Gaming rule changes could hurt small groups

Posted: Friday, August 30, 2002

Proposed gaming regulation changes intended to help smaller charitable organizations could make raising funds tougher on those same groups.

That was the message officials with the Alaska Department of Revenue's Tax Division heard Wednesday in Kenai at a public hearing on a host of proposed amendments to regulations governing games of chance and skill operated by qualifying organizations and municipalities, including such things as pull-tabs, bingo, raffles, lotteries and contests of skill.

Gaming in Alaska is big business. According to the Tax Division, the public spent over $310 million on games of chance in 2000 alone, and got back almost $236 million in prizes. The 2000 annual gaming report explains that while gambling is illegal in Alaska, the Legislature exempted what is commonly called "charitable gaming."

The gaming report goes on to say, however, that that is a misnomer. Organizations that may or may not have charitable purposes, such as trade associations, fraternal associations, political parties, fishing derby associations and the like, also may acquire state gaming permits.

"Charities represent only one of the fifteen kinds of 'qualified organization' that are eligible to game in Alaska," the report said.

Under the law, net proceeds must go to specific purposes, as in the case of charities. Organizations must spend the money they've earned within a year on political, educational, civic, public, charitable, patriotic or religious uses, said Jeff Prather, gaming supervisor for the Tax Division.

"That gives them a lot of room," he said.

Only expenses considered reasonable and necessary may be deducted from gross receipts. State statutes provide specific expense caps -- 70 percent of adjusted gross income from pull-tabs, 90 percent of adjusted gross income from gaming other than pull-tabs.

State law permits up to six qualifying organizations to join together and acquire a Multiple Beneficiary Permit, or MBP. In theory, doing so increases the ability to raise funds. Funds are commingled and appropriate policies are written governing how profits are to be distributed among the member organizations.

Such MBPs must name a member-in-charge, a person the law recognizes as being in control of the operation. They can hire a gaming manager to fill that function.

Over the past several years, the department has focused on ensuring that MBPs are in compliance with the law. In the late 1990s, MBPs came under scrutiny for failing to meet statutorily required payment distributions by $850,000.

In 2000, the division worked to make MBPs stick to expense limitations, too. The increased enforcement led one MBP to cease operations and two others suspend operations for a year, according to the report.

Several who testified Wednesday said the proposed changes are well intentioned, and it is clear the targets are inappropriately run MBPs. But the changes also would affect independent charities and organizations that are not part of MBPs and don't want to be.

Peggy Baxter, of Kenai, who makes a living running bingo sessions for the Peninsula Oilers Baseball Club Inc. and the Kenai Convention and Visitors Bureau, is one person whose very job may be in jeopardy because of the proposed regulations.

She has worked for the two organizations for 20 and 12 years respectively, she said. Each runs its own bingo and pull-tab operation to raise its own funds -- so called "self-directed" fund-raising. Everything is separate, except that the visitors bureau rents space in a building owned by the Oilers.

Baxter said she's afraid she will have to quit at least one of her jobs, and perhaps both, because the two part-time positions add up to a full-time job, and losing one means she couldn't make ends meet.

The proposed changes would require even organizations not part of MBPs to name members-in-charge of their gaming operations. Once so named, however, such persons are banned by law from performing those duties for more than one qualifying organization unless those organizations are part of an MBP.

Because she runs bingo sessions for the Oilers, Baxter could be considered the member-in-charge under the law, even though she doesn't determine where the money goes or make any of the policy decisions. Thus, her association with the minor-league ball team's fund-raising operations could mean she'd be unable to continue working for the visitors bureau.

Baxter said she understands the thrust of the new regulations is to close loopholes in the current law and stop inappropriate activities of gaming managers and operators of MBPs. That's good, she said.

"The state realizes it has created a monster in MBPs," she said. "But I'm caught up in the backwash because they say I'm a manager of two different charities, even though they are not in an MBP."

Linda Dunn is the Oilers' bookkeeper and attended Wednesday's hearing. The Oilers' gaming operation has distributed its "manager's" duties among several employees and unpaid volunteers. That makes designating a member-in-charge difficult.

She said she doesn't understand why a small organization running charitable gaming for its own revenue cannot hire a qualified person like Baxter to help without running afoul of state regulations because that person also works for another organization. She said the state rules are virtually compelling organizations like the Oilers to join MBPs, the very entities where problems exist.

"We don't want an operator or outside manager running our operation because that's too much control and bad things can happen," she said. "If you keep things small and divide duties and responsibilities (as the Oilers fund-raising operations are), it's much harder to have something go wrong. They are backing us into a corner and forcing us to join in an MBP where we have to commingle our money and have someone running the operation."

"They understand why we are concerned about multiple managers," Prather said. "But they feel there should be an exception from that."

Comments taken at public meetings and written comments that can be submitted until Sept. 13 will be reviewed and might lead to further proposed changes, Prather said.

Ricky Gease is the executive director of the Kenai Convention and Visitors Bureau. As such, he is clearly the member-in-charge. Like Dunn and Baxter, he sees the new regulations as an overall good, but problematic when it comes to smaller operations trying to hire help from a limited pool of expertise.

But Gease had another issue. He said there are people who have amassed control over several multiple beneficiary permits and, because of the way the law is written, can actually run losing gaming operations in one areas by subsidizing them with profits from elsewhere in the state.

Since all gaming operations effectively compete with each other for the gaming dollar, those able to run at a loss can undercut those that can't. That can spell real trouble for small, local charities trying to raise money, Gease said.

He suggested that the new regulations require operators of multiple permits to make each gaming operation profitable in every location. Such a provision would "stop predatory practices," Gease said.

Neil Slotnik, deputy commissioner of the Department of Revenue, said it was a "common complaint" that some gaming activities have nothing to do with the well-being of the communities in which they are conducted. But he also said that issue might have to be addressed in the next round of regulation revisions, or perhaps in statute.

Slotnik also said the new regulations were directed more at MBPs than at self-directed permitees.

Steve Borcherding, manager of Gold Cache Bingo in Anchorage, was a member of a Negotiated Rule-Making Committee that brought in operators to help draft regulatory changes.

"We went after the run-amok managers," Borcherding said.

Prather said Gold Cache Bingo, run for the Aleutian/Pribilof Island Association, is the most successful MBP in the state, returning to its member organizations "well over the required 30 and 10 percent minimums."

Other gaming provisions under discussion for possible revisions included those dealing with conflicts of interest, the conducting of gaming over the airwaves -- including radio, television, and the Internet -- and procedures for permit or license renewal.



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