SENATE BILL NO. 273 "An Act requiring that gross receipts and ideal gross be used to account for charitable gaming activities; requiring municipalities to provide to the state records concerning sales taxes assessed for charitable gaming activities; requiring that a charitable share of charitable gaming receipts be dedicated to charitable uses; relating to reports required for charitable gaming activities; relating to payments to the state from gross receipts of charitable gaming; relating to contracts between operators or vendors and permittees; relating to licensing of multiple-beneficiary permittees and to the duties of a multiple-beneficiary permittee to each holder of the permit; requiring a person employed as a gaming manager to be certified by the state; limiting the expenditure of amounts of gross receipts and ideal gross required to be paid to permittees or retained by permittees; relating to the amount of gross receipts and prizes allowed under a permit or a multiple- beneficiary permit; allowing operators to pool gross receipts, prizes, and door prizes among permittees; and providing for an effective date." TOM WILLIAMS, STAFF, SENATOR SHARP testified in support of the legislation. He observed that the legislation would ensure that out of every dollar wagered, a certain minimum portion would ultimately be dedicated to charitable purposes. It will also substantially simplify the required accounting for the Department of Revenue, charities and the operators of charities' permits and improve the Department's ability to enforce compliance with the State's charitable gaming laws. The legislation is intended to maintain the status quo with respect to the relative amounts that are currently returned to the charities for charitable uses, available for gaming operations, and collected in state fees. Mr. Williams explained that under current Alaska law charities receive the net proceeds of gaming operations after prizes and expenses are deducted. The law describes what a charity or an operator can and cannot claim as an allowable operating expense. In addition, this requires the charities, operators and the state to generate, review and often audit a substantial amount of accounting data. Mr. Williams emphasized that the legislation would base the amount required to be dedicated for charitable purposes as a percentage of gross gaming receipts. This would substantially simplify reporting and eliminate the need to audit allowable expenses. In addition, a new requirement that gaming managers for multiple-beneficiary permit (MBP) holders and self directed charities be certified by the Department would provide the Department with a way to enforce compliance with the statutes without punishing those charities and managers who currently operate within the law. The intent is to level the playing field between operators and MBP permit holders. Mr. Williams noted that the Department of Revenue strongly supports the legislation. It will simplify and improve program oversight and enforcement, reducing the cost of processing gaming reports. It also requires the Department to make gaming information received available for public review. Finally, it will enable the Department to expend more of its recently streamlined gaming oversight efforts on auditing and enforcement. Mr. Williams recalled that the FY 98 budget of the Division Charitable Gaming and returned it to a section of the Division of Income and Excise Audit in the Department of Revenue. The commissioner of Department of Revenue agreed to this consolidation based on a promise for legislation to reduce costs. Mr. William explained that multiple-beneficiary permits (MBP) occur when a series of permittees hire a manager to operate their gaming operations. He observed that a number of operators have moved into MBP's, which are not as regulated. The legislation brings MBP managers on an equal footing as operators. Charities can still maintain operations under a MBP. The Department can license managers. Managers that do not comply with the law will not be allow by the Department of Law to serve as a gaming manager. Mr. Williams observed that the charitable share for bingo is 1.5 percent of gross receipts, pull-tabs are 7 percent of the gross receipts and all other gaming activities are 10 percent of gross receipts. Vendors must pay permit holders a certain percentage. Currently, bingo vendors pay based on after prize amount. The legislation would require vendors to pay 16 percent of the gross receipts. The Department of Revenue recommended percentages contained in the legislation. The Sponsor's intent is to keep the distribution of proceeds at a similar level. The Sponsor confirmed the Department's numbers in a spreadsheet (copy on file). He maintained that pull tab operators in compliance currently pay 7.5 percent of gross. The Department recommended 7 percent. Mr. Williams explained that net proceeds to charity are required to be 30 percent of the adjusted gross income. He provided members with a spreadsheet of pull tab operators that were out of compliance in 1995 and 1996 (copy on file). According to the chart the impact of SB 273 on these operators would have been $13,207 dollars. Mr. William provided members with a schedule by the Department of Revenue demonstrating the calculation for bingo of 1.5 percent (copy on file). He reiterated that the intent was to retain the balance of monies to the charities. Representative Martin did not think that 7 percent is a fair percentage to charities. He asked why the operating expense was increased for pull tabs. Mr. Williams clarified that the intent is to get the State out of the business of calculating the operating costs and prize pay outs. The result is to allow charitable gaming so that charities can raise money. The goal is to simplify and reduce legislation while assuring that a certain known percentage of every dollar would go to the charity. Representative Martin observed that charities and non- profits are different. Mr. Williams clarified that permittees is the proper term. DEBORAH VOGT, DEPUTY DIRECTOR, DEPARTMENT OF REVENUE spoke in support of the legislation. She noted that the legislation is part two to the budget cut the Division received in FY 98. Half of the Gaming Division's staff was laid-off. The legislation will simplify the administration of gaming regulations. Income and Excise Audit Division staff would be able to return to their primary task of collecting taxes. The current gaming program is labor intensive. In addition, the legislation contains provisions relating to the multiple-beneficary permittees. Many Multiple-beneficiary permittees have hired managers. Testimony by operators stressed the need to level the field. BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE reviewed the legislation. The 1995 Charitable Gaming Task Force came out with a series of recommendations. Four of the recommendations are included in the legislation; regulation of multiple- beneficiary permittees, having all activities pay the same percentage to the non-profit organization, simplification of accounting procedures, and reporting procedures. Several of the legislation's provisions were recommended by a Legislative Budget and Audit Committee audit. Mr. Bartholomew noted that current law provides for a statutory minimum to be paid to permittees. All profits above reasonable expenses must also be paid to the permittee. The legislation removes regulation of profits and tries to establish a minimum percentage. He emphasized that the Department does not have the resources needed to administer the current program as a result of budget reductions. Under current regulation, prizes are deducted from profits. The legislation would not deduct expenses or prizes. The payment is off the top. He discussed the effect of different prize pay outs on profits. High prize payouts reduced the amount to be shared. A percentage of gross takes a cut out of the middle. Persons that operated with lower prize pay outs would need to go to minimum pay out amounts. He acknowledged that flexibility would be lost. JOHN LOPEZ, GENERAL MANGER, ALASKA BINGO SUPPLY, INC. ANCHORAGE testified in opposition to SB 273. He provided members with a letter, dated 3/31/98 (copy on file). He emphasized that consideration must be given to: - The number and games of charities that shall fall out of compliance. - The different scales of economy that will be harmed by the bill. - Associated costs of doing business for different gaming outlets. - The bad commercial fishing year in the rural communities. - The loss of benefits to Alaska charities and to Alaska as a whole. - How this creates a strain on the charitable share. Mr. Lopez emphasized that the percentage of gross will need to be lower to allow for economic changes and competition. He stated that 30 percent of the adjusted gross for pull tabs would put everyone on a even basis. MARK MARCOTT, ASSISTANT EXECUTIVE DIRECTOR, ANCHORAGE ARMED SERVICES YMCA, ANCHORAGE testified in opposition to SB 273. He stated that the percent of ideal gross that would be needed to be revenue neutral as compared to the current system would be 18.6 percent. The legislation provides for 16 percent. The percentage of ideal gross needed to be revenue neutral would vary from 15.90 - 23.2 percent depending on the game. He spoke in support of retaining the 70/30 split after prize pay out. He provided members with a chart demonstrating that the YMCA would have lost $11 thousand dollars in 1996 under SB 273 (copy on file). Co-Chair Hanley observed permittees sign a contract with the vendor. Permittees could contract for a greater amount. Mr. Marcott observed that under current law they receive 70 percent of the net as minimum. Co-Chair Hanley emphasized that the legislation only specifies the minimum. NETTIE MORMON, PRESIDENT, FAIRBANKS LIONESS CLUB, FAIRBANKS testified in opposition to SB 273. She maintained that SB 273 would put an end to their charitable donations. LARRY HACKENMILLER, FAIRBANKS testified in opposition to SB 273. He stated that he supports simplicity but stressed that if "it ain't broke don't fix it." He spoke in support of the current 70/30 split. He stated that section 27 should be retained in its present form. He stressed that small tickets have a lot of pay backs. Representative Davies questioned how auditors would be paid for if the current 70 percent split was retained. Mr. Hackenmiller maintained that auditing is unnecessary. He acknowledged that operators have taken expenses that are not allowed. Non-profits get their percentage up front. He stated that an inventory audit would be sufficient. MICHAEL TRUJILLO, KENAI testified in opposition to SB 273. He maintained that the legislation would put small non- profits out of business. FRANK BISHOP, NILNILCHIK SENIOR CENTER, KENAI testified in opposition to SB 273. He observed that the majority of the entree's funds come from charitable gaming. EARL MICKELSON, KODIAK referred to section 18, subsection (3) on page 10. He stated that the subsection is unnecessary. GREGORY PETERSON, SALES MANAGER, ALASKA INDOOR SPORT DISTRIBUTING, FAIRBANKS testified in opposition to SB 273. He expressed concern that the legislation would hurt small municipalities and rural organizations. (Tape Change, HFC 98 - 85, Side 2) Mr. Peterson discussed lower percentage player games. He observed that these games attract players. The lower profit games would be hurt by the legislation. He stated that the legislation would reduce gaming. He spoke in support of using net profits. SHIRLEY MONTGOMERY, PRESIDENT, MATSU VALLEY HUMAN SOCIETY testified in opposition to SB 273. She stressed that the Human Society is recovering to losses occurred during a recent fire. She noted that 60 percent of their operating budget comes from pull tabs. MICHELLE DUBOOSE, VOLUNTEER, MATSU VALLEY HUMAN SOCIETY testified in opposition to SB 273. She maintained that gross should be defined as the total sales less taxes. The percentage of gross should be less than 5 percent. Firing game managers should be the decision of the permittee. She acknowledged that background checks are a good idea. She stated that "reducing the size of a business to meet the abilities of a regulatory agency is stupid and contrary to sound economic growth." RUBY SCHMIDT-BAUER, SENIOR CENTER, NILNILCHIK testified in opposition to SB 273. She stated that they are satisfied with the money they receive from gaming. The proceeds from gaming make two-thirds of their revenues. Taxes should be taken from the gross. She acknowledged that licensing managers is a good idea, but emphasized that it would not work to hold them accountable for proceeds. The loss of their gaming manager would result in the loss of the operation. Managers deserve fair compensation. ELMER BANTA, SENIOR CENTER, NILNILCHIK testified in opposition to SB 273. He emphasized the importance of the Senior Center. He maintained that the Center cannot operate with out proceeds from gaming. GEORGE WRIGHT, ALASKA NATIVE BROTHERHOOD CAMP #2, JUNEAU testified in opposition to SB 273. He observed that he was a member of the Charitable Gaming Task Force. He maintained that the legislation would eliminate 90 percent of charitable pull tabs in Juneau. He spoke in support of high prize pay outs. He stressed that they pay city sales tax. He spoke in support of a sales tax credit. The sales tax makes the difference between being in or out of compliance. He noted that the Task Force succeeded in changing the charitable proceeds of bingo from 10 to 15 percent of the adjusted gross. He maintained that the Department of Revenue should make a standard reporting form. He asserted that the legislation would drive smaller operations out of existence. The Task Force recommended that enforcement be funded. He observed that operators have become multiple- beneficiary permittees. Operators and managers do not negotiate with charities. He questioned how long permits would be revoked for being out of compliance. In response to a question by Co-Chair Therriault, Mr. Wright observed that Anchorage bingo operators are having a hard time due to a pricing war. Representative Grussendorf asked if there was discussion of taking taxes off the gross. Mr. Wright responded that the city of Juneau has not allowed consideration of the tax. He stressed that he would support payment of the sales tax after deductions for prizes. He noted that every game has a fixed prize amount. Representative Grussendorf stated that gross could be anything minus local taxes paid. Mr. Wright stated that gross should be less prize pay outs. He maintained that no one makes money until the prize is paid out. Representative Davies noted that the city sales tax, taxes every transaction. He questioned if there is any way to charge only for games actually paid. Mr. Wright stated that the tax is figured on the gross amount of tickets. He pointed out that they are paying tax on tickets that were stolen and on playbacks. Representative Grussendorf pointed out that section 31 provides that gross receipts would exclude local and federal taxes. Mr. Wrights concern was with the payment of the local tax on the gross. BRIAN DAVIES, MEMBER, BOARD OF DIRECTORS, ANCHORAGE SYMPHONY, ANCHORAGE testified in opposition to SB 273. He observed the importance of ticket receipts to the symphony. He expressed concern with the change in methodology. He spoke against penalties on the gaming manager. MICHAEL SLEZAK, RIPPIE WORLD II, ANCHORAGE testified in opposition to SB 273. He stated that the legislation is not revenue neutral. He maintained that the legislation would reduce gaming operations. He maintain that the Department of Revenue wants to reduce gaming in the state of Alaska. He stated that background checks are a good idea. He stressed that there are factors outside of the manager's control such as weather. DAVID LAMBERT, FAIRBANKS JUNIOR DOG MUSHERS, FAIRBANKS testified in opposition to SB 273. He observed that no one from a qualified organization has supported the legislation. He emphasized that the 10 percent requirement for other gaming activities would require that dogsled races pay a minimum of 10 percent profit. He maintained that dogsled races do not make money. He stated that "dog mushers' association" in section 19 should be changed to "qualified organization." He observed that the Iditarod is not a dog mushing association. It is a corporation. TABER REHBAUM, DIRECTOR, BIG BROTHERS BIG SISTERS, FAIRBANKS testified in opposition to SB 273. She stressed that pull tab revenue accounts for an important portion of their budget. She spoke in support of the current regulations. She did not think that the changes would result in a significant increase to the permittee. She noted that operators could be adversely impacted. They cannot afford to run pull tabs without an operator. She observed that the legislation would remove flexibility in terms of economic changes for the operator. Their organization would have very little financial change from the legislation. DEAN BABCOCK, MATSU VALLEY HUMAN SOCIETY testified in opposition to SB 273. He spoke against the change in provisions relating to managers of multiple-beneficiary permittees. He stated that 7 percent of the gross is too high for pull tabs. He maintained that the intent of the legislation is to reduce the number of charitable gaming participants. He observed that the lack of support for the legislation. MARY BABCOCK, MATSU VALLEY HUMAN SOCIETY testified in opposition to SB 273. She maintained that the legislation focuses on making the Department of Revenue's job easier and not on what is good for the gaming business. She asserted that the 7 percent requirement is too high. Taxes should be deducted from the gross. GLORIA HAMILTON, NILNILCHIK SENIOR CENTER, NILNILCHIK testified in opposition to SB 273. She stressed that the Senior Center needs the proceeds from pull tabs to operate. DANNY DARROUTTE, NILNILCHIK SENIOR CENTER, NILNILCHIK testified in opposition to SB 273. He observed that the Center needs an operator to run their permit. The Nilnilchik Senior Center received $36 thousand dollars from pull tabs and $14 thousand dollars from the State in FY 98. (Tape Change, HFC 98 -86, Side 1) ESTY SHEMTOV, NON-PROFIT COORDINATOR, HELPING HANDS, ANCHORAGE testified in opposition to SB 273. She stressed that the non-profits rely on funds from the pull tab industry. She maintained that non-profits would be hurt "as the pull tab industry withers for lack of profit." DOUG ASKERMAN, EXECUTIVE OFFICER, ANCHORAGE HOME BUILDERS ASSOCIATION, ANCHORAGE testified in opposition to SB 273. He noted that revenues from pull tabs are used for scholarships. He stated that they are happy with the current regulations. PERRY GREEN, ANCHORAGE testified in opposition to SB 273. He stressed that the legislation is not revenue neutral. He maintained that the Department of Revenue has not listened to suggestions from the gaming industry. He maintained that the legislation's impact would be catastrophic. DICK BISHOP, ALASKA OUTDOOR COUNCIL, FAIRBANKS testified in opposition to SB 273. He expressed concern with the viability of pull tab operators. He asserted that the legislation risks undermining the effectiveness of non- profit organizations. MINNIE FISHER, VOLUNTEER, MATSU VALLEY HUMAN SOCIETY testified in opposition to SB 273. She maintained that the legislation is an attempt to reduce gaming establishments around the State. She maintained that the gaming unit should be moved to the Department of Commerce and Economic Development. She stated that the legislation would destroy a source of needed income. ROBERT MONTGOMERY, VOLUNTEER, MATSU VALLEY HUMAN SOCIETY testified in opposition to SB 273. He maintained that the legislation would reduce gaming revenue and put pull tab stores out of business. LAURA ELIAS, EXECUTIVE DIRECTOR, NILNILCHIK SENIOR CENTER, NILNILCHIK testified in opposition to SB 273. She observed that the Center operates with 90 percent volunteers. A large portion of their operating expenses are through pull tab revenues. She stressed that they provide critical services. She pointed out that jobs would be effected if gaming operations are closed. ANGELINA LUNDY, ALASKA NATIVE BROTHERHOOD CAMP #2, JUNEAU testified in opposition to SB 273. She emphasized that pull tab proceeds help small villages that have low employment. ROGER MCCOY, JUNEAU testified in opposition to SB 273. He observed that the primary intent of SB 273 is to increase non-profit revenues. He observed that the legislation allows sales tax can be removed from the gross sales. Current law allow a deduction for expenses. He emphasized that the Department of Revenue determined the charitable share of 7 percent based on figures that are two years old. He maintained that expenses have increased. He maintained that because of the method to establish the charitable share that pull tab operators will not longer sell pull tabs for charities. He provided members with calculations of prohibits under current law and SB 273 (copy on file). He asserted that the legislation will only work after 90 percent of the sales outlets have closed. He stressed that employees will lose their jobs and gaming distributors will have thousands of dollars in stock that they would not be able to sell. CONSTANCE MUNRO, JUNEAU testified in opposition to SB 273. She recounted her experience with budget reductions. She maintained that the Department of Revenue can continue to audit without going on site. She suggested single site audits, accountability through a three year cycle. She is a full time volunteer. She pointed out the difficulty charities have in raising operating expenses. She stated that if charities lose money they will have no where to turn in a downsizing economy. DAN LABROSSE, DIRECTOR, DEATH COMMUNITY SERVICES, FAIRBANKS testified in opposition to SB 273. Over 50 percent of their fund raising activity comes from pull tabs. He expressed concern that a calculation based on gross sales would directly impact the marketability of the gaming activity. High percent pay-back games attract players. Operators would be penalized for high percentage pay-back games under the legislation. He pointed out that raffles could be adversely affected. He stated that they received 5 percent of the gross revenues in 1997. Co-Chair Therriault asked if people would still play if the highest pay-out was 80 percent. Mr. Labrosse thought that gross sales would go down. ALLYN YANISH, DISTRIBUTOR, FAIRBANKS testified in opposition to SB 273. He referred to section 28. He observed that there would be $24 dollar loss per game to charities if games were sold at 16 percent net. The legislation would encourage vendors to use higher profit games. This would further reduce money to non-profits. SB 273 was HELD in Committee for further consideration.