimony on SB 170. 2:02:13 PM STEVE BORCHERDING, President, Whaler Casino Supplies (Whaler), Anchorage, Alaska, testified by invitation on SB 170 and stated that with 36 years in Alaska's gaming industry, including 21 years managing the state's largest charitable gaming operation, expressed, he is in full support of electronic pull tabs. He noted the success of electronic bingo in Alaska. However, he said is opposing SB 170 arguing it has shifted from focusing on e-tabs to including provisions that would fundamentally alter the gaming industry, benefit only a few, and ultimately harm charities. He stated that if SB 170 passed, it could force his long-standing distributorship, Whaler Casino Supply, which employs 12 people, out of business. 2:06:03 PM MR. BORCHERDING explained that SB 170 includes provisions preventing a distributorship like Whaler Casino Supply from being owned by Arrow International (Arrow). He argued that the restriction is unnecessary and unfair. He said if Arrow International wanted to monopolize Alaska it could have; instead it invested heavily and expand investments if electronic pull tabs are permitted. SB 170's "must-sell" and custom game restrictions would also harm long-standing local distributors and charities by eliminating innovation and equalizing businesses without regard for earned experience. He opined there are unseen issues and he is willing to talk with legislators when there is more time. He urged lawmakers to remove the provisions that would end his company's long history and commitment, emphasizing their company's long history and commitment to Alaska's charitable gaming industry. 2:11:11 PM NAM YANG, Employee, Whaler Casino Supplies, Anchorage, Alaska, testified by invitation on SB 170 and stated that as an 11-year employee of Whaler Casino Supply she opposed SB 170. She said provisions in the bill threaten the jobs of long-term Alaskan employees who rely on the company to support their families. She described Whaler as a second family, highlighting coworkers with personal hardships who would be devastated by job losses. She credited Arrow International's ownership with providing employees health insurance, childcare assistance, and financial stability. She urged legislators to oppose SB 170 to protect local Alaskans and preserve their livelihoods. 2:16:35 PM JERRY LEWIS, Operator, Northern Lights Bingo, Anchorage, Alaska, testified by invitation on SB 170 and stated that last year, Alaska charities generated over $400 million from charitable gaming, with operators earning $161 million, over 40 percent of the total. Vendor relationships contributed just under 14 percent. He argued that the 35 percent cap for manufacturer game charges would double costs compared to the current 30 percent (including a proposed 27 percent limit plus 3 percent tax). He recommended limiting electronic pull tabs in bars to four, reducing vendor compensation to 15 percent instead of the proposed 20 percent, and learning from other states to avoid mistakes, stressing that Alaska's charitable gaming model has been highly successful and should not be disrupted. 2:20:58 PM DAVID LAMBERT, Owner, Lotto Alaska, Fairbanks, Alaska, testified by invitation on SB 170 and read the following: [Original punctuation provided.] I have been deeply involved in charitable gaming in Alaska for over 35 years, encompassing roles as a permittee, vendor, and operator. I hold the distinction of having held a State of Alaska operator license longer than anyone else in the state. Through my operations, I currently contract with over 140 non- profit organizations, representing more than 13.5 percent of all active charitable gaming permits in Alaska. Furthermore, over 12.5 percent of all charitable gaming proceeds provided to nonprofits in the state have come through my efforts. I share this extensive background to emphasize my comprehensive understanding of charitable gaming and its significant impact on nonprofit permittees. I am writing to express my support for the proposed legislation, recognizing that while it may not be perfect, it represents a necessary step forward. As you deliberate, I urge you to prioritize the best interests of Alaska's nonprofits. Nonprofits in our state are facing an unprecedented reliance on charitable gaming funding. Historically, most of the revenue has been generated through paper pull-tab sales. However, the demographic that traditionally purchased these paper pull-tabs is aging, and we are seeing a significant decline in sales. From 2023 to 2024, our paper pull-tab sales as an operator decreased by 19 percent. The self-directed nonprofits with their own pull-tab stores, including fraternal experienced an even steeper decline of over 30 percent during the same period. Tragically, many of these self-directed stores have been forced to close due to economic unsustainability. 2:23:20 PM MR. LAMBERT continued with his testimony of SB 170: Consider that a dollar pull-tab cost one dollar 35 years ago, and it remains one dollar today. In contrast, operations cost has risen sharply. The cost of paper pull-tabs has increased from less than a penny apiece to over six cents during that same timeframe. Wages have more than tripled since 1990, and rents have more than doubled. These rising costs indicate that paper pull-tabs are likely to become obsolete due to economic pressures alone. Therefore, if a price percentage is to be imposed on electronic pull-tabs, a similar price percentage must also be applied to paper pull-tabs to ensure fairness. For instance, our AMVETS games, once factoring in game costs and state tax, cost about 36 percent of the idea net. Just a few years ago the same AMVETS game was only 18 percent of the ideal net. That's 100 percent increase. In our North Pole store, the additional 5.5 percent sales tax further erodes proceeds, leaving insufficient funds for operating costs. Drawing on my experience as the primary member in charge of charitable gaming permits for the Alaska Dog Mushers Association and the Fairbanks Junior Dog Musher Association in the early 1990s, I understand the operational dynamics involved when permittees utilize various vendor locations and charitable gaming operators. Having transitioned to an operator 26 years ago, I have been actively involved in legislative and regulatory changes throughout the years. It is crucial to recognize the necessity of modernizing the charitable gaming industry. The fundamental question before you are whether this legislation will primarily protect the nonprofits and ensure their continued access to crucial funding, or if it will disproportionately benefit pull-tab distributors and large bingo halls. Distributors appear to be advocating for tablets exclusively, a strategy that statistics from other states suggest is insufficient to significantly reduce paper pull-tab sales. Without a cap on the price of paper pull-tabs, their current pricing trend will render them obsolete regardless. Representatives of large bingo halls are also lobbying for tablets only, seemingly to eliminate competition from fraternal and self-directed nonprofits and to integrate pull-tab play seamlessly with their existing electronic bingo offerings. This approach is not in the best interest of the nonprofits who depend heavily on charitable gaming revenue. 2:26:46 PM MR. LAMBERT continued with his testimony of SB 170: There should be no restrictions on the type of electronic pull-tab units permitted. They all serve the same fundamental purpose; the only difference lies in screen size. Just as the Apple II Plus, the cutting-edge technology when the charitable gaming laws were initially written in 1990, is now outdated, so too will any arbitrary limitation on screen size become irrelevant. We utilize various screen sizes in our daily lives phones, laptops, desktop computers all serving similar functions. The proposed limitation to tablets only should be removed. The passage of this legislation is vital for nonprofits. I would strongly prefer to see this legislation move out of committee for further consideration, allowing for necessary corrections along the way, rather than risking delays. Please remember your primary responsibility is to protect the funding source for the nonprofits, not solely the interests of pull-tab distributors or large bingo halls. Furthermore, this legislation includes updated language that aims to modernize and clarify the charitable gaming laws for 2025. In 1990, all operations were paper based, whereas current state reporting requirements mandate online submissions. Existing legislation, requiring contract submissions via certified mail, is now impractical as the department no longer processes certified mail in a meaningful way, with all systems moving towards electronic processing. It is time to move forward and permit E-TABS without arbitrary restrictions on screen size. If you believe such restrictions are justified, I will challenge you to limit your own staff to tablets only, discarding all larger monitors. 2:29:33 PM MR. LAMBERT continued with his testimony of SB 170: A second critical issue within the legislation, perhaps more appropriately addressed by the Finance Committee, concerns the lack of accountability this legislation would create for vendors. The current system requires vendors to pay for all paper pull-tabs upfront. Because the nonprofits are paid upfront vendors are not required to submit state reports, have an operating bond nor are they required to have a CPA review. This established practice ensures financial responsibility and should be maintained for electronic pull-tabs. However, the proposed legislation would eliminate upfront costs for vendors, grant them access to unlimited pull-tabs, and allow them to remit payment to nonprofits at their discretion, with no clear timelines or safeguards. In contrast, operators are currently required to maintain a bond, purchase pull-tabs upfront, provide monthly reports to nonprofits, submit extensive quarterly reports to the Department of Revenue's Charitable Gaming Division, and undergo an annual CPA review. The section of the proposed that alters the relationship between vendors and permittees should be removed, maintaining the same requirements for electronic pull-tabs as are currently in place for paper pull-tabs. As currently drafted, this aspect of the legislation is not workable. While some manufacturers suggest that these issues can be resolved through regulation after passage, there is no clear understanding of how a workable system would be implemented. The current language essentially proposes giving bars unlimited access to electronic pull-tabs at no upfront cost, with the hope that nonprofits will eventually be paid, even without a system for them to track what they are owed or for the state to ensure accountability through mandatory reporting. Most bar owners lack the accounting expertise to manage charitable gaming finances effectively. 2:31:41 PM MR. LAMBERT continued with his testimony of SB 170: Requiring vendors to pay for the games upfront, as is the current practice, would eliminate the need for this complex and potentially flawed system. If this provision proceeds, a minimum requirement should include mandatory monthly and quarterly reports, an annual CPA review, and mandatory suspension of the liquor license for non-compliance. As mentioned, this matter likely warrants more detailed discussion within the Finance Committee. Charitable gaming in Alaska was established with the primary goal of benefiting nonprofits. Please remember that this guiding principle should remain central to any updated legislation, ensuring continued funding for these vital organizations. With many other funding sources diminishing, I am receiving numerous daily inquiries from nonprofits seeking assistance with operating their charitable gaming permits. The existing laws can be complex, and we must avoid making decisions that would limit their fundraising capacity based on the preferences of a few. The proposed limitation to tablets only is likely to be the most contentious aspect of this legislation. Unless significant changes are made, I would still urge you to move this legislation out of committee, as the nonprofits are in urgent need of an updated framework. 2:33:50 PM SANDY POWERS, Owner, Big Valley Bingo, Wasilla, Alaska, testified by invitation on SB 170 and agreed that a 35 percent distributor/manufacturer share is excessive, advocating for a 27 percent cap plus a 3 percent state tax, aligning with the Minnesota tablet model. She opposed large slot-machine-style cabinets, favoring smaller, successful electronic tablets. She expressed concern about deleting [AS 05.15.115(c)] in Section 49, which would obscure operator transparency. She emphasized strict limits on pull tab locations serving alcohol to protect standalone stores and maintain competitive balance. 2:38:12 PM MARY MAGNUSON, Vice President, Government Affairs, Arrow International, Cleveland, Ohio, testified by invitation on SB 170 and stated that Arrow, a nearly 60-year-old company serving only the charitable gaming industry, supports electronic pull tabs based on experience from 12 other states, that have boosted charity revenues and sustainability. She said Arrow purchased Whaler Casino Supply in 2023 to invest in Alaska, grow the company, and support their employees. She emphasized Arrow is not creating a monopoly and allows distributors to buy from multiple manufacturers. She raised concern with provisions found in SB 170 on page 10, line 19-26, prohibiting manufacturers or their relatives from holding distributor interests, arguing the provisions would unfairly restrict their operations and harm charitable gaming in Alaska. 2:43:14 PM MS. MAGNUSON argued that SB 170 is problematic because it singles out Arrow based on misinformation, requiring divestment of Whaler Casino Supply despite a multi-million-dollar investment and two years of stable operations. She said independent legal review found the provision likely unconstitutional, violating equal protection and the Fifth Amendment by effectively taking private property without just compensation. She emphasized that Arrow's investment benefits employees and the business, and that prohibiting manufacturer ownership of distributors would send a negative message to future investors in Alaska. 2:47:44 PM MS. MAGNUSON urged careful review of the provision, suggesting two remedies: either remove the provision entirely to resolve constitutional and fairness issues or make the provision prospective, applying only to future acquisitions, thereby protecting Arrow's existing investment while complying with U.S. and Alaska constitutional requirements. 2:48:40 PM CHAIR BJORKMAN asked if there are other states that do not allow manufacturers to own distributors. 2:48:47 PM MS. MAGNUSON answered there are two, Minnesota and North Dakota. She said in North Dakota and Minnesota, regulators have suggested eliminating distributors from electronic pull tab distribution, allowing manufacturers to handle distribution directly. While paper products still require distributors, electronic products enable a different structure, and both states have considered combining manufacturer and distributor roles. 2:49:50 PM CHAIR BJORKMAN asked if there is value in provisions that protect Alaska owned distributors. 2:49:59 PM MS. MAGNUSON answered that there is no issue with manufacturers owning or being required to use distributors, though the problem lies in prohibiting ownership. She said the main concern is that SB 170 applies retroactively, forcing Arrow to divest after already investing heavily in purchasing the Whaler. 2:51:07 PM CHAIR BJORKMAN stated that the priority is maximizing value for charities and protecting Alaska-based businesses. He acknowledged tension between out-of-state manufacturers and local distributors, noting the intent of SB 170 is to prevent monopolies and ensure fair economic choices. He expressed willingness to explore solutions that protect Alaska's interests while maintaining a fair regulatory structure for charitable gaming.  2:53:37 PM SENATOR DUNBAR stated that SB 170 does not violate state or federal equal protection provisions, as it falls under rational basis review and regulates commerce. He noted that similar restrictions on vertical integration exist in industries like cannabis to prevent monopolies. He said he was unaware of Arrow's purchase of the Whaler until the hearing and emphasized that it does not affect the committee's work. He added that he's not sure if he supports the provision, stating that claims of equal protection violations are a misreading of the law. 2:55:31 PM MS. MAGNUSON replied that the letter from Holland and Hart argues the issue is not about the state's authority to regulate but that the law appears to single out one company for special treatment, warranting a higher level of judicial scrutiny, especially since it would affect an existing investment. She clarified that Arrow does not intend to eliminate distributors and values their role in the industry, but SB 170 would force the company to divest its ownership of Whaler, causing significant financial harm. She said this would reduce, not increase, competition in Alaska by leaving only two distributors instead of three. 2:58:16 PM SENATOR GRAY-JACKSON asked if divesting ownership of Whaler is her only concern. 2:58:30 PM MS. MAGNUSON replied that Arrow cannot support SB 170 as written due to major concerns, especially the ownership restriction. Other issues include the requirement to sell to all distributors without exceptions for exclusive games and the limitation to tablet-only devices, which she said restricts charities' choice. She noted that while SB 170 contains positive elements, several provisions need improvement. 2:59:47 PM CHAIR BJORKMAN asked whether Arrow has a position on the proposed 35 percent cap for the share payable to manufacturers and whether the company supports lowering that cap. 3:00:06 PM MS. MAGNUSON replied that Arrow can accept the 35 percent cap proposed in SB 170, noting that the effective rate is closer to 27 percent once the 3 percent state tax and local taxes are included. She emphasized that early implementation requires substantial upfront investment in equipment and software, making lower caps difficult initially. Minnesota's recent 25 percent cap came after 13 years of market maturity and was intended to offset high charity taxes, which are much greater than in Alaska. 3:03:09 PM CHAIR BJORKMAN asked how the flow of money works for electronic pull tabs in Minnesotaspecifically, how bars receive the games, collect revenue, and return funds to charities and on what timeline. 3:03:46 PM MS. MAGNUSON replied that in Minnesota and North Dakota, charities are responsible for operating pull tabs, while bars handle day-to-day management. She said charities provide the starting bank, and bars use it to accept payments and pay prizes. Electronic systems allow charities to track transactions in real time through a portal. Charities must collect the money within about five days or once $2,000 is reached. She said in North Dakota, machines have locked bill acceptors, so bars only pay prizes. While theft occasionally occurs, electronic tracking makes identifying and resolving losses much easier. 3:07:38 PM CHAIR BJORKMAN emphasized the importance of clear electronic point-of-sale systems and that charitable nonprofits need support from electronic gaming. He said the goal is to advance a widely supported bill while avoiding provisions for cabinet- style machines resembling slot machines, which many oppose. SB 170 was crafted to reflect input and successful models from other states. He acknowledged industry concerns about monopolistic control and stressed the need to refine details in future hearings to ensure a workable, durable bill with broad support. [CHAIR BJORKMAN held SB 170 in committee.]