BILL ANALYSIS AB 2803 ASSEMBLY THIRD READING AB 2803 (Isenberg) - As Amended: June 8, 1994 ASSEMBLY ACTIONS: COMMITTEE G. O. VOTE 14-0 COMMITTEE W. & M. VOTE 13-3 Ayes: Aguiar, Allen, Alpert, Andal, Campbell, Costa, Escutia, B. Friedman, Johnson, Murray, Pringle, Seastrand, Woodruff Nays: Vasconcellos, Horcher, Lee DIGEST Existing law, the Gaming Registration Act: 1) Requires every person owning or operating a gaming club (card room) to first register with the Attorney General and prohibits any city or county from allowing the operation of a gaming club without valid registration. Applicants for registration must provide detailed information on their financial and personal history, and registration may be denied for past criminal activities. 2) Makes any person who plays, deals or operates any game of faro, monte, roulette, lansquenet, rouge et noire, rondo, tan, fan-tan, seven-and-a-half, twenty-one, hokey-pokey or any banking or percentage game played with cards or dice for money or anything of value guilty of a misdemeanor. This bill repeals the Gaming Registration Act and enacts the Gambling šControl Act (Act) with the following provisions: 1) Provides that the intent of the Legislature is to provide uniform, minimum standards of regulation of permissible gambling activities and gambling establishments to ensure that gambling is free from criminal elements and is conducted honestly and competitively. Provides that licensure is a revocable privilege and not a vested right. 2) Authorizes cities and counties to impose more stringent controls than imposed by the Act, and to permit any local tax or fee not inconsistent with the Act. 3) Establishes a seven-member commission with three members appointed by the Governor, two members appointed by the Speaker, and two members appointed by the Senate Rules Committee. Terms are for four years and no member can be an elected official or an official of a political party. Members receive per diem of $100. The commission has an executive director who is empowered to appoint necessary staff and clerical personnel. - continued - AB 2803 Page 1 AB 2803 4) Empowers the Commission to adopt regulations, approve licenses, approve certain financial transactions of licensees, impose conditions on licensees, and revoke, suspend or take disciplinary action against licensees. 5) Establishes a Division of Gambling Control in the Department of Justice (DOJ) to investigate applicants for licensure, and to investigate, inspect and audit all licensees and licensed premises to determine compliance with provisions of the Act. 6) Requires the Commission to adopt regulations on licensure background information, fees, reporting and recordkeeping requirements, exclusion of undesirable persons, mandatory audits and financial reports, security requirements and deceptive advertising. The division is empowered to adopt regulations reasonably related to its duties. 7) Provides that the adoption, amendment and repeal of regulations by the commission or the division are specifically exempted from the requirements of the Administrative Procedures Act (APA), and instead, provisions are provided for notice and hearing requirements for proposed regulations. 8) Requires every person owning or proposing to own or operate a gambling establishment to apply for and receive a license, including corporations and partnerships. All persons who are officers, directors, and shareholders of a corporate license, individual partners of a partnership license, key employees of a licensee, and persons receiving a percentage share of a gambling establishment's revenues must be individually licensed and endorsed on the owner's license. Persons owning more than 5% of the voting securities of a publicly traded corporation must be found suitable for licensure by the commission. The commission may require any person furnishing services or property to a gambling establishment for payments based on earnings or profits from gambling, any landlord or owner of real estate used by a gambling establishment or any person doing business on the premises of the gambling establishment to be either found suitable, to be registered or to be licensed. Persons manufacturing or distributing gambling equipment in the state must obtain a gambling manufacturer's or distributor's license. The division is required to investigate an applicant's qualifications and the commission must approve or disapprove the application. 9) Requires the commission to deny any license for an establishment located in a city or county that does not have an ordinance governing hours of operation, patron security and safety, location of establishments, wagering limits and the number of gaming tables allowed at an establishment and within the governmental jurisdiction. The commission may deny a license if the proposed establishment or expansion of gambling would unduly create a law enforcement problem in a neighboring city or unincorporated area or would cause an undue concentration of licenses in a market area and the applicant fails to show public convenience or necessity would be served by issuance of a license. The number of tables in a county with a population of more - continued - AB 2803 Page 2 AB 2803 than four million is limited to 1,000 tables until January 1, 1999. 10) Requires that corporations be incorporated in California, however, holding and intermediary companies may be chartered in other states or countries. Commission must approve the issuance of any security interests and disposition of interests of licensees. Licensees may be disciplined and licenses revoked for engaging in business with unlicensed persons or firms. 11) Requires employees of gambling establishments to have work permits issued by the division or a city or county as a condition of employment. Work permits may not be issued to and must be revoked for persons found to have committed an offense prohibited by the Act, committed a felony, committed any embezzlement or larceny against a licensee, or been convicted of any offense outside of the state relating to gambling. 12) Permits the commission to limit, condition, suspend or revoke a license for violation of the Act, and to impose fines up to $20,000 for each separate violation. The Commission may issue emergency orders against a licensee if it finds it necessary for the immediate preservation of the public welfare. 13) Provides that any person placed on a list of persons to be excluded from gaming establishments who knowingly enters an establishment, any person willfully failing to report or pay any licensee fee, or any person permitting a minor to be in a gaming establishment is guilty of a misdemeanor. Any person willfully violating cash transaction requirements is punishable by imprisonment for not more than one year, or by a fine of not more than $5,000 or both. 14) Creates the Gaming Control Fund for the support of the commission and division. Establishes fee schedule as follows: licenses with 1-5 tables, $300 per table; 6-8 tables, $500 per table; 9-14 tables, $1,250 per table; 15-25 tables, $2,500 per table, and 26 or more tables, $4,200 per table. A schedule of fees based on gross revenues is established for clubs exceeding designated revenues, regardless of the number of tables. Fees for background investigations are based on actual costs. Provides that if all fees collected exceed $6 million during a fiscal year, the excess shall be refunded to licensees on a pro rata basis. 15) Reenacts the requirement allowing the operation of a gaming establishment in a city or county if permitted by law prior to January 1, 1984, or after that date, approved by vote of the electorate of a city or county. 16) Authorizes the Governor to negotiate and execute, on behalf of the state, compacts with federally-recognized Indian tribes in the state to conduct Class III gaming on tribal lands. The Governor is required to submit any proposed compact agreement to the Joint Committee on Rules for assignment to an appropriate joint committee for review, hearings and possible comments to the Governor. - continued - AB 2803 Page 3 AB 2803 FISCAL EFFECT Estimated $3.5 million annually to the Gambling Control Fund for support of šthe commission and division based on the number of tables in gaming clubs šnow registered with the Attorney General. This does not include revenues šwhich would be charged for the costs of background investigations, which šfor the Nevada Gaming Commission are about 30% of its total budget, nor does it šinclude fees from gaming clubs which have applications pending and can be šexpected to be registered or licensed later this year or early next year. šThese new license fees could increase revenues up to an additional $2 šmillion annually. COMMENTS According to the AG, legal card club gaming has experienced major increases šin both the number of establishments and tables during the past few years šwith virtually no regulation or control. Concerned that widespread money šlaundering and revenue skimming can occur without effective regulation, the šAG argues that an investigative and administrative apparatus similar to the šNevada Gaming Commission with adequate staffing is an absolute necessity, šand will become even more so in the event of widespread Indian Gaming. šCurrently, the Office of Gaming Registration in the DOJ is staffed with 2.5 špositions and is budgeted for $470,000 annually. Regulations adopted pursuant to this measure would be exempt from the šrequirements of the APA including any review by the Office of šAdministrative Law, and instead, adoption would be in accordance with šnotice and hearing requirements contained in the measure. All regulations adopted in the first nine months of the commission's šexistence are deemed to be emergency regulations and will take effect šwithout a public hearing. For the emergency regulations to remain valid, a šretroactive public hearing need only be held sometime prior to July 1, š1996, which could be almost a year and a half after their initial adoption. Concern has been voiced by some card club operators that the measure will špermit business entities which conduct casino gaming in out-of-state šlocations to own an interest in a California gaming club. Existing law špermits the Attorney General to deny an application for registration to any šperson conducting out-of-state gambling operations prohibited under šCalifornia law, unless the person has been registered to operate a gaming šclub for not less than five consecutive years. The author believes that there is no rational basis for this provision in šexisting law, and that, in all probability, it would be found šunconstitutional on either interstate commerce or equal protection grounds šif challenged. Are the license fees for large gambling establishments reasonably related što the cost of regulating the establishment, or are they excessive? At a š - continued - AB 2803 Page 4 AB 2803 license fee cost of $4,200 per gaming table, the annual fee for a 200 table šclub would be $840,000. The AG estimates that a minimum of $3.5 million is šneeded to cover the operational costs of the commission and the division, šnot including the cost of application investigations. It is unclear why šthis level of funding is needed to regulate 275 clubs statewide of which š95% have only one to six tables each. FN 009642 - continued - AB 2803 Page 5