HOUSE JUDICIARY STANDING COMMITTEE April 22, 1993 1:00 p.m. MEMBERS PRESENT Rep. Brian Porter, Chairman Rep. Jeannette James, Vice-Chair Rep. Pete Kott Rep. Joe Green Rep. Cliff Davidson Rep. Jim Nordlund MEMBERS ABSENT Rep. Gail Phillips COMMITTEE CALENDAR SB 76 "An Act requiring regulations relating to pull-tabs to be consistent with North American Gaming Regulators Association standards on pull-tabs to the extent permitted by charitable gaming laws; allowing permittees to contract with vendors to sell pull-tabs on behalf of the permittee at an establishment holding a package store license and certain establishments holding a beverage dispensary license; allowing municipalities to prohibit vendors from conducting gaming activities within the municipality; restricting the purchase of pull-tabs by permittees, licensees, and vendors and their owners, managers, and employees; requiring receipts before prizes of $50 or more may be awarded in pull-tab games; prohibiting distributors from supplying pull-tabs to vendors; requiring the registration of vendors and regulating activities involving them; requiring the licensing of out-of-state pull-tab manufacturers; requiring the department regulating charitable gaming to approve contracts between permittees and operators before gaming may occur; preventing persons with felony convictions or convictions for crimes involving theft or dishonesty or a violation of gambling laws from being involved in charitable gaming activities as a permittee, licensee, vendor, person responsible for the operation of an activity, fund raiser or consultant of a licensee or vendor, or employee in a managerial or supervisory capacity, and providing exceptions for certain persons whose convictions are at least 10 years old and are not for violation of an unclassified felony described in AS 11, a class A felony, or extortion; relating to multiple-beneficiary charitable gaming permits and door prizes for charitable gaming; requiring operators to pay permittees each quarter at least 30 percent of the adjusted gross income from a pull-tab activity and limiting operators to expenses of not more than 70 percent of the adjusted gross income from that activity; requiring operators to pay permittees each quarter at least 10 percent of the adjusted gross income from a charitable gaming activity other than pull-tabs and limiting operators to expenses of not more than 90 percent of the adjusted gross income from that activity; requiring a permittee who uses a pull-tab vendor to enter into a contract with that vendor; requiring a vendor contracting with a permittee to pay the permittee at least 50 percent of the ideal net for each pull-tab series delivered to the vendor by the permittee; requiring that operators report an adjusted gross income of at least 15 percent of gross income each quarter; allowing the commissioner regulating charitable gaming to issue orders prohibiting violations of state gaming laws; relating to the authority of the commissioner regulating charitable gaming to suspend or revoke a permit, license, or registration; prohibiting the direct contribution of proceeds of a bingo or pull-tab game to a candidate for a public office of the state or a political subdivision of the state or to that candidate's campaign organization; prohibiting the payment of any portion of the net proceeds of a charitable gaming activity to a registered lobbyist; relating to `political uses' and `political organizations' as those terms are used in the charitable gaming statutes; and providing for an effective date." HEARD AND HELD IN COMMITTEE WITNESS REGISTER KEN ERICKSON Legislative Aide Office of Senator Drue Pearce Alaska State Legislature Capitol Building, Room 508 Juneau, Alaska 99801 Phone: 465-4993 Position Statement: Supported SB 76 PAUL FUHS Acting Commissioner Department of Commerce and Economic Development P.O. Box 110800 Juneau, Alaska 99811 Phone: 465-2500 Position Statement: Discussed SB 76 JOHN HANSEN Gaming Manager Division of Occupational Licensing Department of Commerce and Economic Development P.O. Box 110806 Juneau, Alaska 99811 Phone: 465-2581 Position Statement: Discussed SB 76 RUSSELL HEATH Executive Director Alaska Environmental Lobby P.O. Box 22151 Juneau, Alaska 99802 Phone: 463-3366 Position Statement: Requested amendment to SB 76 PREVIOUS ACTION BILL: SB 76 SHORT TITLE: CHARITABLE GAMING RESTRICTIONS BILL VERSION: CSSB 76(FIN) SPONSOR(S): SENATOR(S)PEARCE,Kelly,Frank,Sharp,Taylor, Phillips,Halford JRN-DATE JRN-PG ACTION 02/19/30 (S) L&C AT 01:30 PM BELTZ ROOM 211 01/29/93 188 (S) READ THE FIRST TIME/REFERRAL(S) 01/29/93 188 (S) LABOR & COMMERCE, JUDICIARY 02/11/93 (S) L&C AT 01:30 PM BELTZ ROOM 211 02/11/93 (S) MINUTE(L&C) 02/25/93 (S) L&C AT 01:30 PM FAHRENKAMP ROOM 203 02/25/93 (S) MINUTE(L&C) 03/04/93 (S) L&C AT 01:30 PM FAHRENKAMP ROOM 203 03/04/93 (S) MINUTE(L&C) 03/05/93 612 (S) L&C RPT CS 1DP 2NR 1AM NEW TITLE 03/05/93 612 (S) ZERO FISCAL NOTE TO SB & CS (DCED) 04/01/93 (S) JUD AT 03:30 PM CAPITOL ROOM 120 04/01/93 (S) MINUTE(JUD) 04/02/93 1073 (S) JUD RPT CS 2DP 2NR 1DNP NEW TITLE 04/02/93 1075 (S) FISCAL NOTE TO CS (DCED) 04/02/93 1075 (S) FINANCE REFERRAL ADDED 04/02/93 1080 (S) FIN WAIVED PUBLIC HEARING NOTICE,RULE 23 04/07/93 (S) FIN AT 09:00 AM SENATE FIN 518 04/07/93 (S) MINUTE(FIN) 04/07/93 (S) FIN AT 06:00 PM SENATE FIN 518 04/08/93 (S) FIN AT 09:00 AM SENATE FIN 518 04/10/93 (S) MINUTE(FIN) 04/12/93 (S) FIN AT 09:00 AM SENATE FIN 518 04/15/93 (S) FIN AT 06:45 PM SENATE FIN 518 04/17/93 (S) FIN AT 09:00 AM SENATE FIN 518 04/17/93 (S) MINUTE(FIN) 04/17/93 (S) FIN AT 09:00 AM SENATE FIN 518 04/18/93 1465 (S) FIN RPT CS 6DP 1AM NEW TITLE 04/18/93 1466 (S) FISCAL NOTE TO CS (DCED/REV) 04/18/93 1466 (S) PREVIOUS ZERO FN APPLIES TO CS (DCED) 04/19/93 1483 (S) RULES 3CAL 1DNP 4/19/93 04/19/93 1485 (S) READ THE SECOND TIME 04/19/93 1486 (S) FIN CS ADOPTED Y14 N6 04/19/93 1496 (S) AM NO 1 MOVED BY KERTTULA 04/19/93 1496 (S) AM NO 1 FAILED Y10 N10 04/19/93 1497 (S) AM NO 2 MOVED BY LITTLE 04/19/93 1497 (S) AM NO 2 FAILED Y9 N11 04/19/93 1498 (S) AM NO 3 MOVED BY LITTLE 04/19/93 1499 (S) AM NO 3 FAILED Y10 N10 04/19/93 1504 (S) AM NO 4 MOVED BY SALO 04/19/93 1504 (S) AM NO 4 FAILED Y9 N11 04/19/93 1505 (S) AM NO 5 MOVED BY DUNCAN 04/19/93 1505 (S) AM NO 5 FAILED Y9 N11 04/19/93 1506 (S) AM NO 6 MOVED BY ZHAROFF 04/19/93 1506 (S) AM NO 6 FAILED Y9 N11 04/19/93 1507 (S) AM NO 7 MOVED BY LINCOLN 04/19/93 1510 (S) AM NO 7 FAILED Y9 N11 04/19/93 1510 (S) AM NO 8 MOVED BY LINCOLN 04/19/93 1513 (S) AM NO 8 FAILED Y9 N11 04/19/93 1516 (S) AM NO 9 MOVED BY ELLIS & WITHDRAWN 04/19/93 1516 (S) AM NO 10 MOVED BY SALO 04/19/93 1517 (S) AM NO 10 FAILED Y9 N11 04/19/93 1517 (S) AM NO 11 MOVED BY DONLEY 04/19/93 1518 (S) AM 1 TO AM 11 FAILED Y8 N12 04/19/93 1518 (S) AM NO 11 FAILED Y9 N11 04/19/93 1519 (S) AM NO 12 MOVED BY DONLEY 04/19/93 1520 (S) AM NO 12 FAILED Y9 N11 04/19/93 1521 (S) AM NO 13 MOVED BY LITTLE & WITHDRAWN 04/19/93 1520 (S) AM NO 14 MOVED BY ELLIS 04/19/93 1523 (S) AM NO 14 FAILED Y9 N11 04/19/93 1523 (S) AM NO 15 MOVED BY LITTLE 04/19/93 1524 (S) AM NO 15 FAILED Y9 N11 04/19/93 1524 (S) AM NO 16 MOVED BY ZHAROFF 04/19/93 1528 (S) AM NO 16 FAILED Y4 N16 04/19/93 1528 (S) AM NO 17 MOVED BY LITTLE 04/19/93 1528 (S) AM NO 17 FAILED Y9 N11 04/19/93 1529 (S) AM NO 18 MOVED BY ELLIS 04/19/93 1530 (S) AM NO 18 FAILED Y9 N11 04/19/93 1530 (S) AM NO 19 MOVED BY DUNCAN 04/19/93 1531 (S) AM NO 19 FAILED Y9 N11 04/19/93 1532 (S) AM NO 20 MOVED BY LITTLE 04/19/93 1532 (S) AM NO 20 FAILED Y10 N10 04/19/93 1533 (S) AM NO 21 MOVED BY ELLIS 04/19/93 1533 (S) AM NO 21 FAILED Y8 N12 04/19/93 1534 (S) AM NO 22 MOVED BY LITTLE 04/19/93 1534 (S) AM NO 22 FAILED Y9 N11 04/19/93 1541 (S) AM NO 23 MOVED BY ZHAROFF 04/19/93 1541 (S) AM NO 23 WITHDRAWN 04/19/93 1542 (S) ADVANCE TO 3RD RDG FLD Y11 N9 04/19/93 1542 (S) THIRD READING 4/20 CALENDAR 04/20/93 1592 (S) READ THE THIRD TIME CSSB 76(FIN) 04/20/93 1593 (S) RET 2ND RESCIND ACTION AM 20 FLD Y9 N11 04/20/93 1594 (S) RET 2ND RESCIND ACTION AM 10 FLD Y10 N10 04/20/93 1594 (S) MOVED TO BOTTOM OF CALENDAR 04/20/93 1597 (S) RET TO 2ND TO RESCIND RULED OUT OF ORDER 04/20/93 1598 (S) COSPONSOR(S):KELLY,FRANK,SHARP, 04/20/93 1598 (S) TAYLOR, PHILLIPS, HALFORD 04/20/93 1600 (S) PASSED Y13 N7 04/20/93 1600 (S) EFFECTIVE DATE PASSED Y16 N4 04/20/93 1600 (S) Adams NOTICE OF RECONSIDERATION 04/21/93 1614 (S) RECON TAKEN UP-IN THIRD READING 04/21/93 1615 (S) TITLE AM NO 24 MOVED BY DUNCAN 04/21/93 1615 (S) AM NO 24 FAILED Y9 N11 04/21/93 1616 (S) RULING OF CHAIR UPHELD Y11 N9 04/21/93 1618 (S) PASSED ON RECONSIDERATION Y15 N5 04/21/93 1618 (S) EFFECTIVE DATES VOTE SAME AS PASSAGE 04/21/93 1642 (S) TRANSMITTED TO (H) 04/22/93 (H) JUD AT 01:00 PM CAPITOL 120 ACTION NARRATIVE TAPE 93-69, SIDE A Number 000 The House Judiciary Standing Committee meeting was called to order at 1:15 p.m. on April 22, 1993. Vice-Chair Jeannette James, chairing the meeting in the absence of Chairman Porter, announced that the purpose of the meeting was to hold a work session on SB 76. She noted that the bill would be back before the committee again on the following day. SB 76 CHARITABLE GAMING RESTRICTIONS Number 026 KEN ERICKSON, LEGISLATIVE AIDE TO SEN. DRUE PEARCE, PRIME SPONSOR OF SB 76, read a sponsor statement. In summary, he said that although many rumors surrounded SB 76, it was really a very simple bill which accomplished two main things: it increased the amount of money going to charitable organizations, and it prevented the criminal element from gaining a foothold in the state's charitable gaming industry. He said the bill would not increase the amount of gaming in the state. MR. ERICKSON added that SB 76 restricted the ways in which profits derived from gambling could be used by prohibiting the current diversion of profits to political campaigns. He commented that the bill increased charities' guaranteed percentage of return from gaming activities and allowed charities alternatives to placing their permits with "for profit" operators. He stated SB 76 gave non-profit entities additional avenues by which to generate money using their permits while restricting the activities of "for profit" operators. MR. ERICKSON discussed SB 76, as originally introduced by Sen. Pearce. He noted that the original SB 76 prevented criminals from gaining a foothold in gaming by denying some felons access and controlling the access of others. Also, he said, the original SB 76 disallowed the use of bingo or pull-tab net proceeds for direct political contributions to candidates. All non-profit organizations, including political parties and labor organizations, would still be allowed to hold permits and use their proceeds for administrative expenses or other uses. They could still use raffles and other permitted games to earn money which could then be used for direct contributions to candidates, he noted. MR. ERICKSON next outlined additions which the Senate Finance Committee had made to SB 76. He said that a prohibition against using net proceeds to directly or indirectly pay registered lobbyists was added to the bill. Also, he said, the Senate Finance Committee added third party vendor language, giving non-profit organizations a profitable alternative to placing their permits with "for profit" operators. He stated that the committee had also added multiple beneficiary permit language to SB 76. That, he said, would allow two to six permittees to jointly operate their permits. MR. ERICKSON noted that the Senate Finance Committee also added a requirement that the Department of Commerce and Economic Development (DCED) approve contracts between operators and permittees. Language allowing the DCED to revoke a permit, license, or vendor registration upon proof that "inside" information was given or acted upon was also added to the bill, he said. Requirements that the DCED license out-of-state pull-tab manufacturers and that operators increase the return of net proceeds from pull-tabs to charities from 15% to 30% were also added to SB 76, he said. The minimum required return on other gaming activities was increased from 0% to 10%, he added. MR. ERICKSON commented that, under existing law, pull-tabs could be sold in bars and liquor stores, but current statutes did not provide clear guidelines for direct third- party relationships between permittees and those facilities. Senate Bill 76's third-party provisions, he said, provided a reasonable licensing scheme for activities which were already occurring. Also, the bill provided DCED with the tools it needed for effectively regulating third-party activities. MR. ERICKSON stated that, under current law, all bars and package liquor stores could sell pull-tabs, but many chose not to do so. Senate Bill 76 would not change that. He asserted that the bill would not expand gambling, nor would it put genuine charitable organizations out of business. The bill would not set unrealistic minimum returns to charities, nor would it prevent non-profit charities from holding permits. What SB 76 would do, he said, was to increase by 100% guaranteed pull-tab receipts to charities. Every non-profit now eligible to conduct gaming would remain eligible under SB 76. And, he said, they would be allowed to retain even greater proceeds if they became direct operators by placing their permits with third-party vendors. He said that Sen. Pearce urged the committee to pass CSSB 76(FIN), unamended, out of committee as soon as possible. Number 198 REP. NORDLUND thanked Mr. Erickson for his explanation. He noted that, as a member of the House, he was somewhat insulted that the sponsor asked that the committee pass the bill without amendment. He said that the House should have the right to improve SB 76 in any way that it saw fit. Given the restrictive title of the bill, he said, the House had little choice but to pass it unamended. He asked Mr. Erickson to explain why the Senate had chosen to put such a restrictive title on the bill. Number 212 MR. ERICKSON commented that charitable gaming was a very contentious issue. He said that the length of the title was an effort to provide clarity regarding the Senate's wishes. He stated that the title allowed for some changes to be made to the bill. Number 222 REP. NORDLUND stated that he intended to introduce a concurrent resolution to suspend the rules on SB 76's title, so that the House could amend the bill if it saw fit. REP. DAVIDSON asked Mr. Erickson to provide a comprehensive list of the regulatory tools provided to the DCED in SB 76. MR. ERICKSON replied that Mr. John Hansen, from the DCED, could more adequately respond to Rep. Davidson's question. Number 245 REP. DAVIDSON asked Mr. Erickson if the current situation of all bars and package liquor stores being allowed to sell pull-tabs if they so chose would continue upon enactment of SB 76. Number 254 MR. ERICKSON commented that the existing situation would continue. Number 257 REP. DAVIDSON asked Mr. Erickson if he anticipated that SB 76 would result in more vendors selling pull-tabs. Number 261 MR. ERICKSON replied that because "vendors" did not exist under current law, the answer to Rep. Davidson's question was "yes." What SB 76 did, he added, was to legitimize an activity which was currently occurring. Number 263 REP. DAVIDSON asked Mr. Erickson to explain SB 76's effect on beverage licensees. Number 269 MR. ERICKSON noted that beverage licensees, under SB 76, would be allowed to become vendors. Number 272 REP. DAVIDSON asked who would receive the profits if a beverage licensee agreed to sell pull-tabs. Number 277 MR. ERICKSON stated that, under current law, there were permittees and operators. Permittees could sell pull-tabs themselves, and run the selling organization themselves, he said. Or they could contract with an operator, a for-profit entity that took his or her cut for providing the service to the non-profit, he said. By allowing permittees to sell directly to vendors, he added, the "middle man" was bypassed. He said that not all non-profits would choose to sell to vendors: they might choose to operate the game themselves, or continue to contract with an operator. Number 303 REP. DAVIDSON asked Mr. Erickson if SB 76 would result in more alcoholic beverage establishments selling pull-tabs. Number 310 MR. ERICKSON predicted that SB 76 would result in a redistribution of how the money flowed, but not an increase in gaming activity. He said that if some bars currently chose not to sell pull-tabs, as they did not fit in with the bar's image, those bars would probably continue not to sell pull-tabs after passage of SB 76. Number 315 REP. DAVIDSON expressed his concerns about the increased mixing of alcohol and gaming throughout the state, but particularly in rural areas. Number 329 CHAIR JAMES asked Mr. Erickson to explain the difference between a vendor and an operator. Number 330 MR. ERICKSON stated that, statutorily, a vendor would be required to return 50% of the "ideal net proceeds" up-front. A permittee would go to a distributor of pull-tabs, he said, buy the pull-tabs, and present them to a vendor. The vendor would then write a check right then to the permittee for 50% of the ideal net. The vendor would then sell the pull-tabs, award the prizes, and pay for his or her overhead out of the remaining 50%. MR. ERICKSON noted that an operator tended to be an organization like a bingo palace or a bar. An operator, under current law, was required to return 15% of adjusted gross income to a permittee every two quarters. Operators ran businesses which focused on running bingo games and pull-tabs, he said. Few operators also sold alcohol. Number 358 REP. DAVIDSON asked Mr. Erickson to explain the meaning of "ideal net proceeds." Number 362 MR. ERICKSON offered an example that, if every pull-tab in a box were sold, a person would have $100. Prizes awarded to the pull-tab players would equal $80. The "ideal net" would be the remaining $20, he said, minus a very small amount for taxes. Number 382 REP. DAVIDSON said that, assuming that SB 76 would result in more alcoholic beverage licensees selling pull-tabs, what kind of enforcement would occur, particularly in light of budget cuts to the Alcoholic Beverage Control (ABC) Board? Number 396 COMMISSIONER (COMM.) PAUL FUHS, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT, noted that the ABC Board would have nothing to do with gaming operations. Number 399 REP. DAVIDSON asked how the DCED would oversee gaming operations in bars. MR. ERICKSON stated that Mr. Hansen could best address Rep. Davidson's question. COMM. FUHS distributed several documents, one of which compared SB 76 with HB 168, CHARITABLE GAMING AMENDMENTS. He noted that SB 76, as passed by the Senate, enjoyed the strong support of the Governor. REP. DAVIDSON noted that the Schedule E document distributed by the Commissioner seemed somewhat "stacked" and asked that another example of a Schedule E be provided to the committee, one which contained examples of bipartisan contributions. Number 464 COMM. FUHS said that he would provide another example of a Schedule E, per Rep. Davidson's request. He outlined the components of SB 76, as indicated on the document entitled "COMPARITIVE (sic) ANALYSIS." He said that SB 76 allowed for multiple beneficiary permits, which helped smaller permittees with reporting requirements. Also, the bill would require the DCED to approve contracts between operators and permittees. Senate Bill 76 would also raise the amount of money received by non-profit organizations: from 0% to 10% for bingo, and from 15% to 30% for pull-tab operations. COMM. FUHS commented that SB 76 would also prohibit the exchange of "inside" information, and require vendors to pay 50% of the ideal net at the time of pull-tab delivery. He said that the bill also required NAGRA (North American Gaming Regulators Association) standards for pull-tab manufacturers. Additionally, he said, SB 76 prohibited felons from becoming involved in gaming operations, but loosened up to some degree prohibitions against people convicted of misdemeanors. COMM. FUHS stated that the bill would also prohibit the diversion of net proceeds to political campaigns and lobbyists. Number 561 REP. DAVIDSON asked why contributions to lobbyists and candidates were prohibited, but contributions to ballot measure campaigns were not. Number 569 COMM. FUHS responded that most abuse occurred in relation to lobbyist and candidate contributions. He expressed his opinion that, until campaign contributions were removed from the gaming equation, it would be very difficult to achieve significant gaming reform. Number 580 CHAIR JAMES mentioned that organizations which fit under the federal government's 501(c)(3) category were strictly prohibited from doing anything which affected legislation. She asked why Alaska did not restrict gaming activities to 501(c)(3) organizations. Number 590 COMM. FUHS replied that, by restricting gaming to 501(c)(3) organizations, the state might end up excluding some organizations, like Little League baseball, or community theater groups, that everyone could agree were charitable organizations. REP. DAVIDSON asked Comm. Fuhs to discuss the Alaska Charitable Gaming Association. COMM. FUHS noted that for-profit gaming operators had banded together to form a non-profit trade association to lobby for their industry. He continued outlining the components of SB 76, as described on the document entitled "COMPARITIVE (sic) ANALYSIS." He said SB 76 would give the DCED specific authority to suspend or revoke the permits of licensees or vendors for up to five years. Finally, he said, the bill would give the Commissioner of DCED the authority to issue an emergency 60-day order to stop illegal gaming activities. COMM. FUHS stated that SB 76 significantly increased the regulation of gaming, and increased the proceeds that must be transmitted to charitable organizations. He called the committee members' attention to a graph entitled, "Numbers as reported by permittees and operators 1991." Number 662 REP. GREEN noted that the numbers on the graph did not add up. Number 675 JOHN HANSEN, GAMING MANAGER FROM THE DCED, responded that the numbers which appeared on the graph were unaudited numbers which had been submitted on permittees' and operators' financial statements. Number 683 REP. GREEN asked Mr. Hansen if he found the fact that the numbers did not add up to be "scary." Number 686 MR. HANSEN replied that he found it very scary. Number 688 COMM. FUHS stated that one advantage of using a vendor was that a charitable organization would receive 50% of the ideal net up front. Number 691 REP. GREEN asked if the "net" portion of the graph referred to "ideal net." Number 693 COMM. FUHS explained that ideal net was the amount that a person would receive if he or she sold all of the pull-tabs in a box, less prizes awarded. Number 700 REP. GREEN asked for an explanation of how much money a vendor would write a permittee a check for, if the permittee brought the vendor $204 million worth of pull-tabs. Number 709 MR. HANSEN offered an example of a box of pull-tabs containing 2,000 tickets. The DCED would collect an excise tax on the ideal net, he said. If out of that box of pull- tabs, $1,500 would be paid out in prizes, then $500 would be the ideal net. The state collected a 3% tax on the ideal net, he added. The only difference between ideal net and adjusted gross income, was that in the computation of adjusted gross income, taxes were included. Number 720 REP. GREEN asked if, on the graph, the adjusted gross income was approximately the amount of the ideal net. MR. HANSEN said that Rep. Green was correct. REP. GREEN questioned why, on the graph, the amount which went to charity was substantially less than half of the adjusted gross income. Number 727 COMM. FUHS commented that expenses included salaries for employees and facility rental and utilities. Also included in the expenses category was the operator's profit, he added. Discussion ensued among Mr. Hansen, Comm. Fuhs, and Rep. Green over the numbers on the graph. Number 747 CHAIR JAMES asked if it would be legal for a vendor to not sell all of the pull-tabs in a series, if he or she knew that the biggest prize had not yet been won. Number 755 MR. HANSEN replied that that would be illegal. But, he said, a new pull-tab game could be mixed in with a "stale" jar of pull-tabs, as long as no more than ten percent of the existing game remained in the jar. He noted that, under current law, there was no prohibition against trading information about pull-tab games. Attempts to address that problem through regulation, he said, resulted in a prohibition against family members playing pull-tab games which were sold by other family members. However, that presented problems in rural Alaska. He said SB 76 prohibited the disclosure of "inside" information. Number 770 CHAIR JAMES questioned how the trading of "inside" information could be controlled. Number 772 COMM. FUHS acknowledged that it was difficult to detect the disclosure of "inside" information. But, he said, having a sanction on the books could help limit its occurrence. Those who would be watching for information trading would be patrons of the establishments which sold pull-tabs, he noted. Number 788 REP. DAVIDSON asked Comm. Fuhs to explain to the committee how a pull-tab game worked. COMM. FUHS stated that there were 2,000 tickets in a series of pull-tabs. He explained that pull-tabs were small cards which came in a box and likened them to "paper slot machines." Number 801 REP. GREEN asked about the odds of winning when playing pull-tabs. He asked if the prizes were cash awards. COMM. FUHS replied that the prizes were cash awards. REP. GREEN asked Comm. Fuhs if he had any idea what kind of people played pull-tabs. He discussed a woman whom he had seen playing pull-tabs in the past, and noted that it appeared that she had little disposable income. Number 820 COMM. FUHS stated that the DCED had not conducted a study on the demographics of those people who purchased pull-tabs. However, he stated his belief that, in general, people who could not afford to play pull-tabs were more likely to play than those who could afford to gamble. For that reason, he said, it was important that if gaming were to occur in Alaska at all, the proceeds should go to charitable organizations. TAPE 93-69, SIDE B Number 000 CHAIR JAMES asked if it were correct to assume that if pull- tabs were banned, there would probably be no bingo parlors, due to the small amount of money generated by bingo games. Number 020 COMM. FUHS noted that there were bingo parlors before there were pull-tabs. He stated that sometimes bingo was used as a "loss leader" to draw patrons into a gaming establishment. Once there, the patrons would also buy pull-tabs, he said. He stated that bingo operations had higher overhead than did pull-tab operations. Number 035 REP. NORDLUND asked Comm. Fuhs if he thought it advisable to allow pull-tabs to be sold in bars. He expressed his opinion that if the legislature truly wanted to clean up gaming, then pull-tabs should be banned from bars. Number 050 COMM. FUHS commented that the DCED had had no reports of differing behavior in bars and bingo parlors. He expressed his opinion that it made some sense to confine gaming activities to "adults only" locations. Number 068 REP. NORDLUND asked if there were any provisions in SB 76 that would ensure that all permittees had equal opportunities to place their pull-tabs with vendors. COMM. FUHS noted that there were no such provisions in SB 76. REP. NORDLUND expressed concern about the inequity of that situation. Number 095 COMM. FUHS said that he did not know how the legislature could attempt to address that perceived problem. He noted instances in which operators had cancelled the games benefiting legitimate charitable organizations, while continuing the games benefiting political parties and trade associations. He said that SB 76 would stop that practice. Number 111 MR. HANSEN stated that under both current law and SB 76's provisions, there were prize limitations for organizations on a calendar-year basis. When permittees used operators, he said, that prize limitation was $500,000. That limitation gave more permittees opportunities to utilize the services of operators, he said. Self-directed permittees had a prize limitation of $1 million, he noted. Number 131 REP. DAVIDSON asked if Alaska Lotto, once it reached the $1 million prize limitation, ceased to operate games. Number 140 MR. HANSEN stated that Lottery Alaska was a for-profit licensed operator which conducted gaming for various permittees. At the point when Lottery Alaska had paid out $500,000, he said, it was required to operate games on behalf of other permittees. He noted that Lottery Alaska had been involved in some unauthorized activities, which the state had stopped. Number 157 REP. DAVIDSON indicated his support for certain elements of SB 76, particularly the increased amounts of money directed to charities and the prohibition against certain convicted criminals becoming involved in charitable gaming. But, he said that he was concerned that SB 76 would increase the amount of gambling in the state. Number 174 COMM. FUHS said that he could only speculate, but noted his belief that SB 76 would not increase the amount of gambling. What it did increase was the amount of money that went to the charities. He said that the reforms contained in SB 76 were desperately needed, but represented only a fraction of what needed to be done in this area. Number 205 REP. DAVIDSON stated that it appeared that SB 76 expanded the number of locations at which gambling could occur. He asked Comm. Fuhs how the legislature could monitor gaming activity. COMM. FUHS noted that the DCED was required to report to the legislature on a yearly basis regarding gaming activity. REP. DAVIDSON expressed his opinion that the legislature should look into the demographics of charitable gaming activity. He asked about the cost of SB 76 to the DCED. Number 238 COMM. FUHS responded that the gaming division did need more money for auditing and enforcement. He said that the fiscal year 94 budget would include increased amounts of money for that purpose. He noted that under an Executive Order issued by the Governor, the Division of Gaming would be moving from the DCED to the Department of Revenue (DOR). He expressed his opinion that SB 76 would not substantially increase the Gaming Division's workload. Number 257 REP. DAVIDSON asked if one additional auditor would be sufficient. Number 258 COMM. FUHS replied that more than one additional auditor would probably be useful, but recognized that attempts had to be made to reduce the operating budget. He predicted that the additional auditor would generate more revenue than it cost to employ him or her. He stated that auditors were in an enforcement role. Number 268 REP. KOTT asked if a $381,000 increase for the division adopted by the House Finance Committee would buy more than a single auditor. COMM. FUHS replied that the Senate Finance Committee had only put in money for one auditor, but that the House Finance Committee had included even more money for enforcement. Number 278 REP. GREEN noted that there was a big difference between the House Finance Committee's $381,000 addition and the Senate Finance Committee's $87,000. Number 288 COMM. FUHS mentioned the Governor's support for the additional $381,000 added by the House Finance Committee for auditing and enforcement of gaming. Number 301 REP. GREEN questioned why a permittee would choose to operate its own game, instead of selling pull-tabs directly to a vendor. He said that it seemed to him that a permittee would receive more income by selling pull-tabs directly to a vendor. Number 322 COMM. FUHS stated that permittees who ran their own gaming activities received all of the profits, whereas permittees who used the services of operators received only approximately 50% of the profits. He noted that many permittees did not have the administration or personnel to run games, and chose to have operators run the games instead, even though the charities would receive less money. Number 336 REP. GREEN asked if there was any requirement about posting odds information at pull-tab locations. Number 353 MR. HANSEN replied that each pull-tab game contained odds information. He showed the committee a box of pull-tabs and explained that each box contained a bar-coded state identification stamp, which was used by the state for tracking purposes. He said that this resulted in easier auditing procedures. (Rep. Porter arrived at 2:20 p.m.) Number 393 REP. GREEN questioned how the increased percentages of proceeds which went to the permittees in SB 76 had been chosen. Number 413 COMM. FUHS stated that the Governor's regulations requiring a 40% return to charities had been in place for one quarter of a calendar year. During that time, he said, some inefficient locations had gone out of business. He expressed the DCED's position that 30% for pull-tabs and 10% for bingo were fair numbers which should not force any operators to go out of business. He said that further adjustments to the percentages could be made at a later date, if the need arose. Number 432 REP. NORDLUND asked if the gaming regulation was completely paid for by program receipts. COMM. FUHS replied that Rep. Nordlund was correct, and that, in addition, charitable gaming provided the state with an extra $1 million annually in revenue. Number 450 REP. NORDLUND asked if the revenue was generated by the 3% tax on pull-tabs. MR. HANSEN noted that the majority of revenue came from that tax. But, he said, the state also collected a 1% tax on net proceeds. REP. NORDLUND asked if the DCED had considered increasing those taxes. MR. HANSEN noted that the charitable gaming program was not designed to raise revenue for the state. COMM. FUHS noted that increasing taxes would take money away from the charities. Number 464 REP. PORTER noted that the House's version of the operating budget would allow three more auditors to be hired for the Gaming Division. He added that the extra auditors were expected to generate an additional $1 million in revenue to the charities. COMM. FUHS mentioned that the extra auditors would probably bring in more gaming tax revenues to the state as well. Number 479 REP. DAVIDSON asked about the pull-tab manufacturers. Number 480 MR. HANSEN stated that there were ten pull-tab manufacturers in the nation. He said that there were no federal guidelines regarding the manufacture of pull-tabs. Current state law required that pull-tabs have a NAFTM (National Association of Fund-Raising Ticket Manufacturers) seal. He said SB 76 would change that by requiring that pull-tabs must meet certain standards, but would not have to have the NAFTM seal. He expressed his opinion that it was not right that Alaska statutes currently gave NAFTM, a trade association, exclusive rights to market pull-tabs in the state. REP. DAVIDSON asked who would order pull-tabs from a manufacturer in the event that a permittee worked with a vendor. MR. HANSEN said that a permittee was required to purchase pull-tabs from an Alaska pull-tab distributor and deliver them to a vendor. He noted that there were approximately 30 distributors in the state. Number 529 Regarding new restrictions imposed by SB 76, REP. DAVIDSON questioned why the state should care what a non-profit organization did with its net gaming proceeds. Number 533 COMM. FUHS replied that when those proceeds were used for campaign contributions and to pay registered lobbyists, it was very difficult to enact gaming reforms. Number 561 REP. DAVIDSON asked why it would be wrong for a charitable organization to use gaming proceeds for campaign contributions. Number 571 COMM. FUHS reiterated his statement regarding the difficulty that such a situation created in efforts to reform charitable gaming activities. MR. HANSEN said that, under current law, the use of gaming proceeds was regulated. He said SB 76 would eliminate campaign contributions, which was now an allowed use. Contributions could still be made to political parties under SB 76, he noted. REP. DAVIDSON asked about the effect of removing SB 76's provisions regarding how charitable organizations could spend their gaming proceeds. COMM. FUHS stated that that would eliminate one of SB 76's major reforms. He expressed his opinion that politicians and lobbyists were not charities and that most Alaskans believed that combining gambling and government was wrong. Number 622 CHAIR JAMES indicated her preference that no organizations except those charities with section 501(c)(3) status should be allowed to be permittees. Number 635 COMM. FUHS expressed his opinion that restricting charitable gaming to 501(c)(3) organizations would have the unintended consequence of preventing many worthy groups from participating in charitable gaming. Number 654 CHAIR JAMES expressed her opinion that there must be some way to include legitimate charitable organizations while excluding non-legitimate charitable organizations. She said it would be better to prohibit organizations which would spend their money on political campaigns and lobbyists from being involved in gaming in the first place than to allow them to be involved, but prohibit them from using the gaming proceeds for certain purposes. She stated that it was not right to allow gaming proceeds to "free up" other funds for campaign and lobbyist contributions. Number 663 REP. GREEN asked if SB 76 would have any adverse effects on reporting requirements. Number 677 COMM. FUHS replied that existing reporting requirements would remain in effect. He also clarified that the bill would not prohibit raffles. REP. GREEN asked about the number of pull-tab games which permittees could operate at any given time. MR. HANSEN stated that under one permit, a permittee could operate as many pull-tab games as he or she wished. He noted that the bill's requirement that vendors pay permittees up front would limit the number of games which a vendor could purchase at one time. Number 705 REP. DAVIDSON asked if it were correct to say that SB 76 did not expand gambling. Number 709 COMM. FUHS replied that Rep. Davidson was correct. He added that the bill brought existing gaming activities under stricter regulation. He said that he could only speculate what might happen upon enactment of SB 76; however, he said the DCED did not expect to see an increase in the extent of gambling in the state. REP. DAVIDSON asked what Comm. Fuhs' recommendation to the legislature would be in the event that SB 76 resulted in a huge increase in gambling. COMM. FUHS responded that the legislature and the administration would have to consider the effects of SB 76's enactment. REP. DAVIDSON commented that there was something basically hypocritical about the desire to not have a great deal of gambling, but allowing gambling to ensure that charitable organizations continued to exist. Number 729 CHAIR JAMES noted that charities protested vociferously when there was talk of banning charitable gaming. Number 735 COMM. FUHS discussed a document which the committee had just received from Higgins Corporation. He mentioned that a "mystery" group called Alaskans for Less Gaming had started running radio advertisements. Those advertisements were paid for by Higgins Corporation, he noted, which was run by the head lobbyist fighting gaming reform in Alaska. He said that it was still unclear as to who was involved in Alaskans for Less Gaming, but he suspected that it was made up of interests trying to prevent passage of SB 76. He noted that the group was spending a lot of money and making contradictory claims. Number 762 REP. DAVIDSON mentioned Attachment A of the Higgins Corporation document, which alleged that SB 76 would not "take Higgins out." In that context, he asked why there might be an alleged interest in taking Higgins out. COMM. FUHS noted that in the Senate Judiciary Committee hearing on SB 76, Mr. Chip Thoma had testified that the bill was intended to take out one gaming operator, Mr. Higgins. In response, Comm. Fuhs said that he wrote Mr. Thoma a note (Attachment A) which said that, as structured, SB 76 would not take Mr. Higgins out (meaning out of the gaming industry). TAPE 93-70, SIDE A Number 000 REP. DAVIDSON stated that he would be interested in knowing who was behind Alaskans for Less Gaming, but asked if the group had a right to remain anonymous, if it so desired. COMM. FUHS expressed his opinion that Mr. Higgins believed that the group had the right to remain anonymous. He stated that Mr. Higgins' letter was a reflection of why SB 76 was needed. Number 023 RUSSELL HEATH, EXECUTIVE DIRECTOR OF THE ALASKA ENVIRONMENTAL LOBBY (AEL), a non-profit, public interest organization, testified that he was a registered lobbyist. He said that 25% of AEL's tiny annual budget was earned by a raffle. He commented that it appeared that SB 76 would prohibit AEL from conducting its raffle. He called the members' attention to language on page 3, lines 3-4, which stated, "prohibiting the payment of any portion of the net proceeds of a charitable gaming activity to a registered lobbyist." He stated his belief that he was not the only public interest lobbyist working in the Capitol. Number 079 COMM. FUHS stated that Mr. Heath's testimony was correct: proceeds from raffles could not be used to pay lobbyists. Number 084 MR. HEATH expressed his objection to that provision of SB 76. He stated that that particular provision would disembowel AEL and other public interest organizations. He urged the committee to amend the bill. Number 115 REP. NORDLUND commented that the provision which Mr. Heath had discussed would affect not only AEL, but also the Alaska Women's Lobby, the Alaska Outdoor Council, and other organizations. He suggested amending the bill so as to prohibit bingo and pull-tab proceeds from going to lobbyists, but allowing raffle proceeds to pay for lobbyists. Number 124 REP. PORTER stated that the idea behind charitable gaming was to provide revenues to charities at a time of declining state revenues. He said that there was an attempt to separate gaming from politics. Allowing gaming proceeds to go to lobbyists ran counter to that attempt, he noted. He expressed his opinion that any worthwhile group could find support from means other than gambling. Number 152 MR. HEATH commented that he considered the environmental movement to be a charity. Number 175 REP. PORTER noted that Mr. Heath's "charity" involved influencing legislation. Number 189 CHAIR JAMES mentioned that in order to be considered "charitable contributions" for federal tax purposes, money could not go to organizations which influenced legislation. Number 215 REP. DAVIDSON asked Chair James if she agreed with Rep. Porter that raffle proceeds should not be allowed to go toward a lobbyist's salary. Number 221 CHAIR JAMES replied that she had not said that. She commented that she was only making a distinction between "charitable" and "political" organizations. She noted that she put raffles into a different category than pull-tabs and bingo, and said that up until now she had not considered SB 76's effects on raffles. Number 242 REP. PORTER mentioned that he would make the same policy argument against raffle proceeds paying the salary of a registered oil or timber lobbyist. Number 249 REP. DAVIDSON commented that the issue was that some individuals, organizations, and interest groups had greater resources upon which to draw in order to influence legislation. He questioned why the state should have a right to tell organizations how to spend their own money, no matter what the source. He expressed his belief that the committee needed to work on the bill. Number 275 REP. NORDLUND noted that when a person bought a raffle ticket, he or she was fully aware of the organization conducting the raffle, to which proceeds of ticket sales would go. That, he said, was different from a person buying a pull-tab, with no idea which organization would receive the proceeds. He added that it was entirely possible that a bill would be before the legislature which would affect a Little League organization, for example, requiring them to lobby. He noted that he did not consider raffles to be gaming. He expressed his support for amending the bill so as to allow organizations to pay lobbyists with raffle proceeds. Number 298 REP. PORTER commented that he did not support gambling. However, he said that it was not realistic to put an immediate end to charitable gaming. In that light, he added, he was seeking a balance. He noted that SB 76 would not preclude any organization from engaging in lobbying; it would merely preclude those organizations from using gaming proceeds for that purpose. Number 324 MR. HEATH stated that a critical issue before the nation's democracy was the influence of money in politics. Many people and organizations, he noted, had sufficient financial resources to influence politics. He asked the committee if a raffle represented as great a threat to society as did the influence of wealthy organizations and individuals. He questioned how dangerous AEL's raffle was. ADJOURNMENT CHAIR JAMES declared the work session adjourned at 3:03 p.m.