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 spoke in support of SB 273. He noted that the legislation revises the charitable gaming statutes to base the amount paid to charities on a gross percentage as opposed to net proceeds. In addition, it creates a multiple-beneficiary permit. Representative Mulder questioned why an ideal net was not used. Mr. Williams observed that the concept of a broad- based ideal net was considered. The sponsor does not support the concept because it does not assure that a certain percentage, of every dollar gained, goes to the charity. The sponsor did not want to make the amount that goes to the charity dependent on the prize pay out. He emphasized that the intent is to remove the State from the issue of determining what the appropriate prize level is or what is an allowable expense. The mix of prizes and expenses should be left to the business decision of the charity and the operator. BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE spoke in support of the legislation. He noted that amendments have been drafted to address concerns. He maintained that the process and percentages contained in the legislation are workable and allow flexibility in prizes and expenses. He spoke against using an ideal net. He observed that the appropriate level of ideal net is not agreed on. Representative Grussendorf noted concerns that businesses that meet the 30 percent net requirement could not meet the requirement for 7 percent of the adjusted gross. Mr. Bartholomew noted that Amendment 1 would address those concerns (copy on file). The percentage would be reduced from 7 to 6.5 percent for an additional year. The amendment would phase in the increase. Co-Chair Hanley MOVED to ADOPT Amendment 1. Mr. Williams explained that the legislation would go into effect January 1999. For 1999, the percentage for pull-tabs would be 6.5 percent. It would go to 7 percent in January 2000. Amendment 1 would also change the charitable share on bingo from 1.5 to 2 percent. Co-Chair Hanley expressed support for the phase in proposal, but expressed concern that operations not be put out of business by the increase. Mr. Bartholomew stressed that 7 percent was picked based on data available to the Department. The majority of operators would achieve 7 percent of gross. The Department worked with operators that were not in compliance with current law to look at ways of adjusting expenses and prizes to fit into the proposed level. He felt confident that 7 percent of gross in the second year would not adversely affect charitable gaming. He observed that charity run operations pay themselves more than 6.5 percent. He did not think there would be a significant change in the number of non-profit permits. It is not the intention to reduce the number of permits. Co-Chair Hanley questioned the effect of shifting the net pay out by a half percent. Mr. Bartholomew replied that a reduction in a half a percent pay out on prizes would result in an increase in gross. Prize pay-outs would have to be managed to average between 77 and 78 percent to achieve the percentage of gross. Representative Mulder disclosed that he is a board member of a charity that would be affected by the legislation. In response to a question by Representative Mulder, Mr. Bartholomew stated that, based on the 1997 reports, almost 100 percent of the operators are in compliance. There being NO OBJECTION, Amendment 1 was adopted. SB 273 was HELD in Committee for further consideration during the meeting. 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." Co-Chair Therriault MOVED to ADOPT Amendment 2, on behalf of Senator Sharp (copy on file). Representative Mulder MOVED to amend Amendment 1, change 17 to 18. He explained that the amendment would raise the charitable share for pull-tabs to 18 percent of the gross. He spoke in support of the amendment to Amendment 2. BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE stressed that the average amount needed to hold harmless charities is 16 to 17 percent of the gross. He asserted that 17 percent would hold the greatest amount harmless. In response to a question by Co-Chair Therriault, Mr. Bartholomew observed that a 77 percent prize pay-out would provide 16 percent of gross. For non-profits to receive 18 percent of gross, prize pay-outs would have to be approximately 73 - 74 percent. Representative Davis noted that there are variations in prize pay-outs. Mr. Bartholomew observed that prize pay-outs run from approximately 72 to 85 percent. (Tape Change, HFC 98 -120, Side 1) Mr. Bartholomew observed that prize pay-outs are driven by what has been previously paid. Pay-outs can be higher or lower, but they must average to the amount needed to meet the percentage of gross. He acknowledged that charities can negotiate for a higher share, but stressed that it is difficult. Representative Davies expressed concern that the level of share is at a level that would force some people out of business. Mr. Bartholomew agreed that the industry has raised the issue. He stressed that the Department has attempted to find the level that would hold operations harmless. TOM WILLIAMS, STAFF, SENATOR SHARP stated that the sponsor recommended 17 percent, but does not object to 18 percent. There being NO OBJECTION, the amendment to the amendment was adopted. There being NO OBJECTION, Amendment 2 was adopted as amended. Representative Martin MOVED to ADOPT Amendment 3 (copy on file). Mr. Bartholomew explained that Amendment 3 would strengthen controls over how money received by non-profits from gaming is spent. The amendment prohibits commingling of charitable gaming proceeds with other funds. He noted that it is hard to ascertain if money is spent appropriately when it is commingled with funds for other purposes. The proceeds would have to be spent directly out of the gaming account. Representative Foster expressed concerns that the amendment would be difficult for small rural operations. He asked what the penalty would be for noncompliance. Mr. Bartholomew explained that the worst penalty would be for them to lose their license. He observed that the charity would already have a gaming account. The amendment does not require a new account. Some non-profits transfer funding into their operating account. Under the amendment funds could not be transferred to the operating account. There would not be a criminal penalty. Co-Chair Therriault summarized that the Department would approach the organization to get them to follow the rules. Mr. Bartholomew stressed that the Department offers a chance to come into compliance. Representative Foster questioned if there was a problem in rural areas. Mr. Bartholomew emphasized that the chance of having sanctions would be small. It would make it easier to follow the flow of money. Representative Martin spoke in support of the amendment. He emphasized that the amendment would not hurt charities. The intent is to require large non-profits to keep the funds separate from operating expenses. Mr. Williams stated that the sponsor does not object to the amendment. He did not think that the amendment would be onerous. A roll call vote was taken on the motion. IN FAVOR: Mulder, Davis, Martin, Therriault OPPOSED: Davies, Foster, Kelly Co-Chair Hanley and Representatives Grussendorf, Kohring and Moses were absent from the vote. The MOTION FAILED (4-3). Representative Martin MOVED to ADOPT Amendment 4 (copy on file). Amendment 4 would raise levels paid to charities from 7 to 8.5 percent. Mr. Bartholomew stated that an increase of 1.5 percent would significantly change the financial pie. More money would go to non-profits, but the unintended consequences of that large of an increase are unknown. The intent of the legislation was to keep the financial pie fixed. Representative Davis spoke against the amendment. He maintained that the amendment would force operators out of business, which would hurt charities. Representative Martin spoke in support of the amendment. He asserted that not enough money is going to charity. A roll call vote was taken on the motion. IN FAVOR: Martin, Therriault OPPOSED: Davies, Davis, Foster, Kelly, Mulder Co-Chair Hanley and Representatives Grussendorf and Moses were absent from the vote. The MOTION FAILED (2-5). Amendment 5 was withdrawn. ASHLEY REED, LOBBYIST, CHARITABLE GAMING ASSOCIATION spoke against the legislation. He observed that the industry maintains concerns regarding the legislation. He stressed that there is no guarantee that the legislation will be revenue neutral. He stressed that small operations have higher costs than large operations. He maintained that charities would suffer from the legislation. Co-Chair Therriault MOVED to report HCS SB 273 (FIN) out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. Representative Martin maintained that true charities do not have to worry. HCS CSSB 273 (FIN) was REPORTED out of Committee with "no recommendation" and with a zero fiscal note by the Department of Revenue dated 2/27/98.