GAC setting '11 legislative agenda
Government agencies are required to submit draft bill requests by mid-summer preceding a session that begins in January. So developing a legislative agenda almost a year ahead of the next session is paying prudent attention to the calendar.
And that is what the Gaming Advisory Council (GAC) was doing when it met Feb. 3 in Helena.
After Missoula Mayor John Engen, recently appointed to the council by Atty. Gen. Steve Bullock, was introduced, the council first discussed sharply down gaming tax collections and operator revenues.
Gaming decline effects
Gambling Control Division (GCD) reports indicated gaming was down 17.8 percent in the second quarter (Oct. 1 - Dec. 31, 2009) of Fiscal Year (FY) 2010, compared to the same quarter one year ago. The declines are most substantial in urban areas but are being seen across the state with very few exceptions. It is agreed the trouble lies within the Oct. 1 smoking ban and is exacerbated by the deteriorating economy.
Council Chairman John Tooke asked GCD Administrator Rick Ask if the downturn could affect the agency's ability to enforce gambling regulation.
"I'm always concerned that GCD's enforcement capabilities not be eroded," Tooke said. "Close regulation is to (the industry's) benefit. We don't want problems in that regard."
Ask explained the bulk of GCD's funding comes from individual gaming machine permit revenue, which is $220 per machine, with $100 of that earmarked for local government. He said in the first quarter of FY 2010 machine permits issued were up by 258 compared to the same quarter one year previous, and that in the second quarter machine permitting was holding fairly steady, down just 56
"We'll need to see how the rest of the year plays out," Ask said, before funding adequacy can be judged. He told the council the Attorney General's office has provided the Governor a plan to reduce its budget by 5 percent, noting GCD is funded by special fees and not general fund revenue.
"We do watch our revenues and expenses very closely," Ask said. "We're watching the trend; not filling vacancies, looking for efficiencies." In the event funding contracts significantly, Ask said the division "would do in-house reductions."
Councilman Tim Carson said, "The decline is being seen across the board. It is an outcome of our times." Locations and machine manufacturers "must enhance customer service and the entertainment value" of the games "since we cannot change the price" of the entertainment: maximum wagers and payouts fixed in law, he said.
Local governments nervous
Councilman Steve Morris asked if all VGM tax revenue went to the state general fund and Ask responded that, yes, it does, but "theoretically" two-thirds of the money is returned to local government through a complex formula spelled out in the "Big Bill" of the 2003 Legislature.
Tooke asked what mechanism is employed to adjust the reimbursements to local governments in the event of a major revenue decline.
Ronda Wiggers, representing the Montana Coin Machine Operators Association, who was in the audience and works closely with local government and studied the "Big Bill" carefully while it was being crafted, said indeed the reimbursement formula was complex and involved inflationary growth, tax revenue levels, local jurisdiction population changes and more.
"At the time, we testified in opposition," Wiggers said. "The intent of the legislation was to shield local governments from fluctuations." There was an attached caveat, Wiggers said, that does allow state government to "renegotiate" disbursements to local government if revenue sources change by a given percentage, she continued. "Counties are worried the Legislature will make big adjustments. It's not really a negotiation; it's more of a legislative decision."
Mayor Engen concurred. "Local government loves the 'Big Bill' but we're concerned about future funding," he said.
Automated reporting
Carson then quizzed Ask as to the status of automated reporting. Ask replied that 98 percent of locations are reporting electronically via the Internet and that only about 20 of 1,700 locations continue to report manually. As a condition, these locations have no multi-game machines, which aren't allowed unless a location reports electronically, he said.
"Bankers Bill" rules
Moving to the next agenda item, Ask requested Council comment on draft rules to implement a 2009 Legislative statute that seeks to allow banks to turn to licensed business private loan guarantors to make good on loans before all other remedies are exhausted along the road to formal default.
Ask said sometimes a non-owner who is not party to the license might be a loan guarantor, which raises the issues of if and when that guarantor must be considered an owner.
In his view, Ask said, it was made clear "guarantors must be disclosed and investigated and approved to the license, or otherwise we couldn't approve of the (bill's) language."
Tooke said, "The current economy is putting pressure on license movement and therefore on values, so if banks are less excited about lending, that would create an additional chill on values."
Guarantor or owner?
From the audience, Mark Staples, representing the Montana Tavern Association, said he has had discussions with Department of Revenue and Department of Justice officials, as well as the bankers association, on the matter. He said an underlying problem is that "often parents (who currently hold a license) try to help their kids get into the business so will act as a loan guarantor. However, there is a prohibition on multiple ownership of an all-beverage license." So if a loan guarantor is to be considered an owner on an additional license, it could run afoul of the multiple ownership prohibition, he said.
"Bankers don't want a business to be in total default before they can pursue a guarantor," Staples continued. So one issue is how to make sure a guarantor with a license does not become an "owner" on another license, he said.
Perhaps a guarantor, when called upon to satisfy the guarantee, could be treated the same as any other non-institutional lender, which currently are investigated and require approval, yet are not considered an "owner" of the license, Staples suggested.
Neil Peterson, executive director of the Gaming Industry Association and also in the audience, said GIA concurred with Staples and the MTA. He added that awhile ago the law was changed to allow holders of a contract for deed to not be considered as having an ownership interest. "The situation here with a loan guarantor is similar," he said. "We don't want to see financing become more difficult or scarce" as a result of the law or its rules, he said.
Or non-institutional lender?
Ask said non-institutional lender rules and a process are in place, but it operates apart from the issue of guarantors and institutional loans.
Staples said perhaps a loan guarantor could be added to the non-institutional lender designation.
Peterson said the rules could contain a provision that an institutional lender calling upon a loan guarantor would be required to notify the GCD.
Tooke asked if a loan guarantor could simply be required to go through the same approval process as conventional non-institutional lenders.
Ask replied, in that case "we might have to make some assumptions we cannot make." As an example, the amount of money in question would have a bearing on approvability, he said.
Ask said, "We will consider a review of our non-institutional lender rules in conjunction with this. We have talked to the bankers about this rule."
Liquor Control Division Administrator Shauna Helfert, also in attendance, said she would work with Ask, Staples and Peterson "to try to incorporate some of this thinking. If we allow a loan guarantor to be considered a non-institutional lender prior" to license approval, "that could resolve this issue. There are a lot of things to consider."
Issue double-edged
Morris observed, with the way lending practices are changing, "we need to be very careful where we go with this or banks may require all loans to have unconditional loan guarantees."
Tooke agreed the proposed solution could be "a double-edged sword."
Staples said, "Banks have been asking for guarantees forever and our rules can't stop them from requiring that. We simply need to set it up where a guarantor doesn't become an owner when he or she satisfies, in whole or in part, the guarantee. We need to look for something that threads the blinking eye of this needle. Some kind of lattice can be constructed to avoid crossing the lender/owner line."
When Ask said the rule needed to be adopted before the Council would meet again, Engen said he thought a public hearing first would be desirable. Ask replied that the usual procedure is to draft rules, submit them to the Council for comment, publish them, then conduct a public hearing, respond to public comment, then adopt them.
He said when a new draft was ready it would be submitted to members of the council and followed with a telephone conference "to seek advisory consent."
Following a break, the Council took up a discussion of stale-dating VGM win-ticket vouchers. The subject was first broached at the last GAC meeting Oct 23, 2009.
Stale-dating win tickets
Ask recounted earlier discussion, that GCD has no authority to set expiration or stale dates, but new legislation could do it, or could allow GCD to do it. He referred council members to a concise "white paper" on the subject developed by GCD.
The paper said there is a wide range of stale-dates in place in other jurisdictions ranging from same-day redemption to one-year, and two had no stale dates at all, but rather left that issue to "house rules."
The paper said investigations into ticket disputes is costly and usually involves trivial amounts, and that GCD staff would favor establishment of a stale-date. Maintaining a record of unpaid tickets and having to watch for "manipulated" tickets is also costly for operators, the paper said, who thus desire a stale-date implementation.
The GCD paper said regarding the issue, options were: do nothing; set a date with new legislation, or change statute to allow GCD to set the date in rule. The Council voted to endorse the third option.
Bingo update
Next, the Council considered a list of modifications being sought by a group of live bingo operators represented by Mark Ehli of Big B Bingo in Billings.
The group would like legislation to limit the cost of a bingo card to $1, limit payouts to $800 per game and no more than $3,000 total per session (excepting non-profit association games run at county fairs), define a "session" as at least 20 games or up to two hours with a two-hour break between sessions, allow for six "special nights" per year with session limits up to $5,000 and requiring a permit, and perhaps the use of "break-open" cards.
The council voted to endorse the bingo group's agenda.
Indian gaming
Andy Huff, the Governor's chief tribal gaming negotiator, briefed the Council on the status of Indian gaming compacts.
• The Confederated Salish and Kootenai Tribes of the Flathead Reservation have no Class III gaming compact with the state, hasn't had one since November of 2006 and has not indicated it is interested in negotiations.
• The Blackfeet situation is the same as the CS&KT, running only Class II gaming without a state compact, which is allowed under the federal Indian Gaming Regulatory Act.
• Ft. Belknap Gros Ventre and Assiniboine do have a Class III compact in place since 2007 that authorizes 400 Class III devices (in Montana, video keno and poker machines) with up to $2,000 payout.
• The Assiniboine Sioux of Ft. Peck have a Class III compact from a number of years ago that authorizes 100 Class III devices and $1,500 payouts, though the tribe may be getting ready to seek new negotiations.
• The Chippewa Cree of the Rocky Boy Reservation have a Class III compact that was amended last year to authorize 400 devices with $2,000 maximum payouts.
• The Northern Cheyene's Class III compact was amended in 2008 and authorizes 400 devices with up to $2,000 payouts, and in 2009 the Governor agreed to the tribe building a casino on tribal trust land away from the reservation near the Wyoming border along the Tongue River.
• The Crow compact was amended in 2000 to allow 400 devices and live horse racing with pari-mutuel wagering.
License amendments
After Lunch, the council considered the work of its "licensing subcommittee," which has been tasked with identifying ways to streamline simple changes to a license that now trigger a full-blown license application and approval process.
It was noted so far the committee and Gambling Control have agreed on an elementary new form to handle simple license amendments in the cases of part-owners dying, a spouse leaves the license due to divorce, or when shares are gifted from one existing owner to another.
Now the committee will be tackling cases where an owner departs and the remainder acquire those shares with no other changes occurring in business entity type or location, where ownership shares are reallocated by sale amongst existing approved owners, and cases where the business entity structure – corporations or LLCs, for example – changes but there is no change in approved ownership.
The Council asked GCD to begin formulating rules to govern the proposed changes, but one other possible streamlined scenario – where one owner sells his or her interest to a new party to the license without any other changes, triggering only an investigation of the new owner and the transfer transaction – was remanded back to the committee for further study.
At this juncture the Council turned its attention to new business.
Poker modifications
Council member Carson noted the importance of player entertainment in the current challenging environment, particularly as it applies to video poker which only accounts for 20 percent of machine play volume. Further, he suggested the Council revisit bonus feature play and what effects that has had on machine volatility and hold.
He noted current poker rules rely on an early 1980s guide authored by long-deceased John Scarne which is so restrictive as to allow no real innovation in poker game presentations and play even while technology and the game itself has advanced exponentially.
Other jurisdictions allow poker to evolve and change yet Montana hasn't, Carson said. He moved Council Chairman Tooke form a subcommittee to examine rules governing video game play and the motion was approved. Tooke nominated Carson, Engen and Morris to serve, and Rep. Pat Noonan to chair the subcommittee.
One final query was aimed at CGD testing laboratory chief Ben Kamerzel, who was asked how the lab was dealing with its work load. He said staffing was able to keep the work process moving efficiently, to which Carson added with a wry chuckle, "The process works well if the applicant returns GCD's calls."
The Council set May 18 as its next meeting date and will gather at the Holiday Inn in Billings.