The Committee on Judiciary was called to order at 8:00 a.m., on Wednesday, April 7, 1999. Chairman Bernie Anderson presided in Room 3138 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Bernie Anderson, Chairman

Mr. Mark Manendo, Vice Chairman

Ms. Sharron Angle

Mr. Greg Brower

Ms. Barbara Buckley

Mr. John Carpenter

Mr. Jerry Claborn

Mr. Tom Collins

Mr. Don Gustavson

Mrs. Ellen Koivisto

Ms. Sheila Leslie

Ms. Kathy McClain

Mr. Dennis Nolan

Ms. Genie Ohrenschall

GUEST LEGISLATORS PRESENT:

Assemblywoman Chris Giunchigliani, Assembly District 9

Assemblyman David Goldwater, Assembly District 10

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Roll was called and a quorum was present. Chairman Anderson opened the hearing on Assembly Bill 577.

Assemblywoman Chris Giunchigliani, Assembly District 9, explained the intent of A.B. 577 to the committee. She stated it was not intended to send a message that drug use was okay but an attempt to focus on rehabilitation if a person was found in possession of an ounce or less of marijuana. It would also allow local jurisdictions to collect fines that could then be directed to rehabilitation programs. Ms. Giunchigliani’s prepared written testimony was attached as Exhibit C. She then drew the committee’s attention to an amendment, which would address a concern raised after the original drafting of the bill which she would review later in the hearing (see page 4 of Exhibit C).

The Honorable Robert E. Rose, Chief Justice of the Nevada Supreme Court, explained he was not speaking for himself personally one way or another or for the Nevada Supreme Court as a whole. He was simply relating the one recommendation made by the workload assessment commission after 1 year of study as the chairman of that commission. He noted in 1993 and 1994, the commission was created by the legislature and the Nevada Supreme Court to study the urban courts in Nevada, specifically their operation, effectiveness, and to make recommendations concerning how the system could be made more taxpayer and user friendly. Referring to page 46 of the report from the Judicial Assessment Commission titled "Simplifying the Maze", Chief Justice Rose announced "The Commission recommends to the Nevada Legislature to defelonize the simple possession of small amounts of marijuana." The commission’s report was attached as Exhibit D. It recommended that the law be amended to provide that 1 ounce or less of marijuana result in a citation and that it be punished as a misdemeanor. It also recommended that more than 1 ounce but less than 4 ounces be punished as a gross misdemeanor and that 4 ounces or more of marijuana be punished as a felony, as it is now.

Chief Justice Rose stated the rationale behind the recommendation was twofold. First, it cited "A Guide to State Controlled Substances Acts" which was published by the National Criminal Justice Association in 1991. The second source was a phone survey conducted whereby the office of the prosecutor or the office of the public defender was called in each state. The conclusion was that in comparing Nevada to other jurisdictions, Nevada "was, comparatively speaking, isolate in its treatment as a felony of small amounts of marijuana for personal use." The treatment of possession of small amounts for personal use as a felony strained the judicial system with cases that were, frequently, pled down to misdemeanors or dismissed.

Assemblywoman Leslie inquired why it would be easier for people to get the help they need by enacting the bill. Referring to the proposed amendment, Ms. Giunchigliani replied the local government could add up to the amount of what was allowed for a fine at the state level. The money would then be diverted to rehabilitation programs or the drug court at the local level.

Referring to page 4 of Exhibit C, Ms. Giunchigliani pointed out the language was modeled, in part, after legislation used by California in order to expedite drafting but mostly after the recommendations from "Simplifying the Maze". In regard to amending Nevada Revised Statutes (NRS) 453.336 to read "Any person who is found to be in possession, actual or constructive, of 1 ounce or less of marijuana, shall be issued a citation", she noted the "shall" should have been a "may". Ms. Giunchigliani explained that would give law enforcement the flexibility they needed. She proceeded to review the additional penalties for conviction of a first offense as well as for a second offense. She further noted, if a person under the age of 18 was convicted of possession of 1 ounce or less, he or she would be fined and required to undergo an evaluation pursuant to NRS 62.2275. That was a recommendation from the drug commission in order to get youth into drug rehabilitation programs. It was modeled after what was done to treat alcohol abuse and that was the reason for the reference to NRS 62.2275. For a second or subsequent offense, the child could be ordered to pay a fine of not more than $500, or be detained in a facility for detention, or to both pay a fine and be referred to drug court if one existed. The penalty was to allow for some flexibility but to make sure that population was targeted.

She further reviewed subsection 5(b) of section 1 allowing a local government to collect a penalty under NRS 484.778. She noted all fines in the State of Nevada were required to go to the distributive school account. That reference was made in order to allow for a city to enact an ordinance for a penalty equal to the same amount the state could impose, allowing the money collected to be directed to rehabilitation programs. Ms. Giunchigliani emphasized the focus would be on the issue of rehabilitation rather than "simply locking people up and taking up bed space for violent criminals."

Chairman Anderson questioned if the change to "may" would also refer to the language regarding the penalty. Ms. Giunchigliani clarified it would not apply to penalties.

Ms. Giunchigliani told the committee a piece of legislation from 1997 required an examination of the effectiveness of Nevada school-based substance abuse and violence prevention programs. After looking at programs such as Drug Awareness Resistance Education (DARE), Here’s Looking at You 2000, Natural Helpers, and various student assistance and counseling programs, it was determined that some of them were effective while others that were assumed to be effective were not. Out of the five primary prevention programs, one was considered to be an effective program, two were promising practices, one program was not effective, and one program had not been researched. The additional fine revenue would go into making the programs better and allow for more youth to be affected.

Ms. Giunchigliani drew attention to a letter in support of A.B. 577 from Nevada CURE, a rehabilitation program in southern Nevada. The letter was attached as Exhibit E.

Assemblyman Nolan commented the committee had received testimony from the director of prisons about the high incidence of marijuana usage and other drugs in the prison. Random drug testing resulted in an approximate 15 percent positive rate. He wondered if the penalties would apply to prison inmates who were caught using and distributing. He did not want to see the penalties that could be imposed on them lightened in any way.

Ms. Giunchigliani stated she would address that issue with the prison system and provide the committee with any information she could obtain.

Chairman Anderson clarified the prison system was able to establish their own set of rules. He explained while alcohol was a permissible product in the open market, it was not permissible in prison.

Assemblyman Carpenter asked for clarification of the amendments. He noted in the original bill, a larger penalty would be imposed if an individual was found to be in possession of more than 28.5 grams. He asked what the punishment would be if an individual possessed more than 1 ounce in accordance with the proposed amendment.

Ms. Giunchigliani explained she wished to replace the language of the original bill with the proposed amendment. She had assumed 28.5 was an ounce, but in reality, 28.35 was an ounce. It was not her intent to deal with more than an ounce so the language was changed back. The charges would be the same as they were currently for possessing over an ounce; a class E felony.

Ms. Giunchigliani also pointed out the fines in California were lower than what were being proposed. She opined fines of $500 and $1,000 were steep penalties.

Richard Siegel, a professor of political science from the University of Nevada, Reno, testified as the Vice President of the American Civil Liberties Union of Nevada. He notified the committee 15 years ago, a book on the marijuana penalties in Nevada was written called "Morals, Legislation without Morality, the Case of Nevada". The premise of the book was based on the opinion, "Nevada’s marijuana law is perhaps the most repressive and punitive in the United States". People were interviewed including the leadership of the Nevada Legislature, and the authors concluded it was essentially a symbolic act; because Nevada was embarrassed by its prostitution and alcohol laws, the state wanted to be able to say at least it was "tough on pot." Professor Siegel stated if the bill passed, Nevada’s marijuana laws would still be as punitive as any in the United States. Adding to Ms. Giunchigliani’s testimony, he explained a report on marijuana was done in 1995. In Nevada, it was found that 88 percent of funds spent on drug control were devoted to prosecution and incarceration. Only 12 percent was allocated to health and education programs. He believed wanting to correct what he felt was an inadequate proportion and the fact that Nevada was so over-incarcerated were major reasons to pass A.B. 577. Another reason to pass the bill was because of the inefficiency created for the judicial system and the jail system. "We don’t mean it when we call marijuana possession in small amounts a felony. We don’t intend that and we don’t have credibility when we say that to youth." Professor Siegel reminded the committee after being convicted of a felony, an individual lost his or her right to vote for the rest of their life.

Chairman Anderson pointed out there was a process where an individual could get their voting rights restored.

Professor Siegel said Chairman Anderson was correct and rephrased his last sentence. He added it was possible to do, but the State of Nevada was clearly not prepared to process those requests. Concluding his testimony, he reiterated Nevada would still have the most repressive marijuana laws in the country and if, A.B. 577 was passed, the state would have a more efficient judicial and jail system and more credibility for its law.

Assemblyman Brower asked if Professor Siegel was trying to say he favored the legalization of marijuana in Nevada. Professor Siegel clarified he was not testifying on that issue. On a personal note, he remarked he would favor decriminalization but not legalization, stating there was a difference. "We have processes of fines and citations that would not represent criminal fines in small amounts." He opined, "We are light years away from that in this discussion and in this bill."

Assemblyman Gustavson said the State of Nevada had sent a clear message that it would not tolerate possession of marijuana and pondered if the bill would be the first step towards decriminalizing or legalizing the use of marijuana. Professor Siegel responded it could be interpreted that way, but he did not believe it was a significant step in that direction. He repeated it was a step to make it more rational and efficient and to put a more appropriate balance between punitive and rehabilitative measures.

Ms. Giunchigliani came forward to make sure the bill was not misrepresented. "It is not to legalize marijuana. It is still a crime even under this amendment. It will be a misdemeanor. That was the exact recommendation of the Rose report."

John Morrow, representing the Washoe County Public Defender’s Office, came forward in support of A.B. 577. Responding to Mr. Nolan’s previous question, he referred him to NRS 212.160 which was a separate statute dealing with possession of drugs in the prison system. He pointed out it was much more punitive than what was currently being discussed. Mr. Morrow offered as far as enforcement was concerned, possession of a minor amount of marijuana was typically dealt with as a misdemeanor. Usually, possession of a small amount of marijuana was plea-bargained, and the offender was treated as a misdemeanant. He expressed concern that the lack of observance of the laws compromised the integrity of the judicial system. Mr. Morrow opined the bill would bring the statute into conformity with what was happening in the real world. He said the other positive part of the legislation was it would add rehabilitation at the misdemeanor level. There had not been a formal requirement where a person could be directed into drug court or diversion programs at the misdemeanor level.

Thomas Whitehead read written testimony indicating his support of A.B. 577. His prepared testimony was attached as Exhibit F.

David Hosmer, Deputy Chief of the Nevada Department of Motor Vehicles and Public Safety Investigation Division, testified in opposition to A.B. 577. He explained the Division of Investigation was charged with the statewide enforcement of the controlled substance statutes and was opposed to any reduction in the penalties for the possession of marijuana. Working as a narcotics officer for 8 years had taught him that marijuana was seldom abused singularly. It was almost always part of a multi-substance abuse problem. He also expressed concern that the threat of a felony conviction helped some abusers to seek counseling. Without that threat, he believed the voluntary requests for assistance through drug abuse problems would decline. He pointed out that was the case when the Lincoln County Sheriff’s Office was no longer able to participate in the Eastern Nevada Narcotics Task Force. Request for assistance had declined from 86 in 1996 to 12 to 15 in 1998. Mr. Hosmer also stated it was his belief that the felony charge did not overburden the prisons or the courts. He stated only 6 inmates out of the approximate 9,000 people in prison had been incarcerated for marijuana offenses only. Also, according to a national study done by the United States Department of Justice, drug possession charges resulted in a guilty plea 94 percent of the time. He also expressed concern that the bill did nothing to address being under the influence of marijuana. Mr. Hosmer concluded his testimony by asking the committee for their continued support to allow him to continue teaching his children that abuse of marijuana was a serious matter and not a misdemeanor.

Mr. Nolan inquired if Mr. Hosmer had any statistics in regard to people who had been charged but were then convicted of misdemeanors. Mr. Hosmer did not have those figures. He advised Mr. Nolan that he had also asked the Department of Prisons for a breakdown of how many people were in prison for violent offenses that had marijuana in their system. They were only able to give him the marijuana specific offenses.

Mr. Nolan further inquired if Mr. Hosmer found people with poly-substance abuse problems generally started by smoking marijuana or lighter substances and then graduated into heavier drugs. Mr. Hosmer believed marijuana was a gateway drug to other abuses.

Nicholas Lombardo came forward representing the Nevada Narcotics Officers Association consisting of approximately 250 law enforcement officers. He noted he had also served as a delegate to the National Narcotic Officer’s Association Coalition, which represented 33 states and approximately 50,000 police around the nation. As president of the Nevada association, he opposed A.B. 577. He emphasized the association contended and almost unilaterally agreed marijuana was a gateway drug and the bill sent a message that Nevada was lessening its aversion to it. He agreed with the studies which found marijuana to be symptomatic of poly-drug use and the best way to treat those addictions was through rehabilitation. He remarked the Harvard School of Government had concluded the best way to get people into rehabilitation was through the criminal justice system. Mr. Lombardo contended the bill was an effort to eventually decriminalize or legalize marijuana. In regard to some of the other states participating in a decriminalization movement, particularly in Alaska, he pointed out drug abuse and marijuana use among teenagers had increased. He told the committee the psychoactive drug of marijuana was currently reaching 20 percent where in the 1960’s it was only about 5 percent. It was much more potent. Mr. Lombardo stated most importantly, as a law enforcement officer, he had seen lives that were ruined. He had seen the workplace and highway accidents. He contended society had already made that mistake with alcohol and the acceptance of that substance had cost billions of dollars in health care funds and related issues. He did not want to see the same mistake made with marijuana.

Mr. Nolan indicated he had supported the concept of keeping first and second-time offenders out of prison because he believed that the problem was exacerbated once they were in prison. He asked if in Mr. Lombardo’s experience, he found that charging offenders with a felony gave the court greater ability to place them into substance abuse programs.

Mr. Lombardo told the committee of a survey done in California and New Jersey of high school students which showed about 70 percent of them felt marijuana laws were a deterrent. A more severe law would be a greater deterrent and would therefore, prevent youth from becoming first-time offenders. He also agreed that by bringing offenders into the court system under a more serious offense, the courts had more authority in getting them through the criminal justice system and off the substance.

Janine Hansen, representing the Nevada Eagle Forum, testified in opposition to A.B. 577. Referring to testimony from Ms. Giunchigliani, she expressed satisfaction for the ineffectiveness of the anti-drug DARE program finally being recognized. She explained it was very important to find education and rehabilitation programs that were actually scientifically proven to work. The programs should tell the public drug abuse was wrong and against the law and yet many of the school programs did not do that. She encouraged the committee to continue to analyze the programs being offered. Ms. Hansen also pointed out the high correlation between crimes and substance abuse problems. Reading from an article titled "Medical Marijuana Debate, Smoke & Fire", she noted in California where marijuana was decriminalized in 1976, arrests for driving under the influence of drugs rose 46 percent for adults and 71.4 percent for juveniles. She acknowledged the bill did not call for decriminalization but merely reduced the penalties yet she emphasized the importance of sending the message that usage of marijuana was wrong and harmful. The article was attached as Exhibit G.

Chairman Anderson closed the hearing on A.B. 577 and opened the hearing on Assembly Bill 498.

Jim Avance, representing Diversified Business Consultants, came forward and explained Assemblyman Bob Price had requested the bill on his behalf. The focus of the bill was aimed at the handbills that were passed out in the Las Vegas area in regard to referral services. The bill was intended to make it illegal for a publisher to accept advertising or distribute advertising from somebody in that business unless the person currently held a valid license for the business in the county. Mr. Avance explained the telephone companies had indicated their desire to be removed from the bill and therefore, would be coming forward with an amendment deleting them from the bill. He further explained he also had an amendment for the committee to consider which would accomplish the same thing. The amendment was attached as Exhibit H. Mr. Avance pointed out their concern was they accepted advertising 6 months in advance. People would buy advertising, explaining they had applied for the license and should receive it before the book was published. The amendment would freeze the existing licenses in that business unless and until there were an additional 10,000 hotel rooms. He pointed out his understanding that within the next year, there would be 15,000 additional hotel rooms in Las Vegas. One license per 10,000 hotel rooms would be issued in the future. Advertisers would then know who had bought a license and who had not.

Janine Hansen, representing the Nevada Eagle Forum, came forward in support of A.B. 498. She explained prostitution legitimizes every form of rape, sexual assault, and battery, believing that was the true issue of the bill. She stated as prostitution was encouraged and allowed to flourish, the process of sexual abuse was being continued. Drug abuse and alcoholism became a way of life for the prostitute and ultimately, society would pay the bills for disease, drug and alcohol abuse, death through suicide and homicide, and other crimes associated with prostitution and its victims. She urged the committee to pass the bill.

Kent Lauer from the Nevada Press Association, testified in opposition to A.B. 498. He said the bill would force printers and advertising media to become police agents for the government and if they did not, they would be subject to criminal prosecution. Mr. Lauer announced private businesses should not be saddled with the burden of investigating who was properly licensed being that was the job of the government.

John Cummings representing the Hillsboro Corporation, introduced Bradley Hofland, legal counsel for Hillsboro Enterprises, and Vince Bartello, owner of Hillsboro Enterprises. He said he echoed the comments made by Mr. Lauer. Speaking on behalf of Sprint Publishing, he indicated they also opposed the bill.

Bradley Hofland, stated the bill appeared to be selective legislation directed at one type of industry. It appeared the referral industry was being singled out with the addition of another regulation. He said the industry had been around for several years and it was heavily regulated. People had licenses. A.B. 498 would not prohibit anyone else who wanted to do any other types of advertising. Mr. Hofland noted it cost anywhere from $5,000 to $10,000 in order to get an ad in the yellow pages. "Certainly somebody who is going to spend that amount of money is going to have a license." Individuals who were not licensed were not going to use a medium which the legislation looked to regulate.

Referring to the comments made by Ms. Hansen, Mr. Cummings noted he did not find any mention of the word or profession of prostitution in A.B. 498. "That is certainly not what this bill is about." He explained Mr. Bartello was present because he wanted the members of the committee to meet an owner of an outcall service. Mr. Cummings emphasized he was a citizen raising his three children and doing the best he could to meet his payroll every week.

Vince Bartello stated his concerns had been articulated. He opposed A.B. 498.

Responding to Chairman Anderson, Mr. Cummings noted they had seen Mr. Avance’s amendment yet they still opposed the bill.

Mr. Bartello explained periodically, he changed the names of his businesses and each time he did, he had to produce another license. He could apply for 60 licenses every 6 months for different name changes in the phone book. The amendment would definitely impact his business if he was required to wait until 10,000 hotel rooms were built before he could word something different.

Mr. Cummings explained he had also been asked to speak on behalf of Sprint Publishing because their representative was unable to attend the hearing. While Sprint Publishing had drafted an amendment for the committee’s consideration, they had advised him of their belief A.B. 498 was a bad bill. Mr. Cummings read the proposed amendment for the record and it was attached as Exhibit I.

Ben Graham, testified in opposition to A.B. 498 on behalf of the Civil Division of the Clark County District Attorney’s Office. Historically, that office and those involved in the effort to control and combat an $800 million illegal prostitution industry had reluctantly avoided legitimizing what was an illegitimate business. "To characterize this as anything else would cause one’s nose to grow."

Chairman Anderson closed the hearing on A.B. 498 and opened the hearing on Assembly Bill 646.

Dennis Neilander from the State Gaming Control Board, explained A.B. 646 was a housekeeping measure that was brought on behalf of the gaming control board. He explained it should not be controversial and only contained two provisions as written, although he did have a proposed amendment which was distributed to the committee and attached hereto as Exhibit J. He explained section 1 of the bill was an amendment to NRS 463.385, the provision which imposed the annual excise tax of $250 per slot machine. Referring to line 8, he pointed out the current due date for that particular tax was June 20. That date did not coincide with the quarterly tax which happened to be due on June 30 and, therefore, to alleviate some confusion, the tax would be due on the same date as the quarterly tax. Section 2 of the bill, beginning on line 37, would amend subsection 2 of NRS 463.660, the provision relating to the manufacturer’s license fee. Previously, it had been assumed the fee for a continuing license was due before the first of the year for the ensuing year, but there had been some concerns raised because there was no due date stated in the law. The bill would deem December 31 as the due date for the collection of the fee for the ensuing year. A.B. 646 would be effective upon passage and approval. Mr. Neilander proceeded to review the proposed amendment (Exhibit J) which addressed some problems the gaming control board had in the area of illegal bookmaking. He explained the gaming control board had always had a problem with out-of-state illegal books utilizing legal books in Nevada to place layoff wagers to balance their own books. The amendment would strengthen the existing provisions in respect to the definition of a sports pool and the provisions related to forfeiture. Mr. Neilander introduced Bobby Siller as a member of the board and a former special agent with the Federal Bureau of Investigations who had particular expertise in those matters. He would explain the amendment in more detail for the committee.

Mr. Siller stated the amendment (Exhibit J) was simple and would bring things in line with federal laws as well as other state laws. The forfeiture section, NRS 179.121, brought under its umbrella three additional violations, NRS 207.195, 463.160(1)(3), and 465.093. If any of those laws were violated, personal property and instruments used in the commission of that crime would be forfeited. He pointed out both the federal statute and other state statutes included those violations under their forfeiture umbrella as well. The second part of the amendment dealt with the definition of sports pools, NRS 463.0193. Currently, that area was viewed as a loophole in the law. The amendment attempted to further clarify the definition of a sports pool to eliminate those organizations or individuals that conducted unlicensed and illegal bookmaking operations. Mr. Siller reassured the committee the amendment did not affect gaming operations in any way other than clarifying a license was necessary to engage in business and federal laws had to be abided. He explained some operations conducted that type of business across state lines which was illegal on the federal level and sometimes illegal in the state. The definition was further clarified by adding language such as "transferring, brokering, facilitating and moving to or for any other person, wagers." "Those operations set up and do layoffs from bookies from different states and almost, without exception, interstate-booking operations included organized crime." The amendment would help to close the loopholes.

Assemblywoman Buckley questioned where the forfeited proceeds would go. She pointed out NRS 179.118 guided the distribution of forfeited funds and directed, depending on the agency seizing them, to which fund the proceeds would go.

Mr. Siller stated his personal suggestion would be to see the funds used in furtherance of law enforcement and pointed out the considerable amount of work ahead of the board in order for them to catch up with advancing technology in regard to their computer system. From a regulatory and enforcement view, an effective way of doing that was to use enforcement division funds created because of illegal acts and mandate those funds be used for the enforcement division. He pointed out the federal forfeiture statute on drugs was similar. The Federal Government and the individual agency did not receive any portion of those funds. The funds were given to local departments with a couple of caveats. One was that they use the funds for law enforcement purposes only and not to offset their budget. As a result of doing that, it allowed them to be more effective by having more modern equipment and thus, better equipped to handle those crimes. Given the situation the board was in now, he believed those funds could be very well used there.

Ms. Buckley asked if there was any way of estimating to how much the forfeited funds would amount. Mr. Siller explained it was difficult to put an actual dollar figure on it, but he would be advocating for the enforcement division to strive for somewhere close to $1 million a year being those businesses were very lucrative. He stated they were not talking about one or two people on the streets, but an established organization that had an elaborate computer system and telephone network covering the United States. Any building, piece of property, proceeds, or properties purchased from those proceeds should go to the state.

Ms. Buckley explained another method of distribution done through statute was to apply a share towards law enforcement and a share, for example, to a victims of crime fund. She noted a current issue was whether the legislature was doing enough to help problem gamblers. Ms. Buckley suggested that topic might be worthy of discussion if there was going to be a new revenue source.

Mr. Siller commented he would be interested in the percentage that would go to law enforcement but thought problem gamblers would be an excellent suggestion.

Mr. Carpenter expressed his approval at changing the due date of the excise tax.

Chairman Anderson stated his intent to take action on the bill and therefore, desired to hear the committee’s suggestions in regard to a proposed percentage for sharing the forfeited funds.

The committee engaged in a discussion about the use of the forfeited funds.

Mr. Neilander pointed out the gaming control board had adopted a regulation which addressed, in part, the problem gambling issue. He informed the committee a subcommittee had been created, and it was currently conducting a survey which would determine the prevalence of problem gambling in Nevada. Mr. Neilander suggested it might be somewhat premature to start talking about dollars for the program until the extent of the problem was determined.

Ms. Buckley suggested the committee wait for the results of the survey and then allow the gaming control board to develop a methodology to best address the needs so money would not be wasted.

Mr. Neilander and Mr. Siller agreed with that suggestion and offered to report back to the legislature on that issue.

Mr. Siller advised the committee it would be a short-lived source of funding. The gaming control board planned to be effective and therefore, the businesses would be forced to change their modes of operation. He anticipated the revenue would dry up in approximately 1½ years and at that point, the funds would be limited. He suggested an 80/20 percent split would be acceptable and effective. He based that suggestion on what he believed it would cost to bring the State Gaming Control Board’s computers and operation up to speed.

Further discussion ensued about how to proceed, particularly what percentage, if any, should be proposed.

Mr. Brower commended the industry’s efforts in regard to problem gambling and stated he did not believe it was a state issue. He advocated giving the board and the Nevada Gaming Commission all the resources they needed to do their jobs effectively. Unless there was a percentage specifically determined and suggested by those two bodies, he would vote no on the bill if it included any percentage.

Mr. Nolan suggested adding language to clarify that at least the majority of the funds recovered had to be returned to the board. That would give them flexibility if in the event they were able to provide more funds to treatment, they would not be limited to 25 percent.

Mr. Brower stated he took Mr. Neilander’s comments very seriously. He believed they should wait for the various surveys and work-in-progress to be completed before the committee tried to figure out for the State Gaming Control Board and the Nevada Gaming Commission what percentages were appropriate for their needs.

Chairman Anderson announced he would delay the vote on the motion until further clarification was obtained from the legal staff. He opened the hearing on Assembly Bill 666.

Assemblyman David Goldwater, Assembly District 10, explained the issue of pari-mutuel wagering and rebating was brought to his attention by an acquaintance who suggested the concept of the bill. He introduced John Sullivan who represented the Las Vegas Dissemination Company.

John Sullivan, Vice President and General Counsel of the Las Vegas Dissemination Company, testified in favor of A.B. 666. The bill was an attempt to temper a law passed in the 1997 Legislative Session. He stated NRS 464.075 prohibited rebates in any way, shape, or form, or incentives to customers wagering on pari-mutuel wagering at a casino. Mr. Sullivan explained it had been common marketing practice for casinos to provide incentives or rebates to "high rollers". It was done in pari-mutuel wagering as it was for many other forms of betting. He opined the players believed they could at least play to even and then the incentives or rebates would allow them to make money. "The numbers would still be large for the benefit of the house."

Continuing with his presentation, he noted the legislation was introduced in order to deal with a problem the Nevada casinos were having with racing in California. California had a law that prohibited rebates on wagering at off-track facilities for racing that occurred in California. That caused Nevada to be subject to a 9-month blackout of California racing. While the purpose of the legislation was to address the problem with California by informing them Nevada would not rebate on California wagering, it stopped the casinos from providing rebates for any racing which included Florida, New Jersey, New York, Pennsylvania, and many other jurisdictions. He further explained when the law was first enacted, some of the casinos took action to provide their players with incentives, not directly rebates though which would have violated the law. The State Gaming Control Board then took action they thought was necessary to close those loopholes. "When those loopholes were closed and there was no way to provide players with incentive wagering, they left Nevada." He drew the committee’s attention to a handout which showed the problem was not just a California problem. The amount of money that had been lost on all wagering was nearly $50 million while the loss on California wagering was approximately $11 million. Just based on last year, over $36 million of the revenue was lost from wagering in other states. The handout was attached as Exhibit K.

Mr. Sullivan concluded A.B. 666 would permit the casinos to market in those racing jurisdictions that did not care if they did it. The bill would help raise $4 to $6 million in revenue and it would still protect the original concern of NRS 464.075 which was the protection of the California issue. Rebating would not be permitted if a jurisdiction made it illegal and California was such a jurisdiction.

Ms. Buckley questioned if a rebate was given, would the industry then be able to deduct that rebate as an operating expense thereby causing tax revenue to be reduced.

Mr. Sullivan replied the industry could not do that. It was his understanding that the only thing they were allowed to subtract was their track fee. If the casino wanted to give a straight rebate to a customer, that was their own marketing program and was not something that reduced their taxes. He explained when the law was first enacted, the casinos were doing certain things the State Gaming Control Board felt gave the player an advantage against the house. They believed the customer was allowed to beat the house in other ways for the inventive or rebate. That was affecting the tax dollars.

Dennis Neilander, representing the State Gaming Control Board, clarified the bill that was enacted in 1997 was not supported or requested by the board. It was requested by the Nevada pari-mutuel association and the purpose was to lift the California black out because California had enacted a similar law that said if the state accepted rebates and did not enact a law that prohibited rebates then it could not send a signal there. That resulted in the board adopting a very extensive set of regulations which addressed rebates and several other things that had to do with pari-mutuel and sports wagering. Mr. Neilander told the committee the board had no objection to A.B. 666 with two exceptions. He suggested clarifying that the rebate provisions were absolutely not deductible. His concern was if there was not language which reflected the status of the law in the state where the race was conducted, the same situation that occurred with California might happen again. The state of origination would object because of the high volume of rebates. Mr. Neilander stated research indicated several states did not prohibit rebates but they did limit them. He suggested conceptual language to read as follows: "In those jurisdictions that allow such incentives on pari-mutuel wagers, licensees shall not provide incentives contrary to the limitations established by the jurisdiction where the race occurs." His concern would be having to amend the board’s regulation which was recently adopted. If A.B. 666 was passed, the board would ask that the person who was accepting the wager have the burden of proof to establish to the board that the jurisdiction they were accepting the wager from did allow for rebates.

Chairman Anderson asked Mr. Neilander to submit the suggested language in writing so the bill could be addressed at the next work session.

The hearing was closed on A.B. 666.

Chairman Anderson stated legal staff had clarified that the proposed amendments to A.B. 646 would be acceptable and therefore, Mr. Carpenter repeated his motion.

A roll call vote was called for.

The hearing was opened on Assembly Bill 651.

Jim Mulhall, Vice President of Government Affairs for the Nevada Resort Association, introduced the individuals who accompanied him at the witness table and who would testify in support of A.B. 651.

Steve Greathouse, Senior Vice President of Circus Circus, explained the bill focused on wide-area progressives, the industry term for machines known as Megabucks and Wheel of Fortune. Those slot machines were in multiple casinos but the play on the machines fed one big jackpot and while the machines comprised less than 10 percent of the machines in the state, they were growing at a very rapid rate. He pointed out there was one company, International Gaming Technology (IGT), that had 90 percent of the market. Referring to a pie chart, attached as Exhibit L, he noted IGT’s gaming operations revenue had grown 70 percent in the last 3 years while their machine sales had grown 30 percent. Highlighting that important trend on recurring revenue, he drew the committee’s attention to an excerpt from the annual report (see page 2 of Exhibit L). It showed their improvement had resulted primarily from the continued popularity of Wheel of Fortune and the strong play on Nevada Megabucks. "We are deeply concerned about the trend that the most creative games that are developed are only offered to casinos on a revenue sharing basis." Mr. Greathouse announced the bill was necessary because while the casinos were doing their job, investing in existing and new casinos, contributing to the growth in employment, being the dominant tax payer in the state, and marketing Nevada all over the world, the dominant company in progressives had let the gaming public and their gaming partners down.

Mr. Greathouse proceeded to give a brief review of the distribution of revenue provided by each machine. He explained 6 cents of every dollar fed into a machine was paid to IGT. IGT was then responsible for the initial jackpot, progression of the meter, providing machines to the casinos, and marketing. He noted they had another revenue stream which was that they were responsible for paying the progressive amount. As an example, when a customer won $27.5 million last November, the current value of that jackpot was in the high teens. Mr. Greathouse stated that was the liability that IGT had to that customer. The balance between the two was income for them. Six cents out of every dollar also went to the casino and it paid for the building, the people who service the game, and the taxes. He pointed out, "not only do we pay our share of the gaming tax, we also pay their share of the gaming tax." The balance or 88 percent went back to the player in machine paid jackpots. He noted contractually, IGT was not obligated to put any specific amount of money towards the progressive meter, but he had expected the majority of the money to go to the big jackpot. After he saw how the company handled the rate of progression to the meter, he was shocked and disappointed. During 1998, the majority of the money the company received went not to the jackpot, but to their own reserves and less than one-third went to the actual jackpot that was paid. Mr. Greathouse explained a key aspect of the bill was to expand the role of the regulators to ensure that in the future, anyone who operated a wide-area progressive declared in advance where the money they received would go in regard to the meter, reserves, expenses, and into their own pockets. He opined another reason for the bill was due to the fact that IGT had become a monopoly. "The free market which is what we desire, can’t beat a monopoly and that is why they come to the legislature for help." His third point was the bill would enhance competitiveness. Mr. Greathouse concluded by saying it was the right policy for the State of Nevada and he strongly supported the legislation.

Jack Godfrey, an attorney at the law firm of Shreck, Morris in Las Vegas and representing the Nevada Resort Association, summarized the key provisions of the bill as follows. In addition, he pointed out some clarifying amendments for the committee’s consideration. The amendments were attached as Exhibit M.

• Section 1: Provided that inter-casino linked systems made available to any available casino licensee must be made available to all other eligible licensees on similar terms and conditions. The purpose was to preserve and foster competition and to ensure that smaller licensees were able to have the systems on their premises.

• Section 4: Required regulations to be adopted by the State Gaming Control Board and Nevada Gaming Commission. He pointed out currently, inter-casino linked systems were regulated by the board at the administrative level only and subject to separate regulations. He opined the regulations should be formalized and codified in the form of regulations adopted by the commission with assistance from the board and input from all interested parties. Referring to Exhibit M, he drew the committee’s attention to the first suggested amendment which was to strike the words "financial practices and". That would result in the board not having to audit the financial practices of the inter-casino linked operators. Referring to the second amendment listed on Exhibit M, Mr. Godfrey explained it would clarify the gaming devices offered either on participation or on the inter-casino linked systems had to be separately available for sale or lease outside of the system or on a participation basis. The third proposed amendment would form a separate paragraph so the language would modify both subsections 3(a) and 3(b).

• Section 5: Deleted in its entirety. By deleting the proposed amendment, the status quo would be maintained and anyone with a slot route operator’s license could continue to operate inter-casino linked systems under that license. With the deletion of section 5, existing slot operators would not be required to pay an additional license fee to obtain a new license as an operator of a inter-casino linked system.

• Section 9: Addressed the responsibility of operators of inter-casino linked systems and other persons who participated in revenues of casino gaming licensees to be liable for their proportionate share of the gross revenue fees that were paid by the licensees. Mr. Godfrey stated it was a fair and equitable provision that was already in the law and it was something that he would expect anyone conducting a gaming operation in the state to do. He made reference to some clarifying language (Exhibit M) in order to eliminate any dispute in the future about the basis for determining the pro rata share of the operator of the inter-casino linked system. Everything they received would be the basis for determining their proportionate share.

• Section 12: Changed the date for the gaming commission to promulgate regulations and approve those systems from December 31, 1999, to July 1, 2000 in order to give them adequate time to review the issue and put in place the appropriate regulations and approvals.

Bill Thornton, a member of the Board of Directors of Club Cal Neva, testified in favor of A.B. 651. He explained through the years with modern technology and increased marketing, IGT had created "a family of gorillas". He remarked, "As the gorilla grows in size, the negotiating ability of the smaller casinos becomes less." Mr. Thornton requested the playing field be leveled. He also expressed support for the involvement of the gaming commission. He said he was fearful that ultimately the smaller casinos would become franchisees of whoever could successfully create and market the huge system games. Mr. Thornton opined A.B. 651 would be in the best interest of the smaller casinos, the state, and the public.

Mark Dodson, Executive Vice President of Park Place Entertainment, testified on behalf of the Nevada Resort Association. He stated the issues of A.B. 651 were very important to his company as well as the industry. Park Place Entertainment employed 21,000 people in Nevada and it was important to him to protect the livelihood of his employees in terms of profitability of the business. He said in order to maintain the integrity of the systems, regulation was necessary.

Clive Cummis, Executive Vice President for Law and Corporate Affairs and a director of Park Place Entertainment Corporation, proposed the question, "Why should government intervene?" He believed the short answer was that each time in history government had observed a dominant force in a particular segment of an industry, it stepped in and attempted to level the playing field. That allowed for a free and unfettered market which was unattainable when there was one dominant player who set the rules. Mr. Cummis suggested, "It was disingenuous for IGT to take the position that it was in favor of an open and free market when as a corporation it has had a pattern of arguing for government intervention or against government intervention depending upon its perception of its narrow corporate economic interest as opposed to the broader interest of the public." Based on earlier testimony regarding the distribution of a machine’s revenue, he believed there was a possibility the customers and the public were being "short changed". He believed A.B. 651 sought to establish a level playing field as well as protect the public.

Mr. Nolan questioned the percentage of gross revenues attained from IGT’s inter-casino linked games. Mr. Greathouse believed wide area progressive machines comprised about 5 percent of the games in Nevada, but in casinos he was familiar with, those 5 percent of the games comprised about 10 percent of slot revenue which in Nevada was $5.2 billion. He did not know exactly what the statistics were in regard to gross revenues.

Assemblyman Manendo asked if their share of the gaming tax was figured into the lease agreement. Mr. Greathouse reiterated it was difficult to negotiate with a company who had a 90 percent share of the market. He remarked they all signed the same agreement which transferred the tax payment to the operator. "It is take it or leave it."

Michael Hessling, Executive Vice President of the hotel San Remo in Las Vegas and a co-owner of the Burrow Inn in Beatty, offered his comments on A.B. 651. He commented there were three issues, inter-linked slot systems, revenue participation, and lease versus sale of equipment, which the industry had unanimously agreed had become problematic. He told the committee after reading an editorial in a Las Vegas newspaper about the issues in the bill, he had felt the need to respond. He wrote a letter to the editor expressing his feelings on what was portrayed as a dispute between casino operators and manufacturers. It read:

Mr. Hessling declared the issue was an economic issue which put many in the industry at risk. He acknowledged the manufacturers had developed some new and attractive products to be offered to customers, but contended the new equipment did not increase customer spending. He opined they simply shifted the dollars around and changed the pattern of customers’ gambling. "With a fairly stable or even decreasing expenditure per visitor, operators are faced with stagnant revenue levels yet dramatically increasing per cost structures due to payments made to our partners, the suppliers of the equipment." He commented instead of buying a machine for $8,000 or $10,000 which might last anywhere from 3 to 8 years, he was paying suppliers $20,000 and up for each machine each and every year. He expressed concern that trend would escalate in the future and that any product "worth its salt" would never be available for sale. Mr. Hessling believed the bill provided some limited relief but pondered if it went far enough. He noted it subjected the manufacturers to some of the same regulatory oversight to which he was subjected and it would also help ensure that everyone who received revenue from the gaming floor paid their share of the taxes needed to operate the state. However, he concluded, if current conditions in the market place continued, he believed the small and medium-sized properties would continue to suffer potentially irreparable damage.

Mr. Gustavson asked who paid for the maintenance of the machines. Mr. Greathouse replied typically, it was the casino’s responsibilities to keep the games on the floor. There were some instances where the manufacturer was called to solve the problem.

John Sande, Legislative Representative for Harrah’s Entertainment, stated Harrah’s would support the legislation subject to an amendment, which was attached as Exhibit N. He pointed out section 1 of the bill indicated an operator of an inter-casino linked system that made the system available to any nonrestricted licensee must also make it available to all other eligible nonrestricted licensees on similar terms and conditions. His concern was with the words "similar terms and conditions". Under existing law, there could be different terms and conditions including prices based upon the amount of volume and credit considerations. Mr. Sande explained the proposed amendment was to make sure that existing law was not changed.

Chairman Anderson drew attention to a letter of opposition to A.B. 651 his office had received. The letter was attached as Exhibit O. He also pointed out a packet of letters and petitions, expressing opposition, which were attached as Exhibit P.

Sam McMullen, President of the McMullen Strategic Group, came forward to testify in opposition to A.B. 651. Recognizing previous testimony seemed to be directed at one company and one type of offering, he noted the bill also affected participation games and the outright sale or transfer of those games by some sort of lease mechanism based on participation. Mr. McMullen commented most of the bill was unnecessary and could be accomplished by regulation. Referring to the concerns about revenue, he stated it was a known fact that the slot side of the business had been increasing in revenue and had become a major supply of revenue in terms of the whole state. He urged the committee to consider the issue carefully, particularly in terms of the chilling effect on innovation, creativity, and the things that were providing the revenue.

Stan Fulton, Chairman of Anchor Gaming, explained his history in the gaming industry. He said in 1976, Bally Manufacturing was considered the "gorilla". He further stated it did not take legislation then, and it did not take legislation now. Mr. Fulton offered the manufacturers event games and then the people voted with their money. No casino had to do business with him. He commented his business motto was simple, if the machine Anchor Gaming invented was a failure, they lost but if the machine they invented was a success, they wanted a small piece of the success. He noted Anchor Gaming took all the risk concerning the machine. Responding to a comment made earlier that IGT was so dominant that they had no competition, he replied that was a lie. The fastest growing segment of the slot machine was the multi-coin, multi-line video machine and there were others that were outselling IGT. In regard to IGT dictating what casinos must pay for a machine, he responded that also was a lie. Mr. Fulton said the machine on the casino floor was the machine that made the money. "If you build a great machine you will be rewarded because you can charge for your excellence. Excellence should be rewarded." He expressed great faith in the free enterprise system. He believed the system had worked in the past and it was working now. Nobody had to do business with him that did not want to. In conclusion, Mr. Fulton pointed out the Nevada gaming law was quite clear about who was responsible for paying the gaming taxes. Everybody knew that when the contracts were negotiated and signed and he felt it completely inappropriate for the Nevada Resort Association come to the legislature and ask for contracts to be renegotiated.

Kevin Verner testified in favor of A.B. 651 as the Chief Operating Officer and Executive Vice President of WMS Industries, a parent corporation of WMS Gaming. WMS was licensed by the State of Nevada as a manufacturer and supplier of gaming devices, as well as a slot route operator. He pointed out although WMS did not offer systems games similar to those covered in a great portion of the bill, it did offer games and participation. He noted his most recent success was a game called Monopoly. They offered it on a participation basis because they could. If it was not a moneymaker for the casinos, they would not take it. Mr. Verner proceeded to review his concerns with the bill. He stated first of all, any attempt to manipulate or alter pricing terms, availability, or conditions for providing products was inherently anti-competitive. He commented one of the purported purposes of the bill was to deal with what had been referred to as a monopoly by one of our competitors. He said the bill did not accomplish that goal. In fact, he believed it did just the opposite. "Any attempt to alter the otherwise market driven economics of competition only serves to reduce the incentive for new entrants like ourselves into the market and further solidify the dominant position of the key competitor." In addition to being anticompetitive, Mr. Verner advised the bill was just unfair, if not punitive. As the manufacturer, he shouldered the entire financial risk for developing the products with no assurance that it would be a hit. With respect to the Monopoly game, he explained WMS relied heavily on the laws that were in effect for many years to develop our pricing model. He said changing the law now would create significant economic harm to WMS and his business partners.

Mr. Verner noted while he had only been in the business for 2 years, he quickly learned, "It is one of the most quantifiable businesses on the planet." At the end of every day, the customers knew exactly how his machines did relative to his competitors and they used that information to make purchase decisions. It created competition as well as better products.

Ms. Buckley asked why it would be unreasonable to require the commission to look at things such as disclosure of the rate of progression and approval of change in the rate of progression. Mr. Fulton deferred to the people from IGT.

Morris Goldstein, Chief Executive Officer of Alliance/Bally Gaming, said it was awkward for him to be opposing the recommendation of his customers. He did not believe it was good legislation for his company, the industry or for Nevada. He noted Bally’s stock dropped 40 percent with the mere innuendo of A.B. 651, which was the money it would use to invest in building new games for its customers. Mr. Goldstein was in a quandary about the bill. He had tried to work out his concerns behind the scenes with his customers but had not been successful. He reiterated the free enterprise system was doing its job of creating good products and delivering them to Nevada. He stated "attempts to hamstring economic forces will only lock Nevada in the past and prevent it from the forefront." Mr. Goldstein further stated there was no need for additional legislation. Legislation that constricted the ability of manufacturers and casinos to adapt to changing conditions by mutual consent would only make things worse. The results of discouraging innovation and creating artificial barriers in order to enter the industry would be less competition and fewer manufacturers offering fewer and less exciting games. In regard to the proposals of limiting the prices that could be charged for his products, he expressed regret and dislike. Mr. Goldstein pointed out casino operators had a choice; they could buy gaming machines outright that performed at house average or they could pay a premium price for gaming machines that provided premium performance at two or more times their house average. That was their choice.

David Thompson, Chairman and Chief Executive Officer of Mikohn Gaming, testified in opposition to A.B. 651. He echoed previous testimony by pointing out the bill not only affected IGT, but all manufacturers. He told the committee there were 13 publicly traded companies that were manufacturers in Nevada and in 1998, 3 of them made money. "It is a very competitive business and to think that our customers who have 21,000 employees can’t deal effectively with a small company like ours is ludicrous." Mr. Thompson reiterated the risk of manufacturers was tremendous. "If I came before the committee asking for a subsidy for all of our failures, I don’t think I’d have a very willing ear listening to my pleas." He concluded his testimony by commenting, "When the elephants fight, the ants get trampled."

Ms. Leslie noted in earlier testimony, it was stated that 90 percent of the market share was cornered by IGT and yet testimony was being received by four smaller manufacturers. She asked if Mr. Thompson anticipated the smaller manufacturers acquiring any of that market share over the next 5 years. Mr. Thompson replied, to answer her question, she would have to define to what market she was referring because the bill affected more than wide area products. The bill also affected profit sharing in regard to stand-alone games and carousels of games. He commented the reference to 90 percent applied to the wide area portion of the business not the other participating games. He opined the market was somewhat bigger than that.

Mr. Nolan asked for examples where the manufacturers would be paying the gaming tax and examples of when the casinos would pay the gaming tax. Mr. Goldstein replied generally, the contracts provided for their share to be distributed after the taxes had been paid. That paid their share of the taxes and made it easier for the board because they only received one check for both the manufacturer’s and casinos’ shares.

Robert Aronson, General Manager of the Tahoe Biltmore in Crystal Bay, Nevada, remarked he had been in the Nevada gaming industry for 21 years. In the last few years, the wide area progressive games had a dramatic effect not only on his revenues but on his bottom line. He announced those games had increased customer play in the casino. As a manager, it was his responsibility to manage and monitor the mix of machines on the floor and what the net result to the casino was. Currently, 12 to 15 percent of his slot floor was devoted to those games. If the games were not successful and were not contributing to his bottom line, they would be removed. Mr. Aronson explained the slot manufactures came to him and offered various deals on the system. After an evaluation, the casino would make the decision whether or not to enter the deal. He repeated, "It is totally our choice." The ability to offer those games to the public allowed the Tahoe Biltmore to remain competitive with some of the "bigger brothers". As an aside, Mr. Aronson remarked prior to the recent $27 million Megabucks jackpot, the jackpot hit was over $8 million dollars and it was hit at the Tahoe Biltmore. It provided an opportunity for the Tahoe Biltmore to get some good publicity and was something it could not have offered on its own. He concluded, "It is working for us and if it ain’t broke, don’t fix it."

Chairman Anderson remarked it had been portrayed 6 percent went to the house and 6 percent went to the operator. He asked if that had been Mr. Aronson’s experience. Mr. Aronson replied those percentages were based on "coin in" and had nothing to do with revenue because a dollar could go through a machine many times. He explained on the newer games, they retained about two-thirds of the revenue from the machine and about one-third was paid to whomever they had the deal with. Some of the money they paid out went to provide the jackpot, some went to licensing fees and some to the profit of the company. Illustrating that point, he noted the average machine on the floor won between $50 and $60 dollars a day. In season, Wheel of Fortune was a winner of about $400 a day. He concluded that was why he devoted such a big percentage to those games.

Michelle Chatigny, Director of Compliance for International Gaming Technology, made a few brief comments about the existing regulatory oversight. Contrary to previous testimony, she said manufacturers and distributors were highly regulated in all areas of their business. To be licensed as a manufacturer and distributor, an applicant was subject to the same thorough, in-depth investigation as a casino licensee and the same standards were applied when considering licensure. Unlike casino operators which could be licensed in 1 to 5 jurisdictions, a major manufacturer could hold upwards of 100 licenses. She stated that meant a manufacturer’s business profitability and suitability as a licensee was being reviewed on a continual basis. In spite of that rigorous scrutiny, the manufacturer must also obtain either a specific license to operate an inter-casino linked system or license as an operator of a slot machine route. Ms. Chatigny opined the bill would force the State Gaming Control Board and the Nevada Gaming Commission to adopt regulations specific to inter-casino linked systems and she believed it implied the board and the commission had not been doing an adequate job of regulating which was false. She relayed to the committee the various standards and regulations which currently were followed. She pointed out in the past 4 years in which existing law had been in effect regarding inter-casino linked systems, the board and the commission had not seen a need to adopt additional regulations even though they had the discretion and authority to do so. She further added the bill created an additional burden for state agencies and licensees by forcing adoption of unnecessary regulation without any justification or identifiable benefit. Ms. Chatigny concluded by stating, "There had not been any indication of impropriety in the operation of inter-casino linked systems ever."

Bill Hamm, an economic consultant specializing in applying economic principles to public policy issues, testified in opposition to A.B. 651. He explained in reviewing the bill, he focused on two issues. The first was did the economic characteristics of the progressive game market warrant limitations on the freedom of casinos and game operators to enter into commercial agreements in order to protect the public interest. Secondly, he looked at the economic consequences of the bill. Addressing the first issue, he noted it was something economists had been studying for 225 years. It had been concluded that except in very well identified situations, the market could provide more benefit to the public, suppliers, and buyers than could a regulatory mechanism for setting prices or limiting the flexibility of parties to a commercial agreement. An example where regulation had been found by economists to promote public welfare and increased benefits was in the case of natural monopolies where only one firm could efficiently supply a good or a service to the public. He stated electric power distribution was a case in point. Mr. Hamm declared the progressive or participation game market did not qualify as a natural monopoly. Competitors existed, new competitors could enter the market at any time, and the competition was fierce. Illustrating his point, he noted Bally had a commanding market share but somebody else came up with better games. Referring to previous testimony, he noted if a firm obtained a dominant position in an industry, government intervention would only be penalizing success and competition. He reiterated it was, "simply not true to say that regulation is justified when one firm has become successful and achieved a dominant position in the market place." Another justification for regulation was when there were spillover benefits. Mr. Hamm opined there were none. Government regulation was also sometimes justified when there were unsophisticated buyers who lacked the information needed to act in their self-interest. That also was not the case currently. There were highly sophisticated parties on both sides of the table that were well equipped to promote their own economic interest. Mr. Hamm concluded, "In short, as economists look at markets, there is nothing in this market that would warrant the kind of regulation that is being proposed here."

Chairman Anderson announced to the panel that their time to testify had expired. He could allow time for one more witness to testify.

John Yeatts, a private citizen testifying from Las Vegas, testified in opposition to A.B. 651. He told the committee IGT took the risk in bringing Megabucks to market and now they should have a proprietary right to a percentage of the profit. The casinos did their business as they saw fit, as did the manufacturers. Echoing previous testimony, Mr. Yeatts said if the industry did not like the product, they could pass on it. IGT had 75 percent of the slot market because they had built a high quality product and put it on the market at a fair price. "The industry has won billions of dollars using IGT equipment and now they have the audacity to team up to ruin a company just because they are earning some profit from their products."

In response to a question by Chairman Anderson, Mr. Yeatts replied he was not employed by either side of the industry.

Chairman Anderson entered into the record a letter he received from C. H. McCrea, Sr., an attorney, in opposition to the bill. The letter was distributed to the committee and attached as Exhibit Q.

The meeting was adjourned at 11:58 a.m.

RESPECTFULLY SUBMITTED:

Jennifer Carnahan,

Committee Secretary

APPROVED BY:

Assemblyman Bernie Anderson, Chairman

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