TAPE 96-24, SIDE B Number 020 SB 277 GAMING: FERRIES, VIDEO LOTTERY & MISC SENATOR TAYLOR moved adoption of a committee substitute. SENATOR ADAMS objected to the motion. SENATOR TAYLOR explained the committee substitute allows pulltab gaming to continue, videogaming to occur in the future, and videogaming on the ferries. JOE AMBROSE, legislative aide to Senator Taylor, sponsor of the measure, commented on the SB 277. The original version was designed to do away with pulltabs entirely, and replace them with video lottery machines. Charitable organizations statewide argued that many of the smaller operations would be negatively impacted by a total ban on pulltabs. The committee substitute is a compromise proposal that would still prohibit the funding of political activities by income derived from charitable gaming, including contributions to candidates for public office, or to groups that support candidates for public office. It would delete political and labor organizations from the definition of a bona fide civic or service organization qualifying for a charitable gaming permit. MR. AMBROSE continued. The main thrust of SB 277 is the introduction of video lottery machines. These machines will make charitable gaming in Alaska more accountable. They are capable of being linked to a central computer where a permanent record of all transactions can be kept. SB 277 directs that the proceeds of video lottery machines be distributed differently from those of pulltabs. Charities would retain 30 percent, 30 percent would go to the vendor, 15 percent would go to the state, and 25 percent would go to the municipality in which the machine is located. Proceeds from machines in unorganized boroughs outside municipalities would go to the state. If the Marine Highway System so desires, SB 277 provides it to license video lottery gaming on state ferries. Number 082 SENATOR ADAMS asked what entities can have permits, and whether permits can be sublet to another contractor. MR. AMBROSE replied the permittees are basically the same group that can currently sell pulltabs, with the exception of political and labor organizations. It does not impact pulltab operations currently in place. Regarding subletting permits, SB 277 prohibits the use of an operator. The videogaming machines would have to be located in a licensed premise; each premise would be limited to ten machines. SENATOR ELLIS asked about a reference made to this type of gambling as the "crack cocaine" of gaming. MR. AMBROSE responded he saw that reference today for the first time. SENATOR ELLIS questioned the payouts on existing pulltabs versus payouts on videogaming. To his knowledge, pulltab prizes are relatively low compared to videogame prizes. MR. AMBROSE stated SB 277 specifically defines the parameters of payouts and maintains the existing framework. SENATOR ELLIS inquired whether it makes the payout identical to current payouts for pulltab prizes. MR. AMBROSE deferred that question to the Director of the Division of Charitable Gaming. He added the intent was to maintain similar payouts while providing a more accountable mechanism to replace pulltabs, not to expand the whole area of gaming in Alaska. SENATOR ADAMS noted there is no fiscal note accompanying SB 277. MR. AMBROSE indicated the state ferries would become permittees if they were to become licensed, therefore a fund could be set up to use the income from the games on ferries for operations. SENATOR ADAMS asked how much revenue the permits would generate. MR. AMBROSE referred to a position statement submitted by the Marine Highway System which contended SB 277 would cost it money. The fiscal note for the original bill, which should be the same for the committee substitute, shows an annual revenue of $15,600 per vessel with three machines. The ferry system believes it will have to hire extra employees. Number 167 SENATOR ELLIS assumed the video machines offered a slot machine type of game on a video screen, and questioned whether the machines can be programmed to play all kinds of games not currently allowed under Alaska statute. MR. AMBROSE stated that the term "video lottery" would include video poker and video keno, but it would be up to the Division of Charitable Gaming to decide which games would be allowed. SENATOR ELLIS asserted that even though the bill is not intended to expand gambling in Alaska, it would grant to the executive branch the authority to do so. MR. AMBROSE stated he meant the bill would not up the stakes as far as payouts. The Department of Law has advised that SB 277 could have an impact on previous decisions made by the legislature. SENATOR ELLIS commented that the legislature staked out a fairly clear path last year in trying to limit gambling in the State of Alaska, and felt it is curious why this majority would want to grant to this executive the power to expand gambling in the state. Both the administration and the majority seemed to be of one mind on casinos and Monte Carlo Nights last year. SENATOR TAYLOR stated the original intent was to clean up the pulltab operations by creating more accountable transactions. Any member of the benefitted organization could get a print out showing exactly what was played. That approach met with tremendous opposition from charitable organizations. The use of video lottery games has worked very well in other states, such as North Dakota, and provides a financial base for those affected. He added he would not support the measure either if it will result in the executive branch using that as an excuse to provide a negotiated agreement with various other sovereigns as to where they may wish to create full casino-type gambling in Alaska. The whole question of where the state may or may not be going in the arena of gambling needs to be addressed as it was not resolved last year. Number 235 TIMOTHY REED, testifying via teleconference from Kenai, asked if a non-profit organization could own the video lottery machine outright and receive 60 percent of the revenues. SENATOR TAYLOR replied that is his understanding. MR. REED questioned how many machines a non-profit organization could own, and whether one game could be played per machine. SENATOR TAYLOR responded each permittee could have a total of ten permits, and the machines could be programmed to play any number of games, although only one game could be played at a time. MR. REED inquired about the percentages for the city and state. SENATOR TAYLOR answered those figures will generate significant revenues and may replace municipal assistance revenue sharing. He requested input on those amounts, as the percentage amounts are not fixed. LOIS PILIFANT, representing the Soldotna Senior Center, asked if all ten machines could be operated in one location. SENATOR TAYLOR agreed. MS. PILIFANT stated she was confused by the charitable organizations that were concerned that video lottery gaming would result in a loss of revenue since video gaming would only replace paper pull tabs. She believes paper pull tabs are harder to control and account for. SENATOR TAYLOR explained those organizations were concerned they would lose money because the pull tabs allow more customers access at one time, where ten video machines would allow only ten people to play at a time. MS. PILIFANT asserted several employees would be required to sell more than 10 pull tabs at a time, and such an operation would not be considered small. She noted the Soldotna Senior Center runs a small pull tab operation and raises most of its own operating revenue. It receives very little money from the Older Alaskans Commission. The video lottery games would require less paperwork and fewer employees. Number 330 MARY MAGNUSON, representing the National Association of Fundraising Ticket Manufacturers, a small trade association in Minnesota that produces pulltabs and bingo paper for charity gaming purposes, expressed concern about SB 277 because it will create economic problems for pulltab manufacturers. Currently five states allow some sort of video lottery gaming, primarily in bars, not necessarily for charitable purposes but to generate revenue for those states. Four other states allow video lottery gaming only at racetracks to stem the tide of declining pari-mutuel revenues. Seven or eight states have struggled with this issue in the last few years, and have rejected the notion of legalizing video lottery for the following reasons. Video lottery gaming typically involves an expansion of gambling: it is new, popular, and has attracted many businesses that might not otherwise be involved because of the revenues generated. The amount of money spent of video lottery gaming is generally higher than the amount spent on other forms of gambling. In Alaska, the per capita wagering on pull tabs and bingo is approximately $465 per capita per year, almost twice that of any other state. That amount is likely to increase with video lottery gaming. In Oregon, $717 is spent per capita on video lottery, and South Dakotans spend $625 per capita. States that have been faced with this issue have been concerned about expansion and that video lotteries separate the player from his/her money faster than any other form of gambling. MS. MAGNUSON advised that studies have shown that video gambling is the single most addictive form of gambling ever invented. Although all gambling is addictive, the higher incidence of compulsive gambling, pathological gambling, and problem gambling typically result from video gambling. She explained that is why it was termed the "crack cocaine" of gambling by a clinical worker in Las Vegas. The machines are designed to make it easy to stay at for a longer period of time and removes the social aspect of other games. Many states have had to implement problem gambling programs which are funded by the state. In Minnesota, that program gets $1.5 million per year and reaches only the tip of the iceberg in the problem gambling areas. MS. MAGNUSON explained the third reason states have been less likely to legalize video gambling in the last few years is because Louisiana was the last state to legalize video gambling in any kind of tavern environment in 1993. This year the newly elected governor has called a special session for the purpose of repealing the video gambling law, because of scandals involving organized crime infiltration and certain government officials, and other problems associated with video gambling. The governor plans to offer for local option riverboat gambling and land based casinos in New Orleans, and give the voters the opportunity to repeal all gambling within the state. States have had to look at these issues and make the public policy decision as to whether the social costs outweigh whatever benefits might be achieved through the legalization of video gambling. MS. MAGNUSON believed pulltabs are accountable as they contain serial numbers and bar codes. Electronic systems are available to accurately record products sold to each distributor and permittee in the state. She offered to work with regulators to increase accountability. SENATOR TAYLOR commended Ms. Magnuson for her discussion on the vicious nature of the competition. He added he has represented approximately 30 bars in the state. The single biggest problem for bar owners is that they are cash based businesses, with several employees handling cash before it is accounted for. Even though cash registers are more sophisticated, pulltabs are still sold out of shoeboxes. Employees are able to monitor how much prize money has been awarded and how much is available in the batch. He announced the bill would be held to wait for further comment.