OLR Bill Analysis

sSB 957 (File 310, as amended by Senate "A")*

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 an off-reservation casino gaming facility in East Windsor, Connecticut, subject to certain conditions and regulation by the Department of Consumer Protection (DCP) (see COMMENT). Under the federal Indian Gaming Regulatory Act (IGRA), the Mashantucket Pequots and Mohegans currently operate the Foxwoods and Mohegan Sun casinos, respectively, on their reservations (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 provisions stating that the authorization of an off-reservation casino does not terminate the existing slot moratorium or slot payments to the state. 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) annually contribute $300,000 to the Connecticut Council on Problem Gambling and (2) pay the state 25% of the gross gaming revenue from both the video facsimile games (e.g., slots) and all other authorized casino games (e.g., table games). Of the 25% from the video facsimile games, the bill requires $4.5 million to be annually dispersed as grants to specific municipalities around the casino (East Hartford, Ellington, Enfield, Hartford, South Windsor, and Windsor Locks).

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. It requires the facility to pay for DCP's regulatory costs.

Finally, the bill allows East Windsor to fix the property tax assessment for real property, improvements, and personal property used in connection with a casino gaming facility.

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

*Senate Amendment “A” (1) increases the percentage of the authorized game revenue that goes to the General Fund and reduces the percentage that goes to the tourism marketing account, (2) establishes annual grants to six municipalities, (3) requires casino gaming facilities to pay for DCP's regulatory costs, (4) allows East Windsor to fix the property tax assessment for the casino gaming facility, and (5) makes other minor and technical changes.

EFFECTIVE DATE: Upon passage

14 — CASINO AUTHORIZATION

The bill authorizes MMCT to conduct authorized games at a casino gaming facility at 171 Bridge Street, East Windsor, Connecticut if certain conditions (described below) are met (see COMMENT).

Under the bill, “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 facsimile game, and any other game of chance the DCP commissioner authorizes. 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 IGRA.

MMCT

Under the bill, MMCT is a LLC 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 LLC under these conditions, the bill's authorization is void.

Conditions to be Met before Authorization is Effective

Before the authorization is effective, the bill requires the governor to enter into agreements with the tribes to amend the Mashantucket Pequot federal procedures, the Mohegan compact, and both tribal memoranda of understanding (MOUs) on the operation of a casino gaming facility.

Amendments to Procedures and Compact. The amendments to the Mashantucket Pequot procedures and the Mohegan compact 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).

Amendments to MOUs. The amendments to each tribe's MOU must include a provision that MMCT's authorization to conduct authorized games in the state does not relieve each tribe of its obligation to contribute a percentage of the gross operating revenues of video facsimile games to the state under each tribe's MOU.

Legislative Approval. Upon the tribes and state reaching an agreement on the amendments to the procedures, compact, and MOUs, the amendments must be approved by the state legislature under the statutory process for approving tribal-state compacts (see BACKGROUND).

Federal Approval. The amendments to the procedures, compact, and MOUs must be approved or deemed approved by the DOI secretary, pursuant to the IGRA and its implementing regulations. If such approval is overturned by a court in a final judgment that is not appealable, the bill's authorization ceases to be effective.

Waiver of Sovereign Immunity. The governing bodies of the tribes must enact resolutions (1) providing that if MMCT fails to pay any fees or taxes due to the state, then the tribes, as members of MMCT, must waive the possible defense of sovereign immunity with respect to any action or claim the state brings against the tribes as members of MMCT, to the extent such action or claim is allowed against a member of a limited liability corporation (LLC) under state law to collect any fees or taxes, while preserving any other defense available to the tribes, and (2) that the venue for such action or claim must be the judicial district of Hartford.

15 — 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 (1) 25% of the gross gaming revenue from video facsimile games, with $4.5 million annually deposited into the municipal gaming account for municipal grants (see 16 below) and the remainder deposited into the General Fund; (2) 15% of all other authorized casino games, which must be deposited into the General Fund; and (3) 10% of all other authorized casino games, which must be deposited 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

Under the bill, "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.

16 — MUNICIPAL GAMING ACCOUNT

The bill establishes the “municipal gaming account” as a separate, nonlapsing account within the Mashantucket Pequot and Mohegan Fund. The account must contain any money required by law to be deposited into it. The Office of Policy and Management (OPM) must use the account's funds to provide annual grants to specified municipalities.

On and after the date the OPM secretary finds that a minimum of $4.5 million has been deposited into the account, OPM must provide an annual grant of $750,000 to (1) Ellington, Enfield, South Windsor, and Windsor Locks and (2) East Hartford and Hartford, which are distressed municipalities. This amount may be reduced proportionately in any year that the total of such grants exceeds the funds available.

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 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 operating and management 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 the operating and management standards 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 or deemed 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 under the operating and management standards provision, it may request a hearing before the commissioner. The commissioner must hold the hearing according to the Uniform Administrative Procedure Act (UAPA).

4 & 11 — GAMING LICENSES FOR INDIVIDUALS AND BUSINESSES

New Licenses

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 records 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 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, other than a shareholder in a publicly traded corporation, may exercise control in or over any of these gaming licensees unless the business 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 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 records 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 the UAPA.

5 — AGE LIMIT

The bill prohibits people under age 21 (i.e., under the minimum age required to purchase alcohol) from participating in any authorized game. With one exception, it 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 — REGULATORY COSTS

Assessment

The bill requires casino gaming facilities to pay DCP for the costs the agency incurs to regulate the facilities.

Beginning in any fiscal year that a casino gaming facility is authorized to conduct authorized games and before September 30th each fiscal year thereafter, the bill requires the DCP commissioner to (1) estimate, after consulting with each casino gaming facility, the reasonable and necessary costs DCP will incur the next fiscal year to regulate the casino gaming facilities and (2) assess each casino gaming facility's proportional share of such estimated costs according to its annualized share of the gross gaming revenue of all casino gaming facilities in the prior fiscal year, if any. (The bill authorizes only one casino gaming facility.)

The bill prohibits the estimated regulatory costs from exceeding the estimated expenditures the commissioner transmits to OPM as part of its budget estimates. The assessment for any fiscal year must be proportionally (1) reduced by the amount of any surplus from the prior fiscal year's assessment, which must be maintained according to the bill's requirements, or (2) increased by the amount of any deficit from the prior fiscal year's assessment.

Under the bill, each casino gaming facility must pay its assessment by the date the commissioner specifies, provided that such date is within 30 days of the assessment. The commissioner must remit the funds to the treasurer.

State Gaming Regulatory Fund

The bill establishes a new “State Gaming Regulatory Fund” and requires the treasurer to use the fund to pay the costs DCP incurs to regulate casino gaming facilities. The fund must contain any money the law requires or allows to be deposited in it. The treasurer must deposit all amounts she receives from the casino gaming facilities into the fund and hold it separate and apart from all other moneys, funds, and accounts. Investment earnings credited to the fund's assets must become part of the fund's assets. Any balance remaining in the fund at the end of any fiscal year must be carried forward to the next fiscal year.

The bill requires the comptroller, by September 30th each year, to calculate the actual reasonable and necessary costs incurred by DCP to regulate casino gaming facilities during the prior fiscal year. The treasurer must set aside within the State Gaming Regulatory Fund the amounts received in excess of the actual costs. Such excess amounts must be considered surplus for the purposes of the assessment calculation described above.

Appeals

Under the bill, any casino gaming facility aggrieved by an assessment for regulatory costs may request a hearing before the commissioner within 30 days after such assessment. The commissioner must hold an appeals hearing within 30 days after receiving the request. The hearing must be held according to the UAPA.

7 — 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 gaming facility or (2) owning or leasing any property or premises used by or for the facility.

The bill also prohibits the commissioner and unit heads from directly or indirectly playing any authorized game conducted at the casino. Existing law allows the commissioner to adopt regulations prohibiting DCP employees from engaging, directly or indirectly, in any legalized gaming in which such employees are involved because of their employment.

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

8 — ENFORCEMENT REGULATIONS

The bill requires the DCP commissioner to adopt regulations concerning (1) the inspection of casino gaming facilities and (2) proper, safe, and orderly conduct at such facilities

9 — 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 operators) must do under existing law.

10 — CASINO AUDITS

The bill requires annual DCP audits of the casino gaming facility's books and records. It also allows DCP to periodically audit the casino. The commissioner must keep the audit records on file at DCP. Casino gaming facility operators must permit access to their books and records for the audits and 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.

12 — 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).

12 — 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.

13 — 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).

17 — EAST WINDSOR FIXED PROPERTY TAX ASSESSMENT

The bill allows East Windsor, with its board of selectmen's approval, to fix the property tax assessment for real property, improvements, and personal property owned, leased, or used in connection with a casino gaming facility for up to 10 years. (Fixing the assessment freezes the property's taxable value for a set period, thus allowing its owner to improve the property without paying taxes on the improvement's value.) Improvements eligible for the fixed assessment include the rehabilitation of any structure that exists upon the bill's passage and is rehabilitated for use by a casino gaming facility.

Under the bill, East Windsor may, by the affirmative vote of a majority of the town's board of selectmen, enter into a written agreement with any party owning or proposing to acquire an interest in real property in the town that fixes the assessment of (1) any real property that is the subject of the agreement, and all improvements that are or will be constructed on the property, and (2) all taxable personal property, whether owned or leased, to be located on such real property.

The bill prohibits such agreement or any modification, renewal, or extension from lasting more than 10 years. The agreement may provide that the owner or lessee of such personal property is not required to submit a personal property declaration in East Windsor while the agreement is in effect.

BACKGROUND

Casino Gaming at the Foxwoods and Mohegan Sun Casinos

Gambling at the Foxwoods Casino is conducted under federal procedures, which are a legal substitute for an IGRA-negotiated compact. The Mohegan Sun Casino is conducted under a legally negotiated IGRA tribal-state 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 MOU 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) & 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: “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 (Commissioner 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)

Appropriations Committee

Joint Favorable

Yea

33

Nay

13

(05/08/2017)