SENATE LABOR AND COMMERCE COMMITTEE April 22, 1999 1:43 P.M. MEMBERS PRESENT Senator Jerry Mackie, Chairman Senator Tim Kelly, Vice Chairman Senator Dave Donley Senator Loren Leman Senator Lyman Hoffman MEMBERS ABSENT Senator Tim Kelly, Vice Chairman COMMITTEE CALENDAR SENATE BILL NO. 34 "An Act relating to tattooing and body piercing; and providing for an effective date." -MOVED CSSB 34(L&C) OUT OF COMMITTEE SENATE BILL NO. 144 "An Act relating to charitable gaming and to gaming on state ferries; and providing for an effective date." -MOVED SB 144 OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION SB 34 - No previous action to consider. SB 144 - No previous action to consider. WITNESS REGISTER Senator Johnny Ellis State Capitol Bldg. Juneau, AK 99811-1182 POSITION STATEMENT: Sponsor of SB 34. Ms. Catherine Reardon, Director Division of Occupational Licensing Department of Commerce and Economic Development P.O. Box 110806 Juneau, AK 99811-0806 POSITION STATEMENT: Supported SB 34. Senator Taylor State Capitol Bldg. Juneau, AK 99811-1182 POSITION STATEMENT: Sponsor of SB 144. Mr. Bob Dahl, General Manager Alaska Marine Highway System Department of Transportation of Public Facilities P.O. Box 25535 Juneau, AK 99802-5536 POSITION STATEMENT: Commented on SB 144. Mr. Larry Myers, Director Division of Income and Exise Audit Department of Revenue 550 W 7th Ave., Suite 560 Anchorage, AK 99501-3566 POSITION STATEMENT: Opposed on SB 144. Mr. Brett Freed, Economist Division of Income and Exise Audit Department of Revenue 550 W 7th Ave., Suite 560 Anchorage, AK 99501-3566 POSITION STATEMENT: Commented on SB 144. Mr. Vince Usera, Assistant Attorney General Department of Law P.O. Box 110300 Juneau, AK 99811-0300 POSITION STATEMENT: Commented on SB 144. Mr. John Lopez Alaska Bingo Supply 3707 Woodland Dr. #3 Anchorage, AK 99517 POSITION STATEMENT: Opposed SB 144. Mr. Kent Hartzberg P.O. Box 230915 Anchorage, AK 99523 POSITION STATEMENT: Opposed SB 144. Mr. Michael Slezak, General Manager Rookie World Stores 1014 W. Northern Lights Blvd. Anchorage, AK 99523 POSITION STATEMENT: Opposed SB 144. Mr. Terence Reese, Administrator North Pole Moose Lodge 2297 Outside Blvd. North Pole, AK 99705 POSITION STATEMENT: Opposed SB 144. Mr. David Lambert P.O. Box 71243 Fairbanks, AK 99707 POSITION STATEMENT: Opposed SB 144. Ms. Ruth Ewig 2325 30th Ave. Fairbanks, AK 99701 POSITION STATEMENT: Opposed SB 144. Mr. James Showalter Kenaitze P.O. Box 988 Kenai, AK 99611 POSITION STATEMENT: Opposed SB 144. Mr. George Wright Alaska Native Brotherhood Camp 2 320 Willoughby Juneau, AK 99801 POSITION STATEMENT: Opposed SB 144. Mr. Doug Campbell Kenai Native Corporation 215 Fidalgo, Ste 102 Kenai, AK 99611 POSITION STATEMENT: Opposed SB 144. Mr. Steve Early Last Chance 3511 Glenn Don Circle Anchorage, AK 99504 POSITION STATEMENT: Opposed SB 144. Mrs. Donna Early Last Chance 3511 Glenn Don Circle Anchorage, AK 99504 POSITION STATEMENT: Opposed SB 144. Ms. Carol Segura Tanaina Corp. 215 Fidalgo Ste 102 Kenai, AK 99611 POSITION STATEMENT: Opposed SB 144. Ms. Diane Covey Ninilchik, AK 99639 POSITION STATEMENT: Opposed SB 144. ACTION NARRATIVE TAPE 99-16, SIDE A Number 001 SB 34-TATTOOS AND BODY PIERCING CHAIRMAN MACKIE called the Senate Labor and Commerce Committee meeting to order at 1:43 p.m. and announced SB 34 to be up for consideration. SENATOR JOHNNY ELLIS, sponsor of SB 34, said this isn't the most compelling issue this session, but to one family in his district it is important. They contacted him because their child was infected by a scam artist who was engaged in tattooing and body piercing in the Anchorage area. Senator Ellis found that there is no licensure or regulation of this growing industry in Alaska. This bill proposes minimal licensure and regulation standards and fees from the industry are proposed to cover the cost to the State. SENATOR ELLIS said the bill proposes to add a new member the Board of Barbers and Hairdressers and Cosmetology. There are less than 20 practitioners in Alaska now who have said this really needs to be done. There are no schools for this kind of training in Alaska and they are proposing an apprenticeship with a licensed practitioner in the CS. There would be a student license for a six month period. They have changed the apprentice requirement from 350 hours to 75 hours based on current common practice in other states. CHAIRMAN MACKIE asked what the fees would be. SENATOR ELLIS said it is about a $100 annual license fee for all the folks. He said the legitimate practitioners support this bill; and it is a legitimate concern to get rid of the bad actors, some of which are victimizing young people. CHAIRMAN MACKIE asked him to explain the effective date. SENATOR ELLIS responded that they wanted a delayed effective date so there would be time to gear up and give notice requirements. Number 125 SENATOR LEMAN moved to adopt the Lauterbach version H to SB 34. There were no objections and it was so ordered. MS. CATHERINE REARDON, Director, Division of Occupational Licensing, supported SB 34. She said her staff would be providing support to the Board of Barbers and Hairdressers who would be administering this program. The fee structure makes costs and fees equal for all the professions within the Board of Barbers and Hairdressers. It is very similar language to what went into the Architects, Engineers, and Land Surveyors Board when the landscape architects were added. Right now the fee is $100, but that could go up or down. Since the fiscal note would be different for the CS, they will prepare a new one if they pass it out. SENATOR LEMAN asked if she was sure the current professionals covered under this Board would accept the cost shifting that would take place in the first year. MS. REARDON said the Board certainly understood that. SENATOR LEMAN asked if she was satisfied that the costs for these 20 people would be fairly minimal. MS. REARDON answered that she thought the cost for the first two years would be in the $10 range. She thought most of them would come in under the grandfathering provision in the first two years. Number 180 SENATOR LEMAN moved to pass CSSB 34(L&C) from committee with individual recommendations. There were no objections and it was so ordered. SB 144-CHARITABLE GAMING & GAMING ON FERRIES CHAIRMAN MACKIE announced SB 144 to be up for consideration. SENATOR TAYLOR, sponsor, said SB 144 was introduced as a means to make charitable gaming more accountable. It would authorize the use of electronic video gaming machines capable of being linked to a central computer system within the State greatly increasing our ability to account for the millions of dollars spent annually on charitable gaming in Alaska. Lack of accountability has been one of the major concerns in this area as it fosters fraud and other criminal activity. Many charities seem to be receiving less than their fair share of the proceeds. SB 144 also directs that the proceeds from video games be distributed differently than pull tabs giving 30% to the permittee or charity; 30% to the vendor; 15% to the State; and 25% to the municipality in which the machine is located. If in the unorganized borough, that share would go to the State. These are percentages taken from other states. If the Alaska Marine Highway desires, SB 144 contains a provision allowing ferries to be licensed to operate video games providing additional income and entertainment. It is his hope that as Alaskan charities become more familiar with video gaming and its accountability, they will gradually phase out the less accountable pull tabs. CHAIRMAN MACKIE asked if this would allow for placement of the video gaming machines in licensed premises. SENATOR TAYLOR answered yes. CHAIRMAN MACKIE asked if this would harm current pull tab operations in the State. SENATOR TAYLOR said no; it is entirely optional. Many people are concerned about the cost of starting up, but that has not been a problem in other states. He did not want this bill in any way to decrease or deplete the amount of resources that charities are currently relying upon. This is making up a major percentage of our charities' income stream. He is also not opposed to expanding beyond the area where they would be only on licensed premises, because there are many communities that are dry, as long as there is a restriction on access to people under 21 years old. MR. BOB DAHL, General Manager, Alaska Marine Highway System, said they estimated how many machines could be put in each ship. The larger ships could take four; the other probably three; for a total of 16 machines. The fiscal note starts part of the way through fiscal year 2001, so that year is 50% of figures for subsequent full years. He thought the numbers were conservative, but because ships don't fill the bars as communities do, he scaled down the estimates. He said they would be happy to install the machines if the Legislature and the Governor want them to do it. It would be a revenue enhancing tool. MR. LARRY MYERS, Director, Division of Income and Exise Audit, explained that charitable gaming consists of two kinds of gaming: pull tabs and bingo. Although it's not a perfect system, there are certain safeguards in statute and regulations to help industry, as well as the State. Some of the biggest safeguards are in the expense areas; limitations on the amount of pull tab expenses which cannot exceed 70% of Adjusted Gross Income and bingo expenses which cannot exceed 90% of AGI. This is an effort to get most of the money to the charities. In fiscal year 97, $280 million worth of proceeds were gained; 76% went to prizes ($213 million), 13% went to expenses ($42 million), and 81/2 % ($23.7 million) went to the permittees. Out of the expenses, the State received about $2 million in general fund revenue. MR. MYERS said a preliminary report for fiscal year 98 showing charitable gaming through April 8 is on track. CHAIRMAN MACKIE asked him what his website address was. MR. MYERS answered www.revenue.state.ak.us/iea. MR. MYERS said that charitable gaming would take on a whole new concept with the passage of SB 144. They realize the theft and fraud problems with accountability and these issues will continue to exist no matter what we do, he said. SB 144 focuses on the accountability, but it also reaches into new areas that raise concerns within the Department. Their foremost concern is the amount of money the charities will actually receive as there is no limitation on the amount that can be assigned to expenses for a permittee who contracts with a vendor. There are no provisions for the Division to monitor the contracts so they know what the standards are. Certain costs, such as rent and telephone charges to hook up to the computer, and staff time are passed back to the permittee which would reduce their 30% take that's intended under the bill. Experience has shown that when permittees go out and bargain with vendors, they are not always in the best bargaining position and that would continue under this system, as well. The have nots will not be able to break into the arena. They would like to see permittee organizations limited to charitable organizations. He said these are all on-going problems that exist now and are not addressed in this bill. Number 360 SENATOR HOFFMAN asked for an example of a problem area with expenses. MR. MYERS responded that one of the biggest one is rent. There have been instances where rent is two to two and half times over fair market value. Accounting by a private accounting firms would be more accurate. CHAIRMAN MACKIE noted that these were his on-going concerns that were not necessarily addressed in the legislation and asked if he had ever drafted legislation to clean things up. MR. MYERS said they introduced some last year which passed the Senate, but didn't go through the House. Another concern he had was tying in charitable gaming to where liquor is being served. CHAIRMAN MACKIE said that is happening right now with pull tabs. MR. MYERS said that is correct. Entering into machine play makes the rate of play go up (according to other states' experience) and that becomes more of a social concern. Money goes faster. Purchase of the actual video lotteries is expensive, from $5,000 - $10,000. Monies that might otherwise be going to charitable organizations might be used to fund the start-up costs. Under this bill the maximum win on a $2 bet is $1,000, another area of concern, because the higher the prize, the more potentially addictive the gaming could be. CHAIRMAN MACKIE asked what the maximum win was now. MR. MYERS answered that it is currently $500. He said they see a change from a "low key" gaming atmosphere into a professional style. Pull tabs are paper and have to be broken open; video machines play with credits; it turns the money faster. MR. MYERS concluded that the Department of Revenue is not comfortable with video lottery. CHAIRMAN MACKIE asked what the costs and revenues would be. MR. BRETT FREED, Economist, explained that the total operating costs start out in FY01 at $1,920,300. The State would assume the costs of the central computing facility, so they would have to either lease or purchase that facility and their figures reflect leasing costs from International Gaming Technologies. CHAIRMAN MACKIE asked if they needed 10 full-time positions. MR. FREED said that was correct. CHAIRMAN MACKIE asked want impact this bill would have to the State. He asked if there was a broad range of figures because it's hard to predict the level of play. MR. FREED said that was correct; there is a high end and a low end. Number 563 SENATOR DONLEY said he was concerned about impacts on the Federal Indian Gaming Act and that there was a lot of exemptions going on now. He thought they would all go out and buy unlimited numbers of these machines and could charge any amount for the games. MR. VINCE USERA, Assistant Attorney General, said a major impact would be it allows an Indian tribe on Indian land uses of these machines. This would include Metlakatla, Kake, Kluwock, and Angoon. TAPE 99-16, SIDE B He said we could negotiate compacts with them, but it's hard to say what you could win. We could not insist that they hold down numbers of the machines nor the amount of prizes they give away. So the they would be allowed to do the same thing as the State, but without the controls. Other than that there are no legal problems with this bill. SENATOR DONLEY said he knew Eklutna was interested in this, because when they repealed Monte Carlo Night, pull tabs was the only thing available. He asked if it wasn't obvious that putting this in statute would give them the go-ahead. MR. USERA responded that Eklutna didn't apply. SENATOR HOFFMAN said that anyone could form a nonprofit to do this. SENATOR DONELY noted that anyone doing that would have to abide by state rules for the dollar amounts involved where if you do it under the Indian Gaming Act, it's unlimited. Number 530 MR. JOHN LOPEZ, Anchorage, said that the quality of life for every resident in Alaska would be severely impacted if these machines are made legal. He said the legislators have the moral responsibility to see that this bill does not become law. Number 500 MR. KEN HARTZBERG said he has been licensed by the State of Alaska to conduct gaming activities for licensed non profits for 11 years. SB 144 increases the income of liquor establishments and expands gambling activity in the State. Laws prohibit playing bingo where alcohol is dispensed. 15AAC.160.480 requires that a vendor may not sell pull tabs to a drunken person. If the State is so concerned about alcohol and bingo, how can they want to expand gambling and add alcohol to it. CHAIRMAN MACKIE asked if he operated pull tabs right now. MR. HARTZBERG answered yes. CHAIRMAN MACKIE asked if they were healthy for our social economy. MR. HARTZBERG answered that they were healthier than alcohol. He never had anyone leave his bingo hall and kill someone. MR. MICHAEL SLEZAK, General Manager, Rookie World Stores, said that he is involved in the sale of retail pull tabs to the general public. He is also the editor of a national franchise newspaper and he has an extensive insight into the gaming and gambling activities in Alaska. The type of gambling proposed in SB 144 is known throughout the gambling world as the crack cocaine of the gambling industry. VLTs offer an extremely fast type of play action that hooks the player with an array of visual and audible stimuli that keep the player on the machine until he has expended all available resources for play. When you couple these machines to locations with a liquor license, you have a recipe for economic disaster for the player. There is a very good reason that almost every casino in the U.S. offers free drinks to players in a casino. Alcohol lowers the natural inhibitions to the players and impairs their reasonable thought process. Claims that people who are intoxicated will be barred from play are gross exaggerations of the reality in a gaming environment. Bar owners want this bill strictly for their own economic gain and some bars allow parents to bring their children. CHAIRMAN MACKIE asked if the bill addressed the opportunity for the bingo parlors and other locations where children aren't allowed, would the industry support the option of having machines versus pull tabs or something like that. MR. SLEZAK said no, a lot depends on how things are structured. Every time they have seen this bill it has been structured in such a manner that is detrimental to everyone. He agreed with Mr. Larry Meyer on what these machines would do to Alaska and he very rarely agrees with him. CHAIRMAN MACKIE said one of the attractive things about this bill is the accountability. MS. SLEZAK added that machines take away from pull tab sales and destroy the pull tab market as it had in other states. MR. LOPEZ inserted that there is equipment out right now that will provide more accountability for pull tabs without going to the addictive behavior of video. MR. TERENCE REESE supported Mr. Lopez's opinion and opposed SB 144. Number 370 MR. DAVID LAMBERT said he became involved with gaming about five years ago and is currently an operator in Fairbanks. He is concerned that this legislation bans operators from video gaming. He said that pull tab sales would go down and the charities would suffer. He would like to see the prize limitation on operators to be raised to the same as vendors ($1 million) and have the percentages reviewed. He didn't think he could survive on just a 30% margin. MS. RUTH EWIG said she was sorry to see three usury bills in the legislature which is a trend in the wrong direction. She is opposed to SB 144 because of the negative social impacts. This State should not be participating in or supporting something which preys on the weaknesses of individuals and is ultimately destructive to families. There are other means of raising money for charities. She suggested they read the Internet Site NCALG.org (National Coalition Against Legalized Gambling). Number 345 MR. JAMES SHOWALTER, Kenaitze Indian Tribe, opposed SB 144 for all the reasons already stated. MR. GEORGE WRIGHT, Alaska Native Brotherhood Camp 2, opposed SB 144 because it is devastating for charities that don't want to patronize bars or be connected to the alcohol trail. There are no sales tax limitations on this. Charities should not be burdened with the responsibilities of paying for the telephones or the hook ups. He agreed with Mr. Meyers and added that enforcement is a problem, but charitable gaming brings in $2.2 million to the State right now. The gaming investigator's budget has been cut from $900,000 to $600,000 and when you have only a few investigators to cover the State, you can't deal with the people who are dealing from the charities. Exclusivity of location is wrong and will cut out a lot of charities. CHAIRMAN MACKIE asked if he would support the bill, if it allowed for the locations that currently sell pull tabs. MR. WRIGHT said if the industry could have input on those types of changes, he would consider supporting it. He would want the industry involved. MR. DOUG CAMPBELL, Kenai Native Corporation, asked them not to move SB 144 as written. They believe it has no benefits to charitable gaming. Most of the people who participate in gaming in the State are natives and this bill would add alcohol to gaming which is a serious concern in the native community. He said the bill is a redistribution of funds to new entities, particularly municipalities. They need to do what the legislature has done and cut services, cut their budget, and get things under control. MR. STEVE EARLY opposed SB 144. MS. DONNA EARLY opposed SB 14 because it could only harm the communities. She thought a task force should work on this issue. MS. CAROL SEGURA, Tanaina Corp. opposed SB 144. She explained that they have bingo and people are there from 7:00 - 10:30. There is no alcohol involved; it is a gathering place for a lot of people. Some of them have alcohol problems and they want to get away from. Putting machines in the bars would really hurt them. Number 252 MS. DIANE COVEY, MVP beneficiary of Pull tabs, said her agency would lose at least 50% or more of their funding and wouldn't be able to withstand the cut. They rent their facility, a senior center, and serve more than 4,000 meals yearly to the home bound and disabled. That is above and beyond what they serve as meals at the center. Passage of SB 144 would probably eliminate this and other services they provide. The cost to the State of doing these services far outweighs the 15% share they would be getting out of the games. The committee should rethink this bill and consider litigation in Virginia and North Carolina for gambling addiction that far outweighed any benefits. Number 224 SENATOR TAYLOR responded that people acting as operators for charitable gaming, the single biggest problem the Department of Revenue has faced, have problems like excessive rent and excessive charges against charities for accounting purposes. This bill would finally give charities a fair count and a fair take. Most of the operators testifying have their machines placed in bars today, except for the bingo operators. But as soon as we talk about machines, we hear about all the evils and social concerns. Basically, we are talking about money, whose hands the money is passing through, and are the charities getting a fair amount. SENATOR TAYLOR said that every state that has put these machines in has paid for the added expense by operation of the game itself and returned significant profits to their states. SENATOR TAYLOR said he didn't want to hurt the bingo facilities saying that studies have shown that drinking has gone down in a community (a dry ones) where there is a good social activity going on. Number 150 SENATOR LEMAN said he opposed this legislation more from philosophical grounds. He didn't like to teach people they can get rich quick. CHAIRMAN MACKIE agreed that this was a controversial issue. SENATOR DONLEY said he shared the concern about pull tabs in bars and didn't feel comfortable expanding gambling activities where there is alcohol. CHAIRMAN MACKIE handed the gavel to Senator Leman. SENATOR MACKIE moved to pass SB 144 from committee with individual recommendations. SENATOR DONELY objected because he thought that the issue of alcohol should be resolved before it moved from committee. SENATOR MACKIE said he didn't have his same concerns. SENATOR HOFFMAN said he was concerned that growth of gambling as projected by the Department of Revenue was from $3 million - $7 million. This business was projected to grow to a $100 million per year. These figures mean that gambling would triple in just a few years and he was concerned with that. SENATOR TAYLOR responded that he thought there would be an expansion of gaming, but there would be greater accountability and better revenue returns. TAPE 17, SIDE A Number 001 CHAIRMAN LEMAN asked if there were further objections. SENATOR DONLEY continued to object. SENATORS HOFFMAN, LEMAN, and MACKIE voted yes; and the motion carried. CHAIRMAN LEMAN returned the gavel to Senator Mackie. CHAIRMAN MACKIE adjourned the meeting at 3:20 p.m.