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 HB 419, SB 469

SOURCES OF INFORMATION

Legislative Finance Committee Files

State Treasurer's Indian Gaming Payment History

SUMMARY

Synopsis of COW Amendment

The Senate Committee of the Whole amendment changes the proposed revenue sharing structure so that a gaming tribe would pay 2 percent on the first $6 million of annual net win and 8 percent on net win greater than $6 million. It also strikes the language that would have reconciled past amounts owed under the compact on the basis of the new revenue sharing requirement and substitutes language that would require the state and the tribes to settle the amounts owed under the terms of the current revenue sharing agreement before the terms of the new agreement could take effect. Tribes owing money would work with the state to develop a payment plan. The payment plan could not be longer than two years. The fiscal impacts reported in the table at the top of the page are based on the amended provisions.

FISCAL IMPLICATIONS OF AMENDED BILL

The fiscal implications of Senate Bill 345 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 $22.1 million from the revenue sharing requirements on a recurring basis. The amount raised by regulatory fees is undetermined as they would be tied to the costs of regulation which has not happened. Regulatory cost likely would be modest, however. The Gaming Control Board budget is about $3 million and covers the costs of regulating all gaming in the state. 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 $9.9 million before considering what the regulatory costs recouped will be. Adding back $900 thousand for regulatory fees (an amount that is in the range suggested by the gaming control board) reduces the net loss to around $9 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. Under the amendment the tribes are given two-years to make-up the back payments. 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.

Synopsis of Bill

Senate Bill 345 makes the following changes to the Indian gaming compacts and revenue sharing agreements.

• It puts in place a new revenue sharing structure. Currently, Indian gaming tribes are required to share 16 percent of the net win from casino gaming machines with the state. (Net win is defined as the revenue that is left after paying out prizes and certain regulatory costs.) The bill would replace the 16 percent requirement with a stepped structure such that the gaming tribes would pay each quarter 2 percent on the first $1 million of net win; 4 percent on net win on the second $1 million; and 6 percent on net win above $2 million.



• It reduces the regulatory fees imposed on Indian gaming. Regulatory fees are limited to the amount necessary to cover the costs incurred by the state in carrying out its regulatory functions during the preceding fiscal year. Current regulatory fees are equal to $6,250 per casino plus $300 for each gaming machine plus $750 per gaming table per quarter. The proposed regulatory fee would be set equal to $500 per gaming machine per year.



• The bill provides that tribes that paid more under the current revenue sharing agreement than they would owe under the provisions included in the proposed compact would receive a credit against future payments. Tribes that would owe money because they had not made payments sufficient to cover the proposed revenue sharing obligations would have to pay the state. They would have two years to make up the back payments.




FISCAL IMPLICATIONS





The fiscal implications of Senate Bill 345 depend critically on the assumptions as to compliance with the law. The estimated fiscal impact of lowering the revenue sharing rate from 16 percent to the proposed 2-4-6 rate schedule and tying regulatory cost to the actual cost of regulation is a net recurring revenue loss of $16 million before adjusting for the repayment provisions in the bill. The estimated fiscal impact assumes that the revenue sharing base is $322 million and that the current revenue estimate of $32 million is correct (implying that there is a high level of non compliance at the 16 percent rate). The overall average effective rate resulting from the proposed changes is estimated to be about 5 percent, but the lower rates are assumed to result in full compliance with the law.





Adjusting the fiscal impacts for the provisions that would provide a credit to tribes that paid at the 16 percent rate and allowing the others to make back payments on the proposed rates greatly complicates the fiscal impact estimate. The tribes that have not been in compliance would begin making their regular payments which would likely yield $7 million annually in recurring revenue. Tribes that have been compliant would be unlikely to owe money for 2 to 3 years, depending on how their net revenue base grows. Thus, the net recurring revenue impact of the proposed changes in the law imply a loss of about $25 million beginning in FY 2000.





In addition, the state would receive non-recurring revenue from the payment of money owed under the current agreement but adjusted downwards to the new lower rates. This would likely be about $7-8 million total. Assuming that it is paid over a two year period, the state might expect to get $3.5 million in non-recurring revenue per year.





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