Legislature(2009 - 2010)BARNES 124

02/16/2010 08:00 AM COMMUNITY & REGIONAL AFFAIRS


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08:03:41 AM Start
08:03:53 AM Overview: Alaska Manufacturing Extension Partnership
08:57:57 AM HB208
10:02:18 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 281 BOARD OF GAME/FISH & GAME COMMISSIONER TELECONFERENCED
<Bill Hearing Canceled>
+ Overview: Alaska Manufacturing Extension TELECONFERENCED
Partnership
+= HB 208 CRUISE SHIP GAMBLING TAXES TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                     HB 208-CRUISE SHIP TAX                                                                                 
                                                                                                                                
8:57:57 AM                                                                                                                    
                                                                                                                                
CO-CHAIR MUNOZ announced  that the final order  of business would                                                               
be HOUSE  BILL NO.  208, "An  Act relating  to taxes  for certain                                                               
activities  on  large  passenger  ships;  and  providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
8:58:03 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   HARRY   CRAWFORD,  Alaska   State   Legislature,                                                               
speaking  as the  prime  sponsor  of HB  208,  explained that  he                                                               
doesn't  want to  open the  door for  for-profit gambling  in the                                                               
state.    He expressed  concern  that  the cruise  ship  taxation                                                               
initiative that  started taxing the  cruise ship industry  on its                                                               
gambling  within  state  waters  opens  the  door  to  for-profit                                                               
gambling.     The   aforementioned,  as   illustrated  in   court                                                               
decisions, has happened in the Lower  48.  The desire to not open                                                               
the door  to for-profit gambling  in Alaska is why  Alaska banned                                                               
Monte Carlo nights  in the state in the 1990s.   He then referred                                                               
to  a  June  30,  1997,  Anchorage  Daily  News  article  in  the                                                             
committee packet entitled  "Tribal gambling in Alaska?   Not yet,                                                               
but it's one  step closer".  From the following  article, he read                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     As  in  other  areas,   Congress  sets  the  rules  for                                                                    
     gambling in  Indian country.   Under the  Indian Gaming                                                                    
     Regulatory Act  of 1988,  Native Americans  can operate                                                                    
     casino-type   gambling  only   in  states   where  such                                                                    
     activity is legal.                                                                                                         
                                                                                                                                
     In  1994,  the  Southeast  Alaska  village  of  Klawock                                                                    
     proposed a  casino on a  fragment of village  land held                                                                    
     in trust by  the federal government.   In response, the                                                                    
     Legislature  passed a  law revoking  the authority  for                                                                    
     nonprofit  groups  to  hold  Monte  Carlo  nights  with                                                                    
     roulette, cards  and other casino  games.   That closed                                                                    
     the door to Klawock.                                                                                                       
                                                                                                                                
     The  Venetie ruling  makes it  possible  for any  tribe                                                                    
     that  can establish  Indian country  to  qualify for  a                                                                    
     casino operation, but only if  the Legislature votes to                                                                    
     make such  gambling legal in  Alaska.   The Legislature                                                                    
     did not  eliminate lotteries when  it banned  the other                                                                    
     games,  however.    The state  and  Klawock  are  still                                                                    
     negotiating  over  a  tribal  lottery,  said  assistant                                                                    
     attorney general Vince Usera.                                                                                              
                                                                                                                                
REPRESENTATIVE  CRAWFORD  opined  that since  the  aforementioned                                                               
article, the cruise  ship initiative was passed.   The initiative                                                               
taxes the  cruise ship  industry on  its gambling  profits, which                                                               
could be  viewed as  an implicit acceptance  of Class  3 gambling                                                               
inside the state.  Therefore, he introduced HB 208.                                                                             
                                                                                                                                
9:02:36 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HARRIS  asked if  HB  208  would prohibit  Native                                                               
villages from having casinos on tribal properties.                                                                              
                                                                                                                                
REPRESENTATIVE CRAWFORD  clarified that HB 208  isn't an absolute                                                               
prohibition; rather it's  just not opening the  door [to gambling                                                               
in  Alaska].   He  explained  that the  U.S.  only allows  tribal                                                               
gaming in  states where the same  type of gaming is  available to                                                               
other  entities.     Alaska   hasn't  done   the  aforementioned.                                                               
However, Alaska has passed the  cruise ship initiative that taxed                                                               
the   Class  3   gambling  onboard   the  cruise   ships.     The                                                               
aforementioned,  he reiterated,  could open  the door  to casino-                                                               
type gambling  in Alaska.   He noted that  Alaska is one  of only                                                               
two states that don't allow for-profit gambling.                                                                                
                                                                                                                                
9:04:04 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HARRIS  surmised then that HB  208 would eliminate                                                               
the ability  of Alaska Native tribes/corporations  to participate                                                               
in a business opportunity such as gaming.                                                                                       
                                                                                                                                
REPRESENTATIVE CRAWFORD replied yes.                                                                                            
                                                                                                                                
9:04:31 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT  asked  if   the  sponsor  is  trying  to                                                               
establish a mechanism to stop Indian gaming.                                                                                    
                                                                                                                                
REPRESENTATIVE CRAWFORD  related that  the casino  businesses use                                                               
Indian  gaming   operations  as   a  door   to  gambling.     The                                                               
aforementioned happened in Louisiana.                                                                                           
                                                                                                                                
9:05:50 AM                                                                                                                    
                                                                                                                                
KEN ALPERS,  Staff, Representative  Harry Crawford,  Alaska State                                                               
Legislature, speaking  on behalf  of the  sponsor, Representative                                                               
Crawford,  explained  that  the legislature  banned  Monte  Carlo                                                               
nights and  associated activities  in 1995 primarily  to disallow                                                               
Indian gaming.  The provision  in the cruise ship initiative that                                                               
taxes gaming opens a loophole  the legislature consciously closed                                                               
15  years ago.   This  legislation  merely tries  to ensure  that                                                               
loophole remains closed.                                                                                                        
                                                                                                                                
9:06:28 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT commented that  the cruise ship initiative                                                               
included many  things to  which many people  weren't aware.   She                                                               
then  asked if  the sponsor  could walk  her through  the current                                                               
process of a tribe opening a casino in Alaska.                                                                                  
                                                                                                                                
REPRESENTATIVE CRAWFORD  answered that  there is no  such process                                                               
because heretofore it hasn't been allowed.                                                                                      
                                                                                                                                
9:07:09 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT inquired  as to the federal  process for a                                                               
tribe to work with the state to open a casino.                                                                                  
                                                                                                                                
MR. ALPERS  explained that under  the Indian Gaming Act  of 1988,                                                               
states are  allowed to  enter into  agreements and  compacts with                                                               
tribes  to regulate  Class 3  gaming.   The federal  law requires                                                               
that the  state has  to allow  the activity to  take place.   The                                                               
[law says] "If  the state permits such gaming for  any purpose by                                                               
any  person,  organization,  or  entity."   The  first  step,  he                                                               
further  explained, is  for the  state to  enter into  a compact.                                                               
The state  hasn't done  so because the  state doesn't  permit any                                                               
such gaming for any purpose, organization, or entity.                                                                           
                                                                                                                                
9:07:56 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT requested  an  explanation  of the  exact                                                               
loophole that HB 208 addresses.                                                                                                 
                                                                                                                                
MR. ALPERS explained that that  the courts could construe that by                                                               
taxing this  gaming activity, the state  is indirectly permitting                                                               
it.                                                                                                                             
                                                                                                                                
REPRESENTATIVE MILLETT  surmised then that the  legislation is in                                                               
response to fear of court action.                                                                                               
                                                                                                                                
9:09:38 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CRAWFORD  directed the committee's attention  to a                                                               
document entitled  "Why We Need  HB 208; A Brief  Legal History,"                                                               
from which he paraphrased from the following paragraph:                                                                         
                                                                                                                                
     In response  to the  Cabazon case, Congress  passed the                                                                    
     Indian  Gaming Regulatory  Act of  1998  (IGRA).   This                                                                    
     established the  three "classes" of gaming  that we use                                                                    
     today.    It also  explicitly  recognized  the role  of                                                                    
     tribal gaming  for local economic development  and self                                                                    
     sufficiency.  The Act created  a National Indian Gaming                                                                    
     Commission,  which directly  regulated  Class 2  gaming                                                                    
     (bingo),   and   required  state-tribal   compacts   to                                                                    
     regulate Class  3 gaming (slots, casinos,  etc).  Since                                                                    
     this act,  tribal gambling revenue increased  from $100                                                                    
     million in 1998 to $17.7 billion in 2006.                                                                                  
                                                                                                                                
REPRESENTATIVE  CRAWFORD informed  the  committee  that prior  to                                                               
IGRA few  states allowed  large casinos, but  now casinos  in the                                                               
Lower  48  have  proliferated.     Alaska  has  expressly  denied                                                               
expansion into gaming, which he said he wants to continue to do.                                                                
                                                                                                                                
9:11:04 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT asked  which states  with Class  3 gaming                                                               
have formed compacts  and which haven't, but have  been forced to                                                               
allow gaming  due to court  action.   She further asked  that the                                                               
delineation  between those  states  that  have willingly  entered                                                               
into  compacts and  which  have  been forced  into  a compact  be                                                               
specified.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  CRAWFORD  said  he couldn't  provide  the  actual                                                               
number of states  or specific states.  However, he  said he could                                                               
provide some examples of states that  have been forced to open up                                                               
to for-profit gambling.                                                                                                         
                                                                                                                                
9:12:03 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CRAWFORD, in  response to  Co-Chair Herron,  said                                                               
that he  didn't know how  the vessels regulate the  tax collected                                                               
for the onboard gaming.  However, he surmised that it is self-                                                                  
reported.                                                                                                                       
                                                                                                                                
MR.  ALPERS  explained  that  the  initiative  statute  specifies                                                               
adjusted gross earnings:   revenue less payouts  and expenses and                                                               
so  forth.   He said  that to  the extent  there is  a regulatory                                                               
process, he said he wasn't aware of the details.                                                                                
                                                                                                                                
9:13:07 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  HERRON   related  his  understanding  that   for  other                                                               
bingo/pull tabs a  municipality has the ability  to negotiate the                                                               
local tax on gaming.  However,  the local operator has no ability                                                               
to negotiate with the state.   Therefore, he surmised that the 33                                                               
percent tax was arbitrary and voted  on by the people rather than                                                               
negotiated  between  the operators  and  the  legislature or  the                                                               
governor.                                                                                                                       
                                                                                                                                
REPRESENTATIVE CRAWFORD confirmed that the  33 percent tax was in                                                               
the cruise ship initiative.                                                                                                     
                                                                                                                                
9:14:07 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  HERRON  said that  the  sponsor,  in reference  to  the                                                               
loophole the  legislation is trying  to close, has  used examples                                                               
of land-based  loopholes in  other states, but  this is  a water-                                                               
based loophole.   He asked if this water-based  loophole has been                                                               
used in other states.                                                                                                           
                                                                                                                                
REPRESENTATIVE CRAWFORD informed the  committee that in Louisiana                                                               
river  boats were  used for  gambling.   Those  river boats  with                                                               
gambling  couldn't be  parked, but  once those  river boats  were                                                               
anchored in state waters gambling onshore began.                                                                                
                                                                                                                                
9:15:19 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  HERRON  asked  if the  water-based  example  in  Alaska                                                               
exists  elsewhere.   He  pointed  out that  the  cruise ships  in                                                               
Alaska move in and out of international waters.                                                                                 
                                                                                                                                
REPRESENTATIVE  CRAWFORD  acknowledged   that  the  situation  in                                                               
Alaska may be a different  animal than [the Louisiana situation].                                                               
However,  he reminded  the committee  that  [taxing the  gambling                                                               
onboard cruise  ships] will result  in the state relying  on some                                                               
judge to determine whether the state  allows gambling or not.  He                                                               
reiterated  his  belief that  the  initiative  offers a  loophole                                                               
through which gambling in Alaska could take a foothold.                                                                         
                                                                                                                                
9:16:31 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  HERRON  said  that  he   needs  more  information,  and                                                               
inquired as to what the loophole is.                                                                                            
                                                                                                                                
MR. ALPERS  related that  the foundation  lawsuit arose  when the                                                               
Mashantucket   Pequot  Tribe   of   Connecticut   with  a   small                                                               
reservation sued the State of  Connecticut, which didn't have any                                                               
interest in being  in the casino business.  Because  the State of                                                               
Connecticut  allowed church  Monte  Carlo nights,  the tribe  was                                                               
able to convert  its small bingo hall into what's  now one of the                                                               
largest casinos  in the world.   Although it's impossible  to say                                                               
what a  judge would do,  the loophole  is that the  state allowed                                                               
[Monte Carlo  night gambling]  so it  had to  be allowed  for the                                                               
tribal  entity.     Therefore,  the  sponsor   believes  that  by                                                               
acknowledging  and  collecting  taxes  on gaming,  the  state  is                                                               
allowing gaming.                                                                                                                
                                                                                                                                
REPRESENTATIVE  CRAWFORD  then  related   a  case  in  which  the                                                               
Coushatta  Indians   in  Louisiana  had  no   traditional  lands.                                                               
However, they bought several acres  in an urban area and referred                                                               
to those  lands as Indian lands.   The Coushatta Indians  went to                                                               
court and now a casino is  on the lands they designated as Indian                                                               
lands,  although there  was no  traditional use  on those  lands.                                                               
Therefore, Representative  Crawford opined  that if  the loophole                                                               
in Alaska  isn't closed,  it will be  successfully used  to bring                                                               
casino gambling  in Alaska.   He  referred to it  as a  back door                                                               
attempt to allow  gambling.  Whether the  state allows for-profit                                                               
gambling is something that should require a vote of the people.                                                                 
                                                                                                                                
9:19:57 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT asked if the  sponsor is suggesting that a                                                               
tribe could sue Alaska and force the state into a compact.                                                                      
                                                                                                                                
REPRESENTATIVE CRAWFORD  responded yes.  In  further response, he                                                               
opined  that  the  courts  could  require  the  governor  or  the                                                               
legislature  to  sign a  contract.    The aforementioned  is  the                                                               
reason  why  when  Klawock  wanted  to  construct  a  casino  the                                                               
legislature banned  Monte Carlo nights  in the state in  order to                                                               
eliminate the basis of a lawsuit.                                                                                               
                                                                                                                                
9:21:03 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT  said   that  she  has  a   copy  of  the                                                               
Connecticut  State  Compact that  allows  gaming  and can't  find                                                               
where  it says  a court  action caused  gaming to  be allowed  in                                                               
Connecticut.                                                                                                                    
                                                                                                                                
REPRESENTATIVE CRAWFORD  interjected that it's the  Indian Gaming                                                               
Regulatory  Act  of  1988  that actually  caused  [gaming  to  be                                                               
allowed in Connecticut].                                                                                                        
                                                                                                                                
REPRESENTATIVE  MILLETT pointed  out that  IGRA is  voluntary and                                                               
only requires that a state compact  be signed.  She then asked if                                                               
all the state compacts are in  reaction to a lawsuit or do states                                                               
enter   into  the   compacts  voluntarily.     She   related  her                                                               
understanding that  states enter  into the  compacts voluntarily.                                                               
She  further  asked if  the  courts  can  force  a state  into  a                                                               
compact.                                                                                                                        
                                                                                                                                
REPRESENTATIVE CRAWFORD replied yes, a  court can force the state                                                               
into a compact allowing gambling.                                                                                               
                                                                                                                                
REPRESENTATIVE  MILLETT requested  examples in  which the  courts                                                               
have required the governor and the legislature to do something.                                                                 
                                                                                                                                
REPRESENTATIVE  CRAWFORD  offered  to provide  specific  examples                                                               
later.                                                                                                                          
                                                                                                                                
MR.  ALPERS  related  his   understanding  that  the  Connecticut                                                               
Compact was  the result of a  lawsuit.  The State  of Connecticut                                                               
didn't want  to enter into such  a compact, but was  forced to by                                                               
the  courts.   The  aforementioned  doesn't  necessarily need  to                                                               
specify  such in  the  compact as  it only  makes  the rules  for                                                               
gaming.   The legal  history leading to  the compact  is separate                                                               
from the compact itself.                                                                                                        
                                                                                                                                
REPRESENTATIVE  CRAWFORD interjected  that in  the case  with the                                                               
Coushatta  Indians,  the  state  [of Louisiana]  didn't  want  to                                                               
[allow gaming], but it was forced to do so by the court.                                                                        
                                                                                                                                
9:23:22 AM                                                                                                                    
                                                                                                                                
CO-CHAIR HERRON referred to the  sponsor's document entitled "Why                                                               
We  Need HB  208;  A Brief  Legal History,"  which  says "that  a                                                               
state-tribal contract  must allow  a particular sort  of gambling                                                               
if the state 'permits such gaming  for any purpose by any person,                                                             
organization, or  entity.'"  Since  Alaska prohibits  Monte Carlo                                                             
nights [and IGRA] includes  the aforementioned language, Co-Chair                                                               
Herron inquired as to what he is missing.                                                                                       
                                                                                                                                
REPRESENTATIVE  CRAWFORD specified  that the  cruise ships  allow                                                               
slot machines,  roulette wheels, and other  gambling games, which                                                               
is  the loophole  he  wants  to close.    This legislation  isn't                                                               
addressing  the   onshore  Monte  Carlo  nights   as  those  were                                                               
addressed in the 1990s.                                                                                                         
                                                                                                                                
9:24:56 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  HERRON  pointed  out  that Alaska  doesn't  permit  the                                                               
cruise ship gambling, the state merely taxes it.                                                                                
                                                                                                                                
REPRESENTATIVE CRAWFORD  reiterated that  the problem is  that by                                                               
taxing   and   acknowledging   the  gambling,   it's   implicitly                                                               
permitting it.                                                                                                                  
                                                                                                                                
9:25:24 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HARRIS  asked if the  initiative was written  in a                                                               
manner to allow gaming in the state.                                                                                            
                                                                                                                                
REPRESENTATIVE CRAWFORD replied no.                                                                                             
                                                                                                                                
REPRESENTATIVE  HARRIS inquired  then  as to  why the  initiative                                                               
includes taxing gaming.                                                                                                         
                                                                                                                                
REPRESENTATIVE CRAWFORD  said that he  didn't want to  assume the                                                               
motive  of the  initiative sponsors,  but opined  that they  felt                                                               
that the cruise  ship industry was taking advantage  of the state                                                               
and not  contributing to the extent  they should be.   He further                                                               
opined  that  the initiative  sponsors  felt  that there  were  a                                                               
number of areas within the  cruise industry that the state should                                                               
tax.                                                                                                                            
                                                                                                                                
9:26:57 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HARRIS  asked  if  the  law  was  in  place  that                                                               
prohibited for-profit  gambling when  the cruise  ship initiative                                                               
passed.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  CRAWFORD  answered  that the  law  banning  Monte                                                               
Carlo nights  was in  place when the  cruise ship  initiative was                                                               
passed.     In   further  response   to  Representative   Harris,                                                               
Representative Crawford  said he  didn't believe the  cruise ship                                                               
initiative  specifically  says  that   it  would  tax  for-profit                                                               
gambling   on  cruise   ships  in   Alaska  waters,   but  rather                                                               
characterized it as an inadvertent loophole.                                                                                    
                                                                                                                                
9:28:20 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HARRIS surmised  then that Representative Crawford                                                               
was conceding that  the cruise ship initiative  included at least                                                               
one unintended consequence.                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD replied yes, that's a possibility.                                                                      
                                                                                                                                
9:28:59 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT  requested that  Representative  Crawford                                                               
provide to  her the  specifics of  the loophole  as she  is still                                                               
having difficulty understanding what the loophole is.                                                                           
                                                                                                                                
REPRESENTATIVE CRAWFORD agreed to do  so.  He then reiterated his                                                               
belief  that it's  not in  Alaska's  best interest  to have  for-                                                               
profit gambling in the state.                                                                                                   
                                                                                                                                
9:30:23 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  MUNOZ requested  additional  information regarding  the                                                               
Connecticut example be provided to the committee.                                                                               
                                                                                                                                
9:30:32 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HARRIS  related his  understanding that  in Alaska                                                               
there are  many opportunities for  people to  participate legally                                                               
in not-for-profit  gambling so long  as there's no profit  to the                                                               
sponsor of the games.                                                                                                           
                                                                                                                                
REPRESENTATIVE CRAWFORD  agreed that  such exists, and  said that                                                               
he isn't trying  to outlaw that as those are  situations in which                                                               
a consenting adult participates in gambling.                                                                                    
                                                                                                                                
REPRESENTATIVE  HARRIS  surmised then  that  Alaska  has said  it                                                               
won't allow organized for-profit  gambling, but hasn't prohibited                                                               
gambling in  situations in which  folks get together for  a poker                                                               
game that they  don't advertise and for which the  sponsor of the                                                               
game doesn't take a cut.                                                                                                        
                                                                                                                                
REPRESENTATIVE  CRAWFORD  responded   that  he  isn't  advocating                                                               
anything in law to prohibit  non-organized gambling for which the                                                               
sponsor doesn't take a cut.                                                                                                     
                                                                                                                                
MR. ALPERS clarified the differences  between Class 2 and Class 3                                                               
gaming, as  follows.   All of the  regulated nonprofit  gaming in                                                               
Alaska  falls under  Class 2  gaming, such  as bingo,  pull tabs,                                                               
etcetera.  No  Class 3 gaming, such as video  games, table games,                                                               
or  slot machines,  is  allowed  in the  state  except on  cruise                                                               
ships.   He said that  he wasn't sure  of the specific  status of                                                               
poker, and thus  wouldn't address it.  He pointed  out that there                                                               
are  no  black  jack  tables  or slot  machines  in  the  allowed                                                               
nonprofit gaming in the state.                                                                                                  
                                                                                                                                
REPRESENTATIVE  CRAWFORD  interjected  that roulette  wheels  and                                                               
video poker machines are outlawed in Alaska.                                                                                    
                                                                                                                                
9:34:51 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  MUNOZ  asked  if  the implementation  of  the  tax  has                                                               
impacted the location of the  gambling activity and the amount of                                                               
gambling activity that occurs in state waters.                                                                                  
                                                                                                                                
REPRESENTATIVE CRAWFORD deferred to the cruise ship industry.                                                                   
                                                                                                                                
MR. ALPERS  informed the committee  that the cruise  ship casinos                                                               
aren't open while  in port, but are able to  open once the vessel                                                               
breaks from  the port.  He  reminded the committee that  the $6.8                                                               
million last year, including the  $50 head tax, is deposited into                                                               
the subaccount to  the general fund (GF).  He  specified that the                                                               
funds fund cruise-related impact projects.                                                                                      
                                                                                                                                
9:36:12 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  MUNOZ  thanked  the sponsor  for  bringing  this  issue                                                               
before the committee as it's an important issue.                                                                                
                                                                                                                                
9:36:41 AM                                                                                                                    
                                                                                                                                
JOHANNA  BALES,  Deputy  Director, Tax  Division,  Department  of                                                               
Revenue, informed  the committee  that the Department  of Revenue                                                               
(DOR) doesn't believe  that taxing this activity  makes this type                                                               
of gambling  legal in the state.   She related DOR  has conferred                                                               
with DOL as  well.  Ms. Bales confirmed that  Class 3 gambling is                                                               
illegal in  Alaska.   The only  type of  gambling allowed  in the                                                               
state  is  gambling that's  for  charitable  purposes.   However,                                                               
federal law  prohibits Alaska from  making it illegal  for cruise                                                               
ships  [to allow  gaming].    She pointed  out  that  there is  a                                                               
definition of  the type  of vessel that  can conduct  gambling in                                                               
Alaska waters.   Basically, the only vessels that  are allowed to                                                               
conduct gaming  in Alaska's waters  are those with a  voyage that                                                               
includes a stop in Canada and  or another state other than Alaska                                                               
and stops  at two  different ports in  Alaska during  its voyage.                                                               
Still,  such a  vessel is  not  allowed to  conduct within  three                                                               
nautical miles of any port  within Alaska.  The aforementioned is                                                               
specified in  the federal  law.  Ms.  Bales clarified,  "The only                                                               
reason  that these  cruise ships  are allowed  to conduct  gaming                                                               
activities  is because  the federal  law prohibits  the State  of                                                               
Alaska  from making  that illegal  in Alaska  waters."   However,                                                               
gambling in  Alaska and in  Alaska state waters is  illegal, save                                                               
the aforementioned prohibition under federal law.                                                                               
                                                                                                                                
MS.  BALES  then  pointed  out that  there  are  various  illegal                                                               
activities conducted in the state  and nation.  For example, it's                                                               
illegal to  be a  drug dealer  in the U.S.,  but the  income made                                                               
from that activity is taxable under  federal income tax law.  The                                                               
activity isn't made legal by virtue of it being taxed.                                                                          
                                                                                                                                
9:39:42 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HARRIS inquired as how  far out do Alaska's waters                                                               
reach for taxation purposes.                                                                                                    
                                                                                                                                
MS. BALES  answered Alaska  waters are  those waters  three miles                                                               
from shore.   In further  response to Representative  Harris, Ms.                                                               
Bales  confirmed that  the legislation  refers to  three nautical                                                               
miles from the port, which could extend any direction.                                                                          
                                                                                                                                
9:40:19 AM                                                                                                                    
                                                                                                                                
MS. BALES, in response to  Representative Gardner, clarified that                                                               
under the  federal law  the state is  allowed to  prohibit gaming                                                               
three miles from a port.   Therefore, [the vessel] could still be                                                               
within the  three miles in Alaska  waters but three miles  from a                                                               
port.  She further clarified that  so long as the vessel is three                                                               
miles away  from a port along  the coast, the vessel  can conduct                                                               
gambling activities.                                                                                                            
                                                                                                                                
9:41:49 AM                                                                                                                    
                                                                                                                                
JOE  GELDHOF,  Legal  Counsel, Responsible  Cruising  in  Alaska,                                                               
began by  noting that he  was one of  the primary authors  of the                                                               
cruise ship  initiative.   He explained that  the portion  of the                                                               
cruise  ship  initiative  related  to taxing  [gambling]  can  be                                                               
traced  back to  the 1980s.    At that  time, the  Office of  the                                                               
Attorney General  in loose cooperation  with the  U.S. Department                                                               
of  Justice   began  reviewing  gambling  operations   in  Alaska                                                               
territorial  waters.    Although   there  was  never  any  formal                                                               
enforcement,  when  the  Federal Bureau  of  Investigation  (FBI)                                                               
became  interested  in  the  emerging  cruise  ship  market  that                                                               
included gambling it was apparent  that there were more questions                                                               
than answers.  He opined  that the cruise industry understood the                                                               
heightened   interest   in   the   gambling   activities   within                                                               
territorial  waters,  and  used   the  appropriate  influence  to                                                               
achieve the law referenced by  Ms. Bales.  The aforementioned law                                                               
basically prohibited Alaska  from stopping [gambling activities].                                                               
The  aforementioned  was  an   unusual  prohibition  that  raised                                                               
concerns with  lawyers regarding  whether the  federal government                                                               
could prohibit  the state from acting.   He noted that  the basic                                                               
doctrine   is   within  the   Tenth   Amendment.     During   the                                                               
aforementioned discussion, former  legislator Hugh Malone pointed                                                               
out that  the cruise  industry had created  a loophole  that says                                                               
the state  can't prohibit  [gambling on the  cruise ships].   Mr.                                                               
Malone  suggested that  rather than  continuing with  litigation,                                                               
the  state should  tax the  activity.   Mr. Geldhof  recalled the                                                               
discussion at the time was  that [gambling on cruise ships] would                                                               
be taxed and the activity wouldn't be sanctioned.                                                                               
                                                                                                                                
MR. GELDHOF  then turned to  the 33.3 percent taxation  on cruise                                                               
ship  gaming  was  taken from  existing  statute  for  charitable                                                               
gaming.   He  noted  that  it wasn't  anticipated  that the  33.3                                                               
percent "takes the  oxygen out of any profit."   According to the                                                               
initiative,  the taxation  of cruise  ship gambling  has returned                                                               
about $6.8 million a year.   Although the cruise industry may not                                                               
like the law, it does like  the opportunity for its passengers to                                                               
gamble.    Mr.  Geldhof  characterized  the  law  as  a  peculiar                                                               
response to a unique set  of circumstances.  Furthermore, the law                                                               
highlights  that geography  still matters  and takes  the state's                                                               
fair  share according  to  the charitable  gaming  statute.   Mr.                                                               
Geldhof explained that the taxes  collected on gambling goes into                                                               
the  large passenger  account, but  those funds  are unrestricted                                                               
and  can  be  spent  without  regard  to  the  federal  law  that                                                               
specifies the funds have to be  spent on safety and efficiency of                                                               
the  passengers and  the vessel.    Mr. Geldhof  opined that  the                                                               
concern  should arise  when one  wants the  cruise ship  deal and                                                               
requests a compact.                                                                                                             
                                                                                                                                
9:48:45 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HARRIS  thanked Mr. Geldhof, who  he characterized                                                               
as a  voice of  reason, for  being present today.   He  asked Mr.                                                               
Geldhof if  it would  be fair to  say that he  opposes HB  208 as                                                               
it's a dramatic departure from the  intent of the sponsors of the                                                               
initiative.                                                                                                                     
                                                                                                                                
MR. GELDHOF stated that in the  larger concept of the cruise ship                                                               
initiative,  the  gambling  tax  was a  small  piece  of  cleanup                                                               
legislation to address  something that had been  around since the                                                               
1980s.   The initiative  seemed to bring  some resolution  to the                                                               
gambling  issue,  and   he  opined  that  the   drafters  of  the                                                               
initiative "got it more right than wrong."                                                                                      
                                                                                                                                
9:50:34 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT  inquired as to  why the gambling  tax was                                                               
included  in the  cruise vessel  passenger tax  initiative.   She                                                               
further inquired  as to what  the authors of the  initiative were                                                               
trying to gain by including the gambling tax in the initiative.                                                                 
                                                                                                                                
MR. GELDHOF  restated the history  of the issue with  gambling in                                                               
state waters in which the  cruise industry ultimately trumped the                                                               
state's law that  gambling in Alaska is not legal  with a federal                                                               
statute that prevented Alaska from  saying that gambling in state                                                               
waters is illegal.  In  response to the aforementioned and rather                                                               
than going through litigation, it  was determined to be necessary                                                               
to  tax what  the state  still believes  to be  illegal activity.                                                               
The  levy rate  was set  at 33.3  percent, the  charitable gaming                                                               
provision.  The  thought, he opined, was that if  gaming is going                                                               
on in  Alaska [waters] and the  state can't prevent it,  then the                                                               
state  should  receive  the  same percentage  as  it  would  from                                                               
charitable gaming.                                                                                                              
                                                                                                                                
9:52:52 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT  asked  if   Mr.  Geldhof  believes  this                                                               
taxation of cruise  ship gambling is grounds to open  up to Class                                                               
3 gaming in Alaska.                                                                                                             
                                                                                                                                
MR. GELDHOF  said that upon  reviewing the federal and  the state                                                               
law, there's no  easy deal to get because at  best one would have                                                               
to operate a large passenger  vessel in foreign carriage that has                                                               
a port  outside.  Mr.  Geldhof opined  that in Alaska  there's no                                                               
opportunity  to do  what is  done  in Louisiana  or Indiana  with                                                               
near-shore gambling.   Furthermore, Mr. Geldhof  pointed out that                                                               
the gambling revenue for the  cruise industry is incidental and a                                                               
full-blown seasonal business can't be built on such revenue.                                                                    
                                                                                                                                
9:55:18 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER recalled  Mr.  Geldhof saying  that if  a                                                               
lawsuit is  brought on  the grounds that  the sponsor  fears, the                                                               
state could address  it by removing the gambling tax.   She asked                                                               
if it would be too late at that point.                                                                                          
                                                                                                                                
MR. GELDHOF  answered that he didn't  believe so.  At  the point,                                                               
someone  comes forward  to leverage  the state  and the  governor                                                               
desires a compact, that's when  a working group would likely come                                                               
together and  one of the  options would  likely be to  remove the                                                               
tax.                                                                                                                            
                                                                                                                                
9:57:45 AM                                                                                                                    
                                                                                                                                
MR.   GELDHOF,   in    response   to   Representative   Crawford,                                                               
acknowledged that there is a  scenario in which someone wants the                                                               
gambling deal and  a compact is signed.   He further acknowledged                                                               
that in the  course of the compact, the party  could agree to the                                                               
terms.   However, the likelihood  of the aforementioned  seems to                                                               
be very remote.   He opined that his experience  is that whatever                                                               
the scenario, it will require deliberation and will move slowly.                                                                
                                                                                                                                
10:00:11 AM                                                                                                                   
                                                                                                                                
CO-CHAIR MUNOZ announced that HB 208 would be held over.                                                                        
                                                                                                                                
10:00:38 AM                                                                                                                   
                                                                                                                                
CO-CHAIR HERRON surmised that basically  Alaska's law, due to the                                                               
initiative,  is a  fairly high  hurdle, particularly  for someone                                                               
who is  in business to make  a profit.  Therefore,  he questioned                                                               
whether the tax is appropriate to keep on the books.                                                                            
                                                                                                                                
MR. GELDHOF  opined that  the real issue  for the  legislature is                                                               
obtaining funds from taxing gambling  while not allowing gambling                                                               
besides in a  very peculiar fashion.  "The  real challenge here,"                                                               
he opined, "is spending the  $6.8 [million] or whatever the yield                                                               
is for the benefit of our state in a thoughtful way."                                                                           
                                                                                                                                
[HB 208 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB 208 Sponsor Statement & Sectional on Repealers.doc HCRA 4/7/2009 8:00:00 AM
HCRA 2/16/2010 8:00:00 AM
HB 208
HB 208 - Cruise initiative language 2006.docx HCRA 2/16/2010 8:00:00 AM
HB 208
HB 208 cruise initiative changes.doc HCRA 2/16/2010 8:00:00 AM
HB 208
HB 208 cruise gaming legal history.doc HCRA 2/16/2010 8:00:00 AM
HB 208
HB 208 - Kizzia article ADN june 1997.docx HCRA 2/16/2010 8:00:00 AM
HB 208
HB208-DOR-TAX-02-18-10 Cruise Ship Gambling Tax.pdf HCRA 2/16/2010 8:00:00 AM
HB 208