Council of the District of Columbia Committee on Finance and Revenue Committee Report

1350 Pennsylvania Avenue, N.W., Washington, D.C. 20004

To: From:

All Councilmembers Jack Evans, Chairman Committee on Finance and Revenue February 1, 2012 Report on Bill 19-474, the Lottery Amendment Repeal Act of 2012.

Date: Subject:

The Committee on Finance and Revenue reports favorably on Bill 19-474, the Lottery Amendment Repeal Act of 2012, and recommends its approval by the Council of the District of Columbia. TABLE OF CONTENTS I. II. III. IV. V. VI. VII. VIII. I. Background, Purpose and Effect Legislative History Summary of Testimony Fiscal Impact Statement Section-by-Section Analysis Impact on Existing Law Committee Action Attachments BACKGROUND, PURPOSE AND EFFECT

Bill 19-474, the Lottery Amendment Repeal Act of 2011, was introduced by Councilmembers Wells and Mendelson, and co-sponsored by Councilmember Catania. The legislation as introduced would amend the Law to legalize Lotteries, Daily Numbers Games, and Bingo and Raffles for Charitable Purposes (DC Law 3-172) to eliminate online gambling. Language amending DC Law 3-172 was included in the committee print, circulated by the Council Office of the Budget Director on behalf of the Committee of the Whole1, of Title VII, Subtitle G. Lottery Modernization Act of Bill 18-1100, the Fiscal Year 2011 Supplemental Budget Support Act of 2010, which is now Law 18-370. The language as passed by the Council on second reading on December 21, 2010 amended 3-1313 to add a subsection (a) to read:

Circulated electronically to Council Members and Staff on 12/7/10 at 2:17AM. Email from Justin Constantino, Budget Counsel, Office of the Budget Director, to All Members and Staff.

Sec. 761. Short title. This subtitle may be cited as the Lottery Modernization Amendment Act of 2010. Sec. 762. Section 4 of the Law to Legalize Lotteries, Daily Numbers Games, and Bingo and Raffles for Charitable Purposes, effective March 10, 1981 (D.C. Law 3-172; D.C. Official Code 3-1313), is amended as follows. (a) The existing section is designated as subsection (b). (b) A new subsection (a) is added to read as follows: (a) A lottery or lottery game means both games of skill and games of chance that are operated by and for the benefit of the District of Columbia by the Board; provided, that: (1) If the games of skill and games of chance are offered via the Internet, any technology employed for the play shall confirm the play to be at all times within the District; provided further, that the restriction shall not apply to the conduct of fantasy sports and sweepstakes-style games if such games are lawful; and (2) No method, media, or device for play of the games of skill and games of chance shall violate An Act To prohibit transportation of gambling devices in interstate and foreign commerce, approved January 2, 1951 (15 U.S.C. 1171 et seq.), or any other federal law.. (b) A new subsection (c) is added to read as follows: (c) The Board, through the Chief Financial Officer, pursuant to Title 1 of the District of Columbia Administrative Procedure Act, approved October 21, 1968 (82 Stat. 1204; D.C. Official Code 2-501 et seq.), may issue rules to implement the provisions of this section, and may establish which games may be offered and additional terms and conditions for the conduct of the games not inconsistent with subsection (a) of this section, including the percentage of wagered amounts to be retained by the Board, minimum and maximum wagers, and time limitations for the games.. Subsequent to the passage of this supplemental budget bill, questions were raised as to whether the members of the Council were actually aware of the inclusion of i-gaming in the bill, particularly as it was not circulated until 2:17 am the day of the initial vote. Even if members were aware of the last minute change, it is unlikely that they were able to take the time to fully educate themselves on the issue prior to being asked to cast an initial vote on the measure. Further, questions were raised as to the advisability of enacting a potentially controversial measure in this manner, which did not allow for residents and other stakeholders to express their views through a formal hearing process. Finally, even if members had been both aware of and fully informed regarding the i-gaming provision, the fact that it was scored as a revenue-raiser and thus used to balance the budget, particularly in the out years of the Districts financial plan period, would have made it very difficult for a member to propose an amendment in light of the unique circumstances involved. Specifically, the CFOs fiscal impact statement was not issued until the day of the final vote on the bill, meaning that unless a member seeking to move an amendment had already identified and obtained a fiscal impact statement for an alternative revenue raising proposal prior to the morning of the final vote, and by good fortune this alternative proposal generated at least as much money as i-gaming was predicted to, though that number was not yet known, an amendment to remove the i-

gaming legalization provision would have been ruled out of order.2 In addition to the questions about the legalization process, questions were also raised as to the process by which the original contract with Intralot to operate the lottery was adopted in 2009.3 The Inspector General recently released a copy of a report on his investigation into the matter, in which he raised questions as to the propriety of asking the Council to vote on a contract which did not include any mention of an i-gaming option, among other things.4 In light of all these questions, it is the opinion of this Committee that the Lottery Modernization Amendment Act of 2010 should be reconsidered by the full Council so that all members may weigh in after having heard from their constituents and been able to more fully inform themselves on the issue. II. LEGISLATIVE HISTORY

September 20, 2011 Bill 19-474, the Lottery Amendment Repeal Act of 2011 is introduced by Councilmembers Wells and Mendelson. September 20, 2011 Bill 19-474, is referred to the Committee on Finance and Revenue. September 30, 2011 Notice of Intent to Act on New Legislation for Bill 19-474 is published in the D.C. Register.5 December 30, 2011 Notice of public hearing on Bill 19-474, and other matters, published in D.C. Register.6 Public hearing held on Bill 19-474, and other matters. Consideration and vote on Bill 19-474 by the Committee on Finance and Revenue.

January 26, 2012 February 1, 2012

The CFO estimated $13.1 million in new revenue from the implementation of i-gaming in the fiscal year 2011 through fiscal year 2014 financial plan period. See Office of the Chief Financial Officer, Revised Fiscal Impact Statement: Fiscal Year 2011 Supplemental Budget Support Act of 2010, Amendment in the nature of a substitute, pp. 23-27 (Dec. 21, 2010), available at http://app.cfo.dc.gov/services/fiscal_impact/pdf/spring09/FINAL-REVISEDFIS-18-1100-Fiscal-Year-2011-Supplemental-Budget-Support-Act-of-2010.pdf. 3 PR18-0546, Contract No. CFOPD-09-C-013, Online Gaming System and Related Services Approval Resolution of 2009 (adopted Dec. 1, 2009), available at http://dcclims1.dccouncil.us/lims/legislation.aspx?LegNo=PR180546&Description=%22CONTRACT+NO.+CFOPD-09-C013%2c+ONLINE+GAMING+SYSTEM+AND+RELATED+SERVICES+APPROVAL+RESOLUTION+OF+200 9%22.%0d%0a+&ID=23242. 4 Report of Investigation Into the Office of the Chief Financial Officers Lottery Contract Award (Jan. 20. 2012), available at http://oig.dc.gov/news/view2.asp?url=release10%2F2010%2D0492+ROI+Final+webposting%2Epdf&mode=invest &archived=0&month=00000&agency=0. 5 Page 008309 of the September 30, 2011 D.C. Register. 6 Page 011264-11265 of the December 30, 2011 D.C. Register.

III.

SUMMARY OF TESTIMONY

The Committee on Finance and Revenue held a public hearing on Bill 19-474, and other matters, on January 26, 2012, starting at 10:30 a.m. The hearing was attended by Chairman Jack Evans, Councilmembers Michael Brown, Tommy Wells, David Catania, Marion Barry, and Yvette Alexander. Chairman Evans presented an opening statement on the legislation: Good morning, and welcome to this public hearing of the Committee on Finance & Revenue. The time is 10:30 a.m. and I recognize the presence of my colleague(s) Councilmember(s) Michael Brown. Todays hearing is serving multiple purposes. It is a public oversight hearing on the matter of i-gaming and a follow up to the June 29, 2011 roundtable on the matter. It is also a hearing on Bill 19-474, the Lottery Amendment Repeal Act of 2011, which was introduced by Councilmembers Mendelson and Wells. Their bill would amend the law regulating lotteries and similar games by eliminating online gambling from the list of permissible activities. I previously expressed concerns on the legality of i-gaming, citing a lack of a consensus on whether federal gambling statutes would prevent us and other states from implementing igaming. While many of the other questions I posed in June still remain, in the intervening time there has been additional clarity regarding federal law and the intentions of other states to enact similar igaming laws. That does not diminish the concerns I have regarding implementation risk relating to the lack of experience DCs lottery provider, Intralot, has in implementing online gaming in the United States. In order to be lawful, our i-gaming program would have to be accessible only within the Districts boundaries, and I wonder whether the technical challenges of implementing this program at the state and local level could be different from the full nationwide implementation experience Intralot has gained through its work in other countries. The concerns I have on this point are shared by other members of the committee, who submitted written questions to the DC Lottery regarding technical integrity and related consumer protection issues. Perhaps even more poignant than the questions of the legality of i-gaming, generally, are questions regarding the legality of the contracting process for i-gaming in the District and the simple policy question of whether this is something our residents want. The two are related, as one of the most often repeated concerns I have heard from constituents is that i-gaming was legalized outside of the formal hearing process, and the contract the Council voted on to approve the lottery contract is reported to have been different than the one the executive actually adopted. Our Inspector General recently released a report on his investigation into the lottery contracting process, and I will be intensely focused on this issue. Just a few housekeeping items before we begin. As I mentioned in a memo to my colleagues the other day, we will begin with a panel of Government Witnesses today, with two ten minute rounds of questions by members. Upon completion of the Government panel, we will begin with public witnesses who have signed up to testify. Any witness who is not called to testify before we recess will be called when we resume the hearing at 6pm. So, essentially we 4

will pick up where we leave off. I have asked our lottery director to stay until the end of all public testimony so that we can ask any additional questions we develop during the course of the day and allow him to respond. Councilmember Michael Brown also presented an opening statement. A copy of his remarks can be found in Attachment E. A video recording of the hearing can be viewed at oct.dc.gov. The following Government witnesses testified before the Committee, and copies of their testimony, as well as a complete list of those who signed up to testify, those who testified, and copies of written testimony provided, can be found in Attachment F: Charles Willoughby, Inspector General Natwar Gandhi, Chief Financial Officer Buddy Roogow, Executive Director, DC Lottery and Charitable Games Control Board The public hearing recessed at 2:30 p.m., reconvened at 6:00 p.m., and concluded at 7:30 p.m. Councilmember Michael Brown summarized the testimony of the public witnesses as a part of his closing remarks. Mr. Brown acknowledged 57 people testified, of which 41 were in favor of online gambling, 14 were opposed to online gambling, and 2 were neutral. The committee received copies of resolutions regarding the topic of internet gambling from the following Advisory Neighborhood Commissions (ANCs) and considered these resolutions in its deliberation on the bill. Copies of resolutions can be found in Attachment G. ANC 1C submitted a resolution supporting the immediate repeal of the Lottery Modernization Amendment Act of 2010. The resolution cites city-wide discussion on the issue and asserts that the potential negative social consequences of implementing i-gaming outweigh the uncertain economic benefits. ANC 2B submitted a resolution supporting the repeal of the internet gambling law with the understanding that such a law could be proposed again in the future with a more inclusive procedure for public comment prior to implementation. The resolution asserts that the bill was passed without public discussion and expresses concerns about oversight, security issues, and the lack of authority of ANCs to approve potential operating locations. ANC 2D submitted a resolution supporting repeal of the Lottery Modernization Amendment Act of 2010. The resolution cites a lack of public input prior to the bills passage and raises concerns about potential social problems relating to gambling, such as public safety, as well as internet security, questioning whether the economic benefits of gambling would outweigh the potential social and economic costs. ANC 4B submitted a resolution acknowledging that i-gaming has already been enacted as law in the District and supporting its implementation provided that 75% of the resulting revenue 5

be used for educational needs, job training programs, social improvement programs and infrastructure repair. The resolution cites the fact that the law has already been through Congressional review, that it is one of the only laws of its kind to have been already enacted, and that the law places the District in a unique opportunity to use the projected new revenues for some of the neediest residents in the District. ANC4C submitted a resolution supporting the immediate repeal of the Lottery Modernization Amendment Act of 2010. The resolution cites a lack of public input prior to the bills passage and raises concerns about potential social problems relating to gambling, such as public safety, as well as internet security, questioning whether the economic benefits of gambling would outweigh the potential social and economic costs. ANC 5C submitted a resolution supporting the implementation of i-gaming provided that a majority of the resulting revenue be used for educational needs, job training programs, social improvement programs and infrastructure repair. The resolution cites the fact that the law has already been through Congressional review, that it is one of the only laws of its kind to have been already enacted, and that the law places the District in a unique opportunity to use the projected new revenues for some of the neediest residents in the District. ANC 6B submitted a resolution supporting the immediate repeal of the Lottery Modernization Amendment Act of 2010. The resolution cites a lack of public input prior to the bills passage and notes that this is especially troubling given the groundbreaking nature of the bill. ANC 6C submitted a resolution supporting the immediate repeal of the Lottery Modernization Amendment Act of 2010. The resolution cites a lack of public input prior to the bills passage and raises concerns about potential social problems relating to gambling, such as public safety, as well as internet security, questioning whether the economic benefits of gambling would outweigh the potential social and economic costs. ANC 6D submitted a resolution supporting the immediate repeal of the Lottery Modernization Amendment Act of 2010. The resolution cites a lack of public input prior to the bills passage and raises concerns about potential social problems relating to gambling, such as public safety, as well as internet security, questioning whether the economic benefits of gambling would outweigh the potential social and economic costs. ANC 7B submitted a resolution supporting the implementation of i-gaming provided that a majority of the resulting revenue be used for educational needs, job training programs, social improvement programs and infrastructure repair. The resolution cites the fact that the law has already been through Congressional review, that it is one of the only laws of its kind to have been already enacted, and that the law places the District in a unique opportunity to use the projected new revenues for some of the neediest residents in the District. ANC 7C submitted a resolution supporting the implementation of i-gaming provided that a majority of the resulting revenue be used for educational programs, job training programs, social improvement programs and infrastructure repair and other enumerated needs. The 6

resolution cites the fact that the law has already been through Congressional review, that it is one of the only laws of its kind to have been already enacted, and that the law places the District in a unique opportunity to use the projected new revenues for some of the neediest residents in the District. ANC 8B submitted a resolution that was neither in support of or against i-gaming. The resolution stated that, if i-gaming goes forward, the ANC recommends that a majority of the resulting revenue be used for educational programs, job training programs, social improvement programs and other enumerated needs. The resolution further states that if i-gaming is implemented without this stipulation, the ANC stands ready to protest. The resolution cites the fact that the i-gaming law is one of the only laws of its kind to have been already enacted, and that the law places the District in a unique opportunity to use the projected new revenues for some of the neediest residents in the District. ANC 8E submitted a resolution supporting the implementation of i-gaming provided that a majority of the resulting revenue be used for educational needs, job training programs, social improvement programs and infrastructure repair. The resolution cites the fact that the law has already been through Congressional review, that it is one of the only laws of its kind to have been already enacted, and that the law places the District in a unique opportunity to use the projected new revenues for some of the neediest residents in the District. The committee also received correspondence regarding the topic of internet gambling from ANC Single Member District (SMD) Commissioners. Copies of correspondence received can be found in Attachment H. The committee also received correspondence or resolutions regarding the topic of internet gambling from the following organizations. Copies of correspondence or resolutions can be found in Attachment I. Third Church of Christ, Scientist Reed-Cooke Neighborhood Association Kalorama Citizens Association Council of the Downtown Cluster of Congregations The Joshua Group Ministries Ward 6 Democrats IV. FISCAL IMPACT

The Chief Financial Officers fiscal impact statement of January 31, 2012 indicates that funds are not sufficient in the FY2012 through FY2015 budget and financial plan. Repealing the authority to implement online gambling in the District would reduce revenues by approximately $7000 in FY201212 and $13.1 million over the FY2012 through FY2015 budget and financial plan.

V.

SECTION-BY-SECTION ANALYSIS Section 1 states the short and long title of the bill.

Section 2 amends 3-1313 of the D.C. Official Code to define the operation of the lottery. Determine the number of times a lottery shall be held each year, the form and price of tickets, the number and value of prizes to winning participants. Section 3 indicates the Act shall apply upon the inclusion of its fiscal effect in an approved budget and financial plan. Section 4 contains the fiscal impact statement. Section 5 contains the effective date. VI. IMPACT ON EXISTING LAW

The proposed legislation would amend 3-1313 of the D.C. Official Code to define the operation of the lottery. Determine the number of times a lottery shall be held each year, the form and price of tickets, the number and value of prizes to winning participants. VII. COMMITTEE ACTION

The Committee on Finance and Revenue convened at 1:00 p.m. on February 1, 2012, to consider and vote on Bill 19-474. Chairman Evans recognized the presence of a quorum, consisting of himself and Councilmembers Marion Barry, Muriel Bowser, Michael Brown and David Catania. Chairman Evans made a brief statement on the legislation then moved the bill for discussion. Councilmembers Barry, Michael Brown, Catania, and Bowser all made remarks. Discussion having ended, Chairman Evans then moved the proposed committee print and report for bill 19-474, with leave for the Committee staff to make technical and conforming amendments. The members voted as follows: Report on Bill 19-474 Chairman Evans Councilmember Barry Councilmember Bowser Councilmember M. Brown Councilmember Catania YES NO YES NO YES Committee Print on Bill 19-474 YES NO YES NO YES

Thus, the committee print and accompanying report were passed, with a majority of 8

Members present voting in the affirmative, with 3 votes in support, 2 votes against, and 0Members absent. The committee meeting adjourned at 1:45 p.m. VIII. ATTACHMENTS A. B. C. D. E. F. G. H. I. Bill 19-474 as introduced. Committee Print of Bill 19-474. The January 31, 2012 Fiscal Impact Statement of Chief Financial Officer. Public hearing notice for Bill 19-474, and other matters. Councilmember Michael Brown remarks. Witness list and copies of testimony from the January 26, 2012 public hearing on Bill 19474, and other matters. ANC Resolutions. ANC SMD Commissioner Correspondence. Organizations Correspondence.