HOUSE BILL REPORT
ESHB 1031
As Passed Legislature
Title: An act relating to problem gambling.
Brief Description: Providing long-term funding for problem gambling.
Sponsors: By House Committee on Commerce & Labor (originally sponsored by Representatives Conway, Cody, Simpson, Wood, Green, McIntire, Morrell, Kenney, P. Sullivan and Darneille; by request of Governor Locke).
Brief History:
Commerce & Labor: 1/17/05, 2/23/05 [DPS];
Finance: 3/4/05, 3/7/05 [DPS(CL)].
Floor Activity:
Passed House: 3/14/05, 57-39.
Senate Amended.
Passed Senate: 4/6/05, 36-12.
House Concurred.
Passed House: 4/18/05, 63-32.
Passed Legislature.
Brief Summary of Engrossed Substitute Bill |
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HOUSE COMMITTEE ON COMMERCE & LABOR
Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 4 members: Representatives Conway, Chair; Wood, Vice Chair; Hudgins and McCoy.
Minority Report: Do not pass. Signed by 3 members: Representatives Condotta, Ranking Minority Member; Sump, Assistant Ranking Minority Member; and Crouse.
Staff: Chris Cordes (786-7103).
HOUSE COMMITTEE ON FINANCE
Majority Report: The substitute bill by Committee on Commerce & Labor be substituted therefor and the substitute bill do pass. Signed by 5 members: Representatives McIntire, Chair; Hunter, Vice Chair; Conway, Hasegawa and Santos.
Minority Report: Do not pass. Signed by 4 members: Representatives Orcutt, Ranking Minority Member; Roach, Assistant Ranking Minority Member; Ahern and Ericksen.
Staff: Mark Matteson (786-7145).
Background:
Most types of gambling activities in Washington are limited and regulated under the authority
granted to the Washington State Gambling Commission (Gambling Commission). Certain
gambling activities are authorized for nonprofit and charitable activities. For-profit
businesses may conduct certain games as a commercial stimulant. Horse racing is regulated
under the authority of the Washington State Horse Racing Commission (Horse Racing
Commission).
Washington also has a State Lottery, which sponsors various lottery games ranging from
"scratch" tickets, in which players discover if they are an instant winner, to "draw" games in
which players wait for the random drawing of numbers to determine if they have won. In
2002, legislation was enacted to allow Washington to join the multi-state "shared game"
lottery.
Uses of Lottery Revenues
Proceeds from the sale of all State Lottery products are deposited in the State Lottery
Account. Until 1996, these proceeds, after payment of prizes and expenses, were deposited
in the State General Fund. Beginning in 1996, a portion of State Lottery proceeds has been
dedicated to assist with paying the principal and interest on bonds used to construct various
sports stadiums. When the voters approved Initiative 728 in 2000, the State Lottery proceeds
were redirected from the State General Fund to various education funds. In 2004, the net
revenues from lottery games allocated for education were directed to the Education
Construction Fund.
Problem Gambling Studies
Various studies funded by the Washington State Lottery Commission (Lottery Commission)
have identified problem gambling issues. For example, a 1999 study commissioned and
funded by the Lottery Commission found that 5.1 percent of Washington adults had
experienced gambling problems or compulsive gambling at some point in their lives, with 2.3
percent reporting such problems in the year immediately preceding the survey. A similar
Lottery Commission study, also completed in 1999, indicated that 7.5 percent of adolescents
were at risk of developing gambling problems and 0.9 percent were problem gamblers.
Funding for Problem Gambling Treatment, Problem Gambling Public Awareness, and
Hotline
The legislation authorizing Washington to participate the shared game lottery also established
a program in the Department of Social and Health Services (DSHS) for the treatment of
pathological gambling. The program was to serve people needing treatment but unable to
afford it. Treatment under the program was limited to funds available to the DSHS.
For fiscal year 2003 only, the Legislature provided $500,000 in revenue from the shared
game lottery for this pathological gambling treatment program. The program operated for
eight months, from November 2002 through June 2003, subsidizing treatment for 203
problem gamblers and 23 family members of problem gamblers, and providing training on
treatment of problem gambling for 25 mental health professionals. The funding for the
program was not extended.
The Washington State Gambling Commission, the Lottery Commission, and the Horse
Racing Commission are jointly responsible for developing informational signs and
maintaining a toll-free hotline telephone number for problem and compulsive gamblers. The
signs advertising the hotline telephone number are posted in establishments that conduct
gambling activities. The three agencies are also authorized to contract with qualified entities
to provide public awareness, training, and other services related to problem gambling. Since
1991, the Lottery Commission and the Gambling Commission have spent an estimated $3
million on problem gambling education and awareness services.
In 2002, the Gambling Commission also contributed $150,000 to the Council on Problem
Gambling to fund treatment. Since that time, however, the Gambling Commission has been
advised that the statute authorizes expenditures only for public awareness and the hotline
telephone. For these activities, the Gambling Commission contributed $150,000 for fiscal
year 2004-2005. In November 2004, the Gambling Commission adopted a rule imposing a
problem gambling fee on its licensees. This new fee takes effect June 30, 2005, but expires if
the Legislature appropriates funds for the problem gambling program.
The Council on Problem Gambling has also received contributions from various tribal
governments, including about $60,000 in 2001 and nearly $164,000 in 2002. Private
gambling interests have also contributed about $64,000 in fiscal year 2003 to the Council.
Business and Occupation Taxes
The business and occupation (B&O) tax is Washington's major business tax. The tax is
imposed on the gross receipts of business activities conducted within the state. Revenues are
deposited to the State General Fund. A business may have more than one B&O tax rate,
depending on the types of activities conducted. Examples of some of the B&O tax rates that
apply to Washington businesses include: retailing, 0.471 percent; manufacturing and
wholesaling, 0.484 percent; and services, 1.5 percent. Those covered business not otherwise
subject to a specified tax rate pay the B&O tax at the rate of 1.5 percent.
The B&O tax does not permit deductions for the costs of doing business, such as payments
for raw materials and wages of employees. There are, however, exemptions for specific types
of business activities, including an exemption for the business of conducting horse race
meets.
Summary of Engrossed Substitute Bill:
The Problem and Pathological Gambling Treatment Program
The Problem and Pathological Gambling Program (Program) within the Department of Social
and Health Services (DSHS) is revised. The Program is expanded to cover:
The DSHS must establish an advisory committee to assist in designing, managing, and
evaluating the Program's effectiveness. Committee members must include, at least, persons
knowledgeable in the field of problem and pathological gambling and persons representing
tribal gambling, privately owned non-tribal gambling, and the Washington State Lottery.
The DSHS may contract for services to be provided under the Program.
Funding for the Problem and Pathological Gambling Treatment Program
Gifts and Grants
The DSHS may solicit and accept gifts of money or property, grants, or funds from other
private or public sources, including tribal governments.
Washington State Lottery Transfers
Beginning in fiscal year 2006, the Lottery Commission must transfer certain amounts from
the shared game lottery revenue to the Problem Gambling Account. In fiscal year 2006, the
amount transferred must equal 0.1 percent of net receipts, defined as the revenue received
from lottery and shared game lottery ticket sales minus the payments to winners. In
subsequent fiscal years, the amount transferred must equal 0.13 percent of these net receipts.
Business and Occupation Taxes
A new B&O tax is imposed on persons engaging in the business of operating contests of
chance (such as social card games, bingo, raffles, punchboard games, and pull-tabs, but not
state lottery games or amusement games), or conducting horse race meets. In fiscal year
2006, the amount of the tax is 0.1 percent of a business's gross income derived from contests
of chance or, in the case of a horse racing business, of the gross income derived from
parimutuel wagering. In subsequent fiscal years, the amount of tax is 0.13 percent of that
gross income. This new tax does not apply to businesses operating contests of chance that
have gross gambling income under $50,000 per year.
While this new B&O tax is in effect, the Gambling Commission is prohibited from increasing
license fees to fund a program for problem and pathological gambling. If the Gambling
Commission imposes such a fee before this bill takes effect, the fee has no effect after the
bill's effective date. However, during any periods when the new B&O tax is not in effect, the
Gambling Commission, Horse Racing Commission, and the State Lottery may contract for
services to assist in providing treatment for problem and pathological gambling, and the
Gambling Commission may increase license fees to fund the authorized services.
The Problem Gambling Account
The Problem Gambling Account (Account) is created in the State Treasury. Money in the
Account may be spent only after appropriation and only for the purposes of the problem and
pathological gambling program. Money transferred from the State Lottery Account and
collected from the new B&O tax must be deposited in the Account.
Other Provisions
Pathological gambling and problem gambling are defined.
Various technical changes are made, including deletion of expired requirements relating to
transfers of funds for the previous problem gambling treatment program and to reports to the
Legislature.
Appropriation: None.
Fiscal Note: Available.
Effective Date: The bill contains an emergency clause and takes effect on July 1, 2005.
Testimony For: (Commerce & Labor) This bill is the product of a working group that
Governor Locke convened to find a solution to the funding issue for treatment of problem
gambling. The group had certain criteria to guide them: (1) the funding had to be reliable
and long-term; (2) the funding should not further expand gambling, as occurred in Oregon;
(3) tribal contributions had to be voluntary; (4) the program should include prevention, as
well as treatment; and (5) the program should be run with minimal overhead so that most of
the funding goes toward treatment. This bill meets all these criteria and funds the program by
taking a share of the dollars that gamblers lose. The bill protects against double taxation on
the gambling industry by prohibiting the Gambling Commission from imposing a tax for that
purpose. The gambling industry is willing to pay its fair share of a treatment program's cost,
as long as the revenue stream is dedicated to that purpose. But it does not want to be required
to make up any shortfall that might occur in meeting the funding goal. The bill's requirement
for a committee to review the program is a good idea. Governor Locke's budget includes
$1.5 million for the 2005-07 fiscal biennium. The workgroup recommended an overall
budget of $3.5 million, which if funded at that level would provide treatment to more than
600 people. It is hoped that an agreement can be reached with the Tribes that would help
reach this goal. The Tribes have offered $452,000 for problem gambling treatment programs,
but these funds have not yet been received. Treatment programs work, but programs are not
available in Washington. Persons seeking treatment have to be sent to programs in other
states. The cost to the taxpayer of dealing with the consequences of problem gambling is
much greater than the cost of treatment. These consequences include prosecuting people for
criminal acts committed to raise gambling money and public assistance provided to problem
gamblers' families. The personal and social costs of problem gambling can include loss of
family and loss of assets, such as the home, retirement, college funds, etc. It is better to do
something now than wait for the perfect solution later.
(With concerns) The Gambling Commission's new rule raises revenue to fund public
awareness and education. However, if the statute authorizing this rule is changed to include
treatment authority, the Gambling Commission is concerned that it may not be able to
provide adequate funding to support the program, especially if the bill prohibits the new rule.
Testimony For: (Finance) This is the product of a work group that was initiated by
Governor Locke and now has the support of Governor Gregoire. The program is funded
within this proposal by a tax on non-tribal gambling and by using some proceeds from the
Lottery. In addition, the work group has also worked to get commensurate commitments by
the tribes, which have pledged almost half a million dollars for the program.
The Lottery takes no position on the bill, but would note that the expected transfers to the
Education Construction Account are already less than what the statute allows for.
The Regional Gaming Association is supportive of the issue concerning problem gambling
prevention and treatment. We have stepped up and agreed to contribute to this effort.
Education and awareness do indeed help. We believe that this is a streamlined and
reasonable approach. We do have some concern that, in the circumstance that the Gambling
Commission authorize fees for these purposes, some of our members may be taxed a second
time, as they have collectively already provided $150,000 in fees for this purpose. We
believe that the moneys should be placed in a dedicated account. We are encouraged by the
voluntary efforts of other gambling entities in this regard. Our members activities make up
about 17 percent of the gambling pie in this state, and we are willing to pay our fair share.
The Washington State Council on Problem Gambling believes that this program is needed
and strongly supports this effort.
Testimony Against: (Commerce & Labor) The funding formula in this bill will not generate adequate funds. A preferred approach would be to use (1) funds from the Lottery Commission's advertising budget, (2) revenue raised by a fee on gambling licenses, and (2) funds contributed by the Tribes to a charitable mitigation fund. The sources of funding must be fair to all parties or the bill will stall again. Much more work needs to be done with the Tribes on their approach to funding problem gambling. It seems preferable to bring the new governor into the picture and see whether she would have suggestions for a more adequate solution. Work is being done now at the federal level to schedule hearings on problem gambling issues and to communicate with the Tribes.
Testimony Against: (Finance) None.
Persons Testifying: (Commerce & Labor) (In support) Dick Van Wagenen, Governor's
Policy Office; Richard Loebel; Kristina Kraus; Lee Hannon; Bridget Hester; Charles Maurer
and Gary Hanson, Council on Problem Gambling; and Dolores Chiechi, Recreational Gaming
Association.
(With concerns) Rick Day, Washington State Gambling Commission.
(Opposed) Jennifer McCausland, Second Chance Washington.
Persons Testifying: (Finance) Delores Chiechi and Steve Lindstrom, Recreational Gaming Association; Dick Van Wagenen, Governor's Policy Office; Gary Hanson, Washington State Council on Problem Gambling; and Julie Martin, Washington State Lottery.