05/29/12 – Joint House & Senate Finance Committees

4:58 p.m.
Well, I made it to Gov. Lincoln Chafee’s daily press availability. I think the technical reason was to discuss the appointment of a budget commission for the City of Woonsocket (including Peder Schaefer, Dina Dutremble, and William Sequino for the state and Mayor Leo Fontaine and City Council President John Ward for the city). Most of the questions had to do with 38 Studios, though. I’ll say it is fun to watch the assembled media vie for answers like traders on the exchange floor.

Afterwards, it was much more my speed to have some quiet questions and answers with Dept. of Revenue Director Rosemary Booth Gallogly, mainly regarding municipal oversight and pensions. I’ll have a more detailed account later, but suffice it for now to say that she assures me that there are no nefarious, sneaky deals lingering in any of the related decisions and legislation.

In Rhode Island, how could there be?

5:31 p.m.
Given the detailed debate of bills I haven’t followed in both chambers, I figured I’d settle in to room 35 for the hearing. Something tells me I’m going to regret not having a pre-State House snack. Looks like it’s water and Halls from here on out.

Thus far, I’m one of eight people in the room. Wouldn’t it be interesting if 38 Studios and Woonsocket have successfully taken the air out of what is really beginning to seem like little more than a ploy to bolster the casino’s own revenue?

5:42 p.m.
Senators and representatives have begun filtering in (and munching on pizza in the back room. I wonder if Speaker Fox has enough in his campaign fund to order pizzas for the audience at such hearings.

5:52 p.m.
Room is filling up. The Providence Journal is here, at least, in the person of Phil Marcelo. Some reps not on the committee appear interested in testifying. Some House bills dealing with local bonds will precede the real action.

Oh, and Andrew Morse tweeted a short while ago that the budget is scheduled to appear in committee on Thursday. Fun, fun.

6:00 p.m.
Still waiting (“rise of the House,” indeed). With all of the legislators in the room, I think they might outnumber the audience. All seated along the dais, it looks a lot like when schools have faux town-council sit-ins, wherein each student is paired with a councilor.

And we’re off.

6:04 p.m.
Bunch of municipal bonds passed on a voice vote. Now a three minute recess and the casinos will be up.

6:07 p.m.
I see one of the first slides is a quotation from the legislation calling for an “extensive analysis and evaluation” of gaming in the state. Interesting that there aren’t any details given. (That, if you’ll recall, is the Christiansen Capital Advisors study that didn’t consider table games at Newport Grand, that assumed a 35% state take from the games [rather than the 16-18% that this legislation actually provides, and makes clear how little of the lost revenue this change will make up.

6:16 p.m.
According to the (very long) presentation, Twin River projects $60 million in table game revenue (total), compared with CCA’s $80 million. Considering that the state’s take will actually be about half of what CCA projected, that totals out to a huge difference in estimates.

6:18 p.m.
Shave off another $3.5-4.5 million in “oversight costs” to the state. Smaller and smaller. (The hearing hasn’t actually begun yet, by the way.)

6:21 p.m.
According to the presentation, by 2017, the state will be taking in a total of $8.0 million from table games (not including any expenses incurred), while losing $112.7 million in its video slot revenue in 2017 compared with 2013.

Meanwhile, table games will bring Twin River another $38.4 million in 2017, mostly offsetting its $45.2 million loss in VLT revenue for that year. For Newport Grand, it’s $3.1 million offsetting $5.2 million.

6:26 p.m.
Sharon Reynolds [something] and Peter Marino are giving the presentation.

6:33 p.m.
Sharon’s flying through the presentation.

6:35 p.m.
Some states require millions in up-front fees (up to $85 million in MA) from casinos, with annual fees, as well. MA will collect $600 per slot per year, for example.

6:36 p.m.
Going over the CCA study. Funny that they are handing copies out to the committees now, whereas they got the presentation with time to review it during the brief pause.

6:40 p.m.
Marino is going over the intent of the legislation: keep some state revenue (hence the name), keep the existing facilities “viable”, and preserve the jobs of those facilities. [Looks to me like the “Revenue Protection Act” is a bit misplaced; it’s more truly a “Casino Profit Protection Act.”

6:56 p.m.
Still going through the slides. Marino is pretty much reading what’s printed, and I’ve already culled the interesting facts above.

6:58 p.m.
One more fact: If there are no table games, the presentation projects a loss to the state of $139.5 million. In other words, the Revenue Protection Act protects all of $5 million, almost all of which, if I’m reading correctly, will go toward the state’s new responsibilities for oversight.

7:06 p.m.
Sen. Edward O’Neill asked whether Newport Grand’s share of VLTs requires 24×7 operation on its part. Answer: No.

O’Neill: CT casinos are Indian casinos, which makes them not very comparable to this with regard to the state’s share.

7:09 p.m.
O’Neill: Was there any input from the town communities or their GA delegations? Answer: No. Most of the work was “staff-level.”

O’Neill: Would the cost to regulate the table games require additional resources. Answer: Yes. But apparently those are “netted” out of the state’s share cited above.

7:11 p.m.
O’Neill: GTECH would be relieved from having to update the equipment. Would there be “any” requirement? Answer: The state Lotteries division would be working with the company.

7:12 p.m.
House Minority Leader Brian Newberry asked who provided the data for profit estimates. Answer: the casinos. He asked whether it’s possible to confirm, because he’s concerned that the casinos would use promotional plans to push people to the table games, because the slots don’t return them as much.

Marino said he understands the intent to be to promote the slot games.

7:15 p.m.
Newberry supports the legislation, to help the casinos to compete, but he wants to make sure the state can regulate so as to ensure that folks aren’t directed away from its slots. Answer: The Lotteries division has “every authority.”

7:17 p.m.
Sen. David Bates has been on the lottery commission since 1997. He notes that table games and slots have different audiences, so they’re really looking for a new audience, here.

He asked about the lack of mention of GTECH in the legislation. Sharon is saying that Lotteries has determined that updates aren’t necessary.

7:19 p.m.
Rep. Eileen Naughton asked whether the legislation ensure that Lotteries has the requisite authority. Answer: It doesn’t relate to the Lotteries Commission, specifically, but to the division.

7:21 p.m.
Sen. Lou DiPalma asked about a decline in net revenue from 2006 to 2007, while the state’s share stayed the same.

Apparently, it had something to do with adjustments of the shares.

Next question evoked the answer that oversight would require another 40 full-time equivalents (FTEs) on the state’s part. DiPalma notes that the addition of 100 table games is requiring 40 FTEs.

Marino: This is a “cash-driven industry,” so the movement of the money requires close oversight.

7:25 p.m.
Rep. Dan Reilly: Asked what “central communications” means. Answer: That’s the “brain,” the GTECH segment.

Reilly notes that the legislation removes responsibility for GTECH for lottery terminals outside of the casinos… that is, the regular ol’ lottery terminals in convenience stores and such.

7:29 p.m.
Rep. Larry Ehrhardt: “Who negotiated this deal?”

Marino: “It wasn’t negotiated at the staff level.” Staff merely researched what’s going on elsewhere.

Ehrhardt: “Thinking about the newspapers that are written about this two years from now, who’s name is on this?”

Marino dodged the question, but in the first part of his answer (after the “negotiation at the staff level” comment) he said “leadership.”

7:31 p.m.
Ehrhardt is picking up on what I commented about above: whose revenue is this protecting? [Note: It’s clearly a move of the goal posts. Already this evening, several people have made reference to the “viability” of the companies. That is, the goal has moved from preserving state revenue to preserving the companies’ “viability.”]

Sharon: “The state’s fortunes rise and fall with the facilities’ fortunes.” So the revenue protection is to keep the facilities healthy so that “the partnership remains intact” and the facilities don’t close.

7:35 p.m.
Chairman Helio Melo asked whether the reduction of the state’s table game take from 18% to 16% if the video terminal revenue reduces amounts to “a slippage cost.”

Sharon: She doesn’t want to call it that, but essentially, yes.

7:36 p.m.
Rep. Newberry echoed Ehrhardt’s concerns, which appears to be a modification of what he said, above.

Newberry asked how reliable the CCA report could be if the local analysts had to drop their table game revenue by 25%. [Nobody’s mentioned that the report also estimated a state take of 35% of table games. A not-too-cynical observer might note that the CCA study got the General Assembly to put the question on the ballot, and now we’re adjusting down to the real intention.]

7:41 p.m.
Newberry also asked what would happen if the GA increased the take to 20% on the floor. Marino said he should ask the company representatives.

7:43 p.m.
Rep. Larry Valencia asked whether the Indian tribes had any input in the legislation. Answer: No.

Rep. Joy Hearn: How many employees does the Div. of Lotteries currently have? The witnesses don’t know but will find out.

7:45 p.m.
Sen. Walter Felag asked about the number of employees needed for oversight, noting that it would be difficult to estimate based on other states.

Marino: table games are much different from video lottery slots.

Sharon: The Lottery Div. has 53 FTEs, right now, with 15 dedicated to video lottery terminals (slots).

7:48 p.m.
Chairman Melo asked about the provisions for problem gamblers, noting that the presentation mentioned programs for them, but the legislation doesn’t include any specifics.

Sharon: “The division does have a program right now. What this legislation does is ensure that they continue.”

7:50 p.m.
Rep. Ehrhardt clarified that the legislation doesn’t change the terms of existing contracts.

7:53 p.m.
Sen. DiPalma requested that we look at Delaware’s problem-gambling programs.

7:54 p.m.
Newberry asked about the 35% take that CCA assumed. Marino says that they were just trying to get some sort of idea of what the income would look like. Newberry’s concern is that we don’t have an independent source confirming the casinos’ projections.

7:57 p.m.
Rep. Peter Petrarcha is accompanying a representative from Lincoln town administrator Joseph Almond for testimony.

Petrarch: “The problem we have here” is that the legislation does not give any of the table game revenue to the town of Lincoln. If the revenue shifts to table games, the town’s share will fall. “What I would be looking for is… some type of protection.” He doesn’t want to use the term “slippage,” but that’s what he wants, perhaps with a sunset date to see whether they’re maintaining revenue.

8:00 p.m.
Almond: 12% of their budget is funded by Twin River revenue. He does support the expansion of table games, but he “can’t support” legislation that doesn’t provide the town with a percentage of table game revenue.

8:03 p.m.
Now he’s running through the hardships of the town… drop in school aid, etc.

8:04 p.m.
He says that Lincoln has the lowest median household income in northern Rhode Island except Burrillville. [Checking my own research, I have to question the accuracy of that statement. Furthermore, Lincoln has been toward the top of the list when it comes to increases in median household income over the last decade.

8:08 p.m.
John Mongelli, RI Council on Problem Gambling, notes that the state has no paid employees to deal with problem gambling, and the non-profits that deal with it (he mentioned hospitals) have been losing funding and won’t be able to support an increase in demand or a decrease in funding. He recommends 1% of proceeds to go toward the issue.

He says the state has never done a study, but “typically” one would be done every five years.

The legislation also does not place specific burdens on the casinos, either. He also says the governor’s office never addressed or studied problem gambling. “This fell through the cracks.”

8:13 p.m.
He also notes (as has been observed here before) that various rules and specific provisions dealing with problem gambling that are currently on the books in response to possible Indian casinos are not in this legislation, and he hopes they are not slated to be eliminated.

8:15 p.m.
He notes requirements in CT and MA for gambling enterprises to fund problem gambling programs. He says MA has done “considerable work” preparing for problem gambling concerns. “I haven’t talked to anybody in RI who is interested in moving this ahead.”

8:17 p.m.
Fr. Eugene McKenna, president of Citizens Concerned About Casino Gambling, says they don’t believe that it’s true economic development; it just shuffles money around and sends much of the profit out of state.

8:18 p.m.
“As an old English teacher,” he gives credit to the “creative” writers of the bill. “Revenue protection” and the way that everything is “a threat to public welfare” reminds him of 1984. (He’s saying it very jovially, though.)

He wants to know who’s looking at “protecting the people.” “It’s easy to forget the problems that it creates and the people who lose money along the way.”

8:21 p.m.
He cites a book finding that every $1 that gambling creates for the economy costs $3 in public money, mainly to deal with the problems.

8:22 p.m.
He warns that the state “can become predatory” of the weakest members.

8:24 p.m.
“The imminent threat to the public welfare will come from the state’s addiction to gambling.” “There is no limit to the amount of money that we want to take from the individual people who are gambling.”

He says RI takes more state income, per capita, from gambling than any other state.

8:26 p.m.
He’s going over figures showing how the state’s take will be reduced if patrons switch from slot terminals to table games, his point being that the state needs him to spend even more in order to catch up. [I’d say he’s ignoring the point that the state’s representatives in the negotiations accept that the state is bearing the reduction in revenue.]

8:30 p.m.
“We don’t have to try to keep up with MA.” He alluded to 38 Studios as an example of what can happen when we try to do that.

8:31 p.m.
Next are George Chapineer and Craig Eaton, executives from Twin River. [DaPonte is now running the meeting.]

8:32 p.m.
Eaton is Senior Vice President General Counsel.

Eaton began by noting how well Twin River has been competing with the CT casinos well. He’s deliberately blurring “the state’s interest” as public loss of revenue and the company’s interests. He says their polls show consistent support for table games, mainly for the jobs, and table games are “very labor intensive.” At least another 350 (union) jobs and 300 indirect jobs (“that may or may not be union”).

2nd residents are concerned about losing revenue [ed: which this legislation won’t help much]

8:40 p.m.
He’s pointing out that the state’s percentage take from overall casino/slot revenue will maintain Twin River’s status toward the top of the list, nationwide.

8:42 p.m.
He’s saying that table gamers are new gamblers, but they’ll bring people with them (“companions”) who will increase slot revenue. [I’d note that the CCA study shows the opposite effect of table games, and I’d argue that CCA is correct. I’ve been to Twin River and only played the games that most closely resembled real table games. The blackjack machines are a perfect example. It’s a table game without a dealer. My limited slot spending would, if anything, transfer entirely to table games.]

8:49 p.m.
Sen. Lou DiPalma pointed out that the company won’t add games if it doesn’t think it could make a profit from them, making the distinction from a “service.” He also asked about the company’s problem-gambling activities. Eaton is responding with a prepared statement.

Eaton can’t provide a dollar amount for the company’s investment.

8:52 p.m.
Ehrhardt asks for other states’ table-game only shares. West Virginia is at 35%; PA is at 16%, heading toward 12%; Delaware 32%. (I might have jumbled up the numbers, but those were the amounts.)

8:56 p.m.
Melo is back in charge. Naughton is now discussing the number of each type of game that should be included.

8:57 p.m.
Sen. Susan Sosnowski asked whether the new employees would be imported or local. Answer: There’s already plenty of competent folks in the area, and the facility will provide training.

8:58 p.m.
O’Neill: asks about security, specifically infrastructure, equipment, and personnel changes.

Papineer (and I’m sure I’m misspelling that, but I can’t find it real quick online): They are going to have to make some structural changes, and the overseers tend to be higher-skill.

O’Neill: “With due respect to the Lottery Commission,” he wouldn’t rely on them for the necessary competence.

Sen. Maryellen Goodwin “complete disagrees.”

9:00 p.m.
Rep. John Carnevale concurs with Goodwin and clarified with the company reps that the actual building will not have to expand at all.

9:02 p.m.
Now up are Dianne Hurley, whose father founded Newport Jai Lai in the ’70s, and Chris Boyle.

9:04 p.m.
Hurley: MA casinos and racinos threaten her company’s ability to survive. “Over 60% of our reward members are Massachusetts residents.”

9:08 p.m.
They want to maintain their “complement, not compete” relationship with Newport, as a “world-class resort.”

9:08 p.m.
This may be the audience with the most longevity that I’ve seen, with 18 people still in the room (not including me). I’m pretty sure I’m the last media person in the room, so if one of the remaining audience members could do something really wild and newsworthy, that’d be great.

9:11 p.m.
[Just a side observation: pretty much all of the testimony has essentially been an act of negotiation. The legislative leaders negotiated with the casinos. Lincoln wants to negotiate for more. Problem gambling advocates suggest more spending on their cause. Gotta wonder whether the government a legislative body like the General Assembly is really the appropriate place for these sorts of negotiations.]

As I typed the above, Valencia asked about Newport Grand’s activities drawing specifically the tourist population to the facility. Long answer, mainly having to do with advertising activities. Seems to me some of the legislators’ questions have been a sort of business management inquiry.

Now Carnevale is asking about shuttles from cruise ships. Hurley says casinos have full-scale casinos onboard, so patrons weren’t interested in shuttles to gamble elsewhere, but she expects they’d try again with new offerings.

9:19 p.m.
Hurley: “Our vision is a boutique casino.”

Melo’s asking about year-round advertising. [Interestingly, it sounds like DaPonte is still running the meeting, although Melo is back.]

9:21 p.m.
This sounds like the committees are auditioning Newport Grand for some sort of new business. Would that they’d been so determined to vet 38 Studios.

9:22 p.m.
Now Melo is asking about Newport Grand’s marketing budget.

9:23 p.m.
Kathy Rainer, Newport Grand employee, president of the employee union.

And the legislators start to evacuate…

9:25 p.m.
[These hearings start to have the feel of something out of a Medieval court, with the people bringing their pleas to the king’s attention.]

9:26 p.m.
Dir. of Revenue Rosemary Booth Gallogly is now talking about the GTECH provisions of the bill.

9:31 p.m.
In response to a question from DaPonte, Lottery Executive Director Gerald Aubin is explaining the whole promo-point thing.

9:35 p.m.
I’m thinking they should have some sort of announcement or board on which to tell the audience how many people remain before them… sort of like being on hold for technical assistance on the phone.

9:37 p.m.
The legislators are wondering why there’s a change in the promo-point rate. Melo, in particular, wonders why they don’t just wipe out the contract and go back out for RFPs. Seems to me a 20-year contract (ending in 2023) really doesn’t account for changes in the market.

9:43 p.m.
O’Neill is bringing up his concerns about the Lottery Division handling oversight. Aubin admits that he doesn’t have experience, or staff with experience, working with casinos.

9:44 p.m.
Aubin doesn’t have the answers, today, but he’s “fully confident” that they’ll have the expertise within a year. He assures the committee that it’s not that big of a leap, because they already set policy for just about every activity in the facilities.

9:47 p.m.
Ehrhardt summarizes the GTECH promo-point controversy as: the company wants “to be paid whenever the wheel spins,” emphasizing that it ought to be relatively easy to calculate the company’s exposure for promos.

9:48 p.m.
[If I can bring a bit of my small-government venting into this, I simply cannot believe that this is the best way to operate any kind of business. So here’s a committee that’s dealt with many completely unrelated policies, today, and hundreds over the session. And now they’re micromanaging a hundreds-of-millions-of-dollars gambling operation?]

Ehrhardt: “This also is an industry that tends to punish those who don’t know what they’re doing, so let’s be careful.”

9:53 p.m.
Held for further study.

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