OLR Bill Analysis

sSB 957

AN ACT CONCERNING THE REGULATION OF GAMING AND THE AUTHORIZATION OF A CASINO GAMING FACILITY IN THE STATE.

SUMMARY

This bill authorizes the operation of one off-reservation casino gaming facility in East Windsor, Connecticut, once certain conditions are met, subject to regulation by the Department of Consumer Protection (DCP) (see COMMENT). DCP regulates all legalized gambling in the state, except gambling at the state's two tribal casinos (see BACKGROUND).

The bill gives MMCT Venture, LLC, a company the two tribes jointly own and operate, the exclusive right to conduct authorized games at a casino gaming facility after certain conditions are met. The conditions include amending the current gaming agreements to include a provision stating that the authorization of an off-reservation casino does not terminate the existing slot moratorium. The amendments must also be approved by the state legislature and federal Department of the Interior (DOI), among other conditions (see BACKGROUND).

The bill requires MMCT to (1) pay the state 25% of the gross gaming revenue from both the video slot machines and all other authorized casino games (e.g., table games) and (2) annually contribute $300,000 to the Connecticut Council on Problem Gambling.

The bill requires DCP to adopt implementing regulations to ensure proper, safe, and orderly conduct of casino gaming. The regulations must address other issues, including security at the facilities, audits and record keeping, and licensing of personnel. The bill also requires the casino gaming facility to develop management and operating standards for the casino gaming facility, subject to DCP approval.

Under the bill, a “casino gaming facility” is any casino gaming facility authorized by law to conduct authorized games on its premises but does not include a tribal casino operating under the Indian Gaming Regulatory Act (IGRA).

The bill also makes minor, technical, and conforming changes.

EFFECTIVE DATE: Upon passage

13 — CASINO AUTHORIZATION

The bill authorizes MMCT to conduct authorized games at a casino gaming facility at 171 Bridge Street, East Windsor, Connecticut (see COMMENT). “Authorized games” means any game of chance, including, blackjack, poker, dice, money-wheels, roulette, baccarat, chuck-a-luck, pan game, over and under, horse race game, acey-deucy, beat the dealer, bouncing ball, video slot machines, and any other game of chance the DCP commissioner authorizes.

The authorization to conduct casino gaming is not effective until certain conditions are met.

Conditions to be Met Before Authorization is Effective

Before the authorization is effective, the bill requires the governor to enter into an agreement with the tribes to amend the Mashantucket Pequot federal procedures, the Mohegan compact, and both MOUs on the operation of a casino gaming facility. Each amendment must include a provision that MMCT's authorization to conduct authorized casino games in the state does not terminate the moratorium against operating video facsimile games (see BACKGROUND).

Upon the tribes and state reaching an agreement, the amendments must be approved by the state legislature and DOI, pursuant to federal regulations (25 CFR 291.14, for procedures and 25 CFR 293.4, for compacts) (see BACKGROUND). Additionally, any judicial review or period for such review for any DOI secretarial approval must also have concluded in accordance with the federal Administrative Procedure Act (5 U.S.C. 551 et seq.).

Finally, the tribes must waive sovereign immunity with respect to any action brought by or against the state concerning the casino gaming facility and agree to bring any such action to the Hartford Superior Court.

MMCT

Under the bill, MMCT is a limited liability company jointly and exclusively owned by the Mashantucket Pequot and Mohegan tribes. Each tribe must hold at least a 25% equity interest in the company, and no other person or business organization may hold an equity interest. If MMCT ceases to be a limited liability company under these conditions, the bill's authorization is void.

14 — PAYMENTS

The bill requires MMCT, within 30 days after being authorized to conduct authorized games at a casino gaming facility, to pay the state $1 million for the initial costs of regulating the facility. The money must be credited against unpaid payments required for the first full calendar year the casino conducts authorized games.

Under the bill, within one month of the casino being operational, and monthly thereafter, MMCT must pay the state 25% of the gross gaming revenue from (1) video slot machines, which must be deposited into the General Fund and (2) all other authorized casino games, of which 10% must be deposited into the General Fund and 15% in the statewide tourism marketing account.

The bill also requires MMCT, by the date the casino is operational and annually thereafter, to contribute $300,000 to the Connecticut Council on Problem Gambling.

Gross Gaming Revenue

"Gross gaming revenue" means the total of all sums the casino gaming facility actually received from gaming operations after subtracting the amount paid as winnings to casino patrons. This total does not include the cash equivalent value of any merchandise or thing of value included in a jackpot or payout and any promotional gaming credit.

2 — GAMING REGULATIONS

The bill requires the DCP commissioner to adopt regulations for the administration of a casino within 12 months after the effective date of any authorization of a casino gaming facility. The regulations must include provisions to protect the public interest in the integrity of gaming operations and reduce the dangers of unsuitable, unfair, or illegal practices, methods, and activities in the conduct of gaming.

The regulations must also include the following:

1. minimum accounting standards;

2. minimum security procedures, including video monitoring of the facilities;

3. approved hours of operation for gaming and nongaming activities;

4. procedures governing the manufacture, sale, lease, and distribution of gaming devices and equipment;

5. procedures for recovering winnings by casino patrons;

6. procedures governing how gross gaming revenue is calculated and reported;

7. requirements for regular auditing of the casino's financial statements;

8. procedures for cash transactions;

9. procedures for maintaining lists of persons banned from the casino gaming facility and security measures to enforce such bans;

10. standards for providing complimentary goods and services to casino patrons;

11. minimum standards for training people employed in the casino gaming facility;

12. procedures for submitting casino management and operating standards to the commissioner; and

13. requirements for information and reports to enable effective auditing of casino gaming operations.

The bill allows the casino gaming facility to operate under its standards of operation and management until regulations are adopted, provided they are approved by the commissioner (see below).

3 — STANDARDS OF OPERATIONS AND MANAGEMENT

Under the bill, the casino gaming facility must submit to the DCP commissioner a description of its management and operating standards for all gaming operations.

The description must include:

1. accounting controls to be used in casino gaming operations;

2. job descriptions for all casino gaming positions;

3. procedures for securing chips, cash, and other cash equivalents used in authorized games;

4. procedures for keeping casino patrons safe and secure;

5. procedures and rules for conducting authorized games;

6. a certification by the casino's attorney that the submitted standards of operation and management conform to state law and regulations for casino gaming;

7. a certification by the casino's chief financial officer or an independent auditor that the submitted standards of operation and management (a) provide adequate and effective controls, (b) establish a consistent overall system of procedures and administrative and accounting controls, and (c) conform to generally accepted accounting principles; and

8. any other standards the commissioner requires.

The bill requires the DCP commissioner to approve or reject standards of operation and management within 60 days of receipt. Standards not approved or rejected within that timeframe are deemed approved. The bill prohibits the casino gaming facility from operating until its standards are approved or deemed approved.

Under the bill, the commissioner must periodically review a casino gaming facility's compliance with state law and regulations governing such facilities.

Revisions

The bill prohibits casino gaming facilities from revising any previously approved operating and management standards, unless the commissioner has also approved the revision. A submitted revision not approved or rejected within 60 days after receipt is deemed approved.

Hearing and Appeals

If the casino gaming facility is aggrieved by an action by the commissioner, it may request in writing to have a hearing before the commissioner. The hearing and any appeal must be held according to the Uniform Administrative Procedure Act (UAPA).

4 & 10 — GAMING LICENSES FOR INDIVIDUALS AND BUSINESSES

The bill requires several individuals and businesses performing various tasks associated with the casino to be annually licensed by DCP. As with other current gaming licenses, applicants must submit to a state and national criminal history records check before being granted a license. Such checks must be conducted according to the state law governing criminal history record checks.

The bill requires anyone working on the gaming floor or in a gaming-related position in a casino gaming facility to hold a gaming employee license. The license fee is $40.

It also requires any person or business organization that (1) annually provides over $25,000 of nongaming goods or services in a casino gaming facility to hold a nongaming vendor license or (2) provides gaming services or gaming equipment to a casino gaming facility to hold a gaming services license. A nongaming vendor license fee is $250 and a gaming services license fee is $500.

Under the bill, no business organization, other than a shareholder in a publicly traded corporation, may exercise control in or over any of these gaming licensees unless the business organization holds a gaming affiliate license. The license fee is $250.

Application Form

The bill requires each applicant for any of these gaming licenses to submit a completed application on a DCP-prescribed form. The application forms may require information on:

1. financial standing and credit;

2. moral character;

3. criminal record, if any;

4. previous employment;

5. corporate, partnership, or association affiliation;

6. ownership of personal assets; and

7. any other information the commissioner deems pertinent.

The commissioner must, as soon as practicable after receiving a completed application, grant or deny the license application. All gaming licenses the commissioner issues are effective for up to one year from issuance and applicants must reapply annually on a DCP-prescribed form. Any gaming licensee who submits a renewal application may continue to be employed by a casino or provide services to a casino until the commissioner grants or denies the renewal.

Temporary Licenses

The bill allows the commissioner to issue a temporary license at the request of anyone who has submitted a gaming license application. He must require the applicant to submit to a state and national criminal history records check before granting a temporary license. The check must be conducted according to the state law governing criminal history record checks. A temporary license expires when the commissioner grants or denies the pending application.

Investigations

Under the bill, the commissioner may investigate any person or business organization that holds a gaming license at any time and may suspend or revoke such license for good cause after a hearing. Any person or business whose license is suspended or revoked or any applicant aggrieved by the commissioner's actions on an application may appeal the decision. All hearings and appeals must be done according to UAPA.

5 — AGE LIMIT

The bill prohibits people under age 21 from participating in any authorized game. And it, with one exception, limits entrance to the casino gaming floor to people over age 21. It allows DCP-licensed 18- to 20-year-old casino employees to enter the gaming floor as long as serving or handling alcoholic liquor is not part of their job.

6 — CASINO GAMBLING INVOLVEMENT BY DCP PERSONNEL PROHIBITED

As is currently the case for other authorized gambling (e.g., state lottery and off-track betting (OTB)), the bill prohibits the commissioner and DCP unit heads and employees, directly or indirectly, individually or as members of a partnership or shareholders of a corporation, from having any interest in (1) dealing in the casino or (2) owning or leasing any property or premises used by or for the casino.

The bill also prohibits the commissioner or unit heads from directly or indirectly playing any authorized game at the casino. And it allows the commissioner to adopt regulations prohibiting DCP employees from engaging, directly or indirectly, in any casino gambling activity in which such employees are involved because of their employment.

A “unit head” is any managerial employee with direct oversight of a legalized gambling activity.

7 — ENFORCEMENT REGULATIONS

The bill specifically gives the DCP commissioner the power to enforce and prevent violations of any provisions concerning the inspection of casino gaming facilities and insuring proper, safe, and orderly conduct at such facilities to protect the public against fraud or overcharge. The commissioner must adopt all necessary regulations and may do what is reasonably necessary to carry out such purpose.

8 — DISPLAY OF COMPULSIVE GAMBLING MATERIAL

By law, the DCP commissioner must, within available resources, prepare and distribute informational material to inform the public of compulsive gambling prevention, treatment, and rehabilitation programs.

Under the bill, the commissioner must require the casino gaming facility to display the information at the casino, just as other gaming licensees (e.g., OTB operator) must do under existing law.

9 — CASINO AUDITS

The bill requires the commissioner to annually require someone in DCP to perform a thorough audit of the casino gaming facility's books and records. It also allows him to audit the casino from time to time. The commissioner must keep the audit records on file at DCP. The casino gaming facility operators must permit access to their books and records for the audits. The casino must produce, at the commissioner's written request, any documents and information required for such audits. These same requirements apply under existing law to the OTB licensee.

11 — CASINO GAMBLING EXEMPT FROM GAMBLING BAN

The bill exempts gambling at the casino gaming facility from the state's general prohibition on unauthorized gambling.

By law, it is illegal to gamble in Connecticut unless the gambling (1) is specifically authorized by state law (e.g., charitable gaming) or other legally binding state agreements (e.g., Indian casino gaming) or (2) fits an exemption in the criminal laws (e.g., state lottery and OTB). It is also illegal to solicit or induce others to gamble, or be present when others are gambling. A violation of the gambling laws is a class B misdemeanor, punishable by imprisonment of up to six months, a fine of up to $1,000, or both (CGS 53-278b).

11 — ALLOWED GAMBLING DEVICES FOR TRAINING AND TESTING

The bill extends current law's exemption allowing the tribal casinos to use a gambling device to train an employee or for testing purposes to the new casino facility. As under current law, the casino gaming facility, or its agents, may use a gambling device only for these purposes if no money or other thing of value is paid to anyone operating the device.

As under current law and the bill, anyone receiving such training or who is testing the device may only use it during the training or testing. A casino gaming facility must notify DCP when it intends to have and use the devices for testing anywhere in the state.

12 — CASINO LIQUOR PERMIT

The bill expands the existing casino liquor permit to include the new casino gaming facility, thus allowing the new facility, upon receiving a permit, to sell alcoholic liquor at retail on the gaming floor.

By law, a casino permit allows the manufacture, storage, and bottling of beer to be consumed on the premises with or without food, provided the casino permittee annually produces at least 5,000 gallons of beer. Additionally, a casino permit, under certain conditions, allows the retail sale of alcoholic liquor in a guest bar located in hotel guest rooms. The annual fee is $2,650 plus $100 for each guest room with a guest bar (CGS 30-37k).

BACKGROUND

Casino Gaming at the Foxwoods and Mohegan Sun Casinos

Gambling at the Mohegan Sun Casino is conducted under a legally negotiated IGRA tribal-state compact. At the Foxwoods Casino, it is conducted under federal procedures, which are a legal substitute for an IGRA-negotiated compact. Both the compact and procedures are like federal regulations. As such, they supersede state law.

Moratorium on Video Facsimiles (e.g., Slot Machines)

Neither casino is explicitly authorized to operate video facsimile machines, which includes slot machines, under the compact or procedures. The federal procedures and the compact only authorize the Mashantucket Pequot and Mohegan tribes to operate slot machines pursuant to (1) an agreement between the tribe and state (e.g., MOU); (2) a court order; or (3) a change in state law that allows the operation of slot machines by any person, organization, or entity. Currently, both tribes are able to operate slot machines because of the MOUs each has with the state (see below).

Tribal-State MOUs

The Mashantucket Pequots and Mohegans have separate binding MOUs with the state that give the tribes the exclusive right to operate slot machines and other casino games in exchange for a monthly contribution of 25% of their gross slot machine revenue to the state. If the state enacts a law to permit any other person to operate slot machines or other casino games, the tribes would no longer need to pay the state any of their slot revenue.

Attorney General Opinion

The attorney general has raised a number of issues about the possible impact of passing legislation granting the two tribes the exclusive right to jointly operate an off-reservation casino (AG Opinion 2017-02). Such legislation could (1) affect the existing MOUs so the tribes no longer needed to make payments to the state, (2) lead to third-party challenges on the casino-licensing process, and (3) allow additional tribes that gain federal recognition to build new casinos.

The attorney general, among other things, pointed out that a business entity, although owned solely by the tribes, could constitute a separate entity. Allowing this separate entity to operate a casino could automatically end the slot moratorium and relieve the tribes of their obligation to pay the state.

Additionally, the attorney general also wrote that there is no guarantee that the DOI would approve any amendment and it is unclear as to the scope of the secretary's review. He stated that if DOI were to follow past practice, it would likely review the proposed amendment without looking at existing MOU provisions. But the attorney general reiterated that there is no guarantee that DOI will follow past practices and also pointed out that there has been a change in presidential administrations.

Pending Federal Court Case

After the enactment of SA 15-7, MGM Resorts International filed a federal lawsuit challenging the constitutionality of the Special Act on the grounds it violated both the Equal Protection and Commerce clauses of the Constitution (MGM Resorts v. Malloy et al., 3:15- cv-1182-AWT). The case was dismissed in district court because MGM had not suffered any real injury, and lacked standing to sue, because the Special Act did not authorize a casino, but only a request for proposal.

Upon dismissal, MGM appealed to the Second Circuit Court of Appeals, which heard arguments, but has not issued a decision (MGM Resorts v. Malloy et al., 0:16-cv-02158).

Legislative Approval for Tribal-State Gaming Compacts

Under existing state law, both houses of the legislature must approve a tribal-state compact (CGS 3-6c).

By law, the governor must file a tribal-state compact or amendment with the Senate and House clerks within 10 days after it is executed. If filed during a regular session, the legislature has until its adjournment to approve or reject it. If not filed during a regular session, the legislature has until adjournment of (1) the next regular session or (2) a special session convened to take action on the measure. If the legislature does not act by adjournment, the compact or amendment is rejected and is not implemented.

If the governor files a compact or amendment within 30 days of the end of a regular session, the legislature can either (1) convene in a special session and vote within 30 days or (2) vote on it within the first 30 days of its next regular session. The legislature has until the end of either 30 day-period to vote before the measure is considered rejected.

Federal Approval of Compact or Procedure Amendments

Federal regulations require the secretary of the Interior through the Bureau of Indian Affairs to approve amendments to compacts or gaming procedures (25 C.F.R. 293.4(b) and 25 C.F.R. 291.14). Upon the submission of the amendment, the Department may consider the entirety of the relationships between the tribes and the state, including the MOUs.

Additionally, the secretary's decision in any proposed amendment may potentially be subject to a third party challenge on the grounds the proposed amendment violates IGRA or other law (Amador County v. Salazar, 640 F.3d 373 (D.C. Cir. 2011)).

Related Bill

sHB 7239, reported favorably by the Public Safety and Security Committee, requires DCP to create a request for proposals process to qualify an entity to develop a casino gaming facility in the state.

COMMENT

Public Emolument

The bill could conceivably raise constitutional questions in that it appears to provide what may amount to an exclusive public emolument to the Mashantucket Pequots and the Mohegans. Article First, Section 1 of the Connecticut Constitution provides to operate off-reservation casinos in the state: “All men when they form a social compact, are equal in rights; and no man or set of men are entitled to exclusive public emoluments or privileges from the community.” The Connecticut Supreme Court has held that this constitutional provision invalidates state laws that grant emoluments or privileges to individuals unless there is a valid public purpose (Commission of Public Works v. City of Middletown, 53 Conn. App. 438, cert. denied 250 Conn. 923 (1999); Chotkowski v. State, 240 Conn. 246 (1997); City of Shelton v. Commissioner of Department of Environmental Protection, 193 Conn. 506 (1984)).

The Antitrust Act

The Connecticut Antitrust Act prohibits any contract or conspiracy to monopolize, or attempt to monopolize, a part of trade (CGS 35-27). The bill could conceivably be construed to have anticompetitive effects in violation of this law.

COMMITTEE ACTION

Public Safety and Security Committee

Joint Favorable Substitute

Yea

20

Nay

5

(03/15/2017)