NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

The LFC is only preparing FIRs on bills referred to the Senate Finance Committee, the Senate Ways and Means Committee, the House Appropriations and Finance Committee and the House Taxation and Revenue Committee. The chief clerks are responsible for preparing and issuing all other bill analyses.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Room 416 of the State Capitol Building.

(Parenthesis ( ) Indicate Revenue Decreases)

Conflicts with SB 345, SB 469

SOURCES OF INFORMATION

Legislative Finance Committee Files

State Treasurer's Indian Gaming Payment History

SUMMARY

Synopsis of HJC Amendment

The HJC amendment makes several changes to the bill. It provides a two-year extension to the length of Indian gaming compacts. It exempts tribes whose net win was less than $2 million in a quarter from revenue sharing requirements. It amends the compact termination provisions by adding that if the dispute resolution is invoked and arbitration determines that the tribe must pay, the tribe must pay within 30 days or the Indian gaming compact is automatically terminated. It also adds a provision stating that there is agreement that the U.S. attorney is empowered to enforce the notice of default and intent to terminate pursuant to the Indian Gaming Regulatory Act if gaming is continued beyond the thirty-day period or the dispute resolutions are invoked and the result does not provide for a continuation of gaming. The amendment also adds a requirement to racetrack gaming operators. They are required to contribute five-tenths of one percent of net take to be distributed to the jockey's guild health and welfare trust to provide health care and other welfare benefits to jockeys.

Fiscal Implications of the HJC Amendment

Two of the eleven tribal casinos operating in the state are believed to have quarterly net win less than $2 million. They would be exempted from any revenue sharing requirements unless their net-win grows. Assuming that the combined net-win for those casinos is $7 million, the base is decreased from $322 million to $315 million. Decreasing the base by $7 million implies a $560 thousand reduction in revenue at 8 percent. The table on the first page is adjusted to account for the additional loss.

The contract extension does not change the fiscal impact estimates except to the degree that it makes the bill more attractive to tribes and thereby increases the likelihood of compliance. This is also true for the provisions that would provide an enforcement agreement clause.

The distribution to the Jockey's guild health and welfare trust is estimated to be worth $390 thousand annually. This assumes that the annual net take is $78 million (gaming control board). Presumably, this comes out of operators profits.

Synopsis of HBIC Substitute

The HBIC substitute for House Bill 419 makes the following changes to the state's gaming laws:

1. It requires that regulatory fees be no more than the costs the state incurred in carrying out its regulatory functions during the preceding fiscal year. Gaming tribes are required to pay the regulatory costs within 30 days of receiving an accounting from the state. If the tribe raises questions regarding the accounting that cannot be resolved informally, it may invoke dispute resolution procedures.
2. It reduces the revenue sharing percentage from 16 percent of gaming machines' net win to 8 percent of net win, where net win is defined as the total wager less prize payouts and state and tribal regulatory fees.
3. It requires that a tribe that wants to take advantage of the proposed lower rates be in compliance with existing requirements. It allows tribes that owe money under the old compacts to work with the governor to set up a payment plan. The payment plan is limited to two years.
4. It provides for the termination of an Indian tribe's gaming compacts if the tribe is in default of agreed upon contributions pursuant to its gaming compact, its supplement to its gaming compact or a payment agreement.



5. It reduces the gaming tax that is paid by racetracks and nonprofit organizations from 25 percent to 15 percent.

The effective date of the legislation is July 1, 1999.

FISCAL IMPLICATIONS

The fiscal implications of House Bill 419 as amended depend on compliance with the law. Current estimates of gaming activity subject to the revenue sharing agreements are that net win is approximately $322 million. This suggests that if gaming tribes were complying with current law revenue sharing receipts would be approximately 52 million. Indian gaming representatives have reported that their obligations under the revenue sharing agreement represent an additional $6-7 million. However, based on the $32 million in payments actually made in the past calendar year, the state is only expecting to receive $32 million in FY 2000. This implies a high level of non compliance.

If the lower rates provided for in this legislation induced full compliance, the state could expect to receive approximately $25.8 million from the revenue sharing requirements on a recurring basis. The amount raised by regulatory fees is undetermined, but discussion with gaming control board staff suggests that total costs would be approximately $800 thousand annually. Thus, total revenue from Indian gaming would be approximately $26.6 million. Given that the current recurring revenue estimate for Indian gaming is $32 million (which includes both revenue sharing and regulatory fees), the net impact of the proposed legislation is a negative $5.4 million.

In addition to the recurring revenue generated from the proposed legislation, the payment of money owed under the current revenue sharing requirement would raise non-recurring revenue. The amount owed but unpaid under the revenue sharing agreement is unknown. The estimate of money owed developed here covers FY98 and FY99. In FY98, tribal gaming net-win is conservatively estimated to have been about $260 million. Payments were owed for three quarters. Multiplying $260 million by 16 percent gives $42 million annually. Since there were only three payments made during the fiscal year, this figure is adjusted to $31 million. Similarly, the regulatory fees owed are estimated to be three quarters of the $6 million estimated for FY98, or $4.5 million. Adding together the estimated revenue sharing dollars and the estimated regulatory fees gives $35.7 million. Actual revenue received was $18.7, implying an unpaid balance of $12.5 million. The estimated amount of money that will be unpaid in FY 2000 is $19 million. This is the difference between the $59 million estimated to be owed and the $32 million included in the revenue estimate. (Note-- it is possible, perhaps likely that legislation acceptable to all parties would change compliance behavior, resulting in more revenue paid in FY99) The total amount of money estimated to be owed but unpaid for the two-years is thus $31.5 million. Assuming that the back payments are split evenly between the two years, the state could expect to receive $15.8 million in FY 2000 and $15.8 million in FY 2001.

Non-tribal gaming is just beginning and thus the revenue estimates for this activity are highly speculative. The FY 2000 revenue estimate is that the state will receive $26 million from non-tribal gaming, about $24 million of this is expected from the gaming tax. Reducing the gaming tax from 25 percent to 15 percent, or by 40 percent, would reduce gaming tax revenues by approximately 40 percent. Thus, the reduction in the gaming tax rate is estimated to result in a loss of $9.6 million.

The combined, total recurring revenue impact of the legislation is estimated to be $15 million. $9.6 of the loss is the result of the lower gaming tax, and $5.4 million the result of the reduced Indian gaming revenue sharing rate.

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