The joint meeting of Senate Committee on Judiciary and Assembly Committee on Judiciary was called to order by Chairman Mark A. James, at 9:05 a.m., on Friday, February 19, 1999, in Room 1214 of the Legislative Building, Carson City, Nevada. The meeting was video conferenced to the Grant Sawyer Office Building, Room 4401, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

SENATE COMMITTEE MEMBERS PRESENT:

Senator Mark A. James, Chairman

Senator Jon C. Porter, Vice Chairman

Senator Mike McGinness

Senator Maurice Washington

Senator Dina Titus

Senator Valerie Wiener

Senator Terry Care

Mr. Bernard (Bernie) Anderson, Chairman

Mr. Mark A. Manendo, Vice Chairman

Ms. Barbara Buckley

Mr. Jerry Claborn

Mr. Tom Collins

Mrs. Ellen Marie Koivisto

Ms. Sheila Leslie

Ms. Kathryn (Kathy) A. McClain

Ms. Genie Ohrenshcall

Mrs. Sharron E. Angle

Mr. Greg Brower

Mr. John C. Carpenter

Mr. Donald (Don) Gustavson

Mr. Dennis Nolan

STAFF MEMBERS PRESENT:

Janice McClure, Committee Secretary

OTHERS PRESENT:

James F. Mulhall Jr., Lobbyist, Nevada Resort Association

Steve Comer, Partner in Charge, Arthur Andersen, LLP

Senate Chairman James stated this joint committee meeting was being held to consider gaming issues. The future of Nevada is going to be influenced in major respects by the viability and development of its gaming and entertainment industry. Gaming’s economic impact on Nevada cannot be underestimated. He pointed out directly or indirectly gaming generates the vast majority of the taxes that fund Nevada’s government and its vital services. The gaming industry was established in this Legislature in 1931 and is the sole reason Nevadans do not pay income taxes, corporate income taxes, or a host of other taxes paid by citizens of other states. Senate Chairman James continued nearly one-third of Nevadans are employed in gaming industry jobs or services that thrive on the gaming industry. However, the gaming industry in 1999 is in many ways an industry under siege. Competition in 48 states from Native American tribes and the portent of federal intervention all threaten the long-term viability of Nevada’s revenues.

Senate Chairman James furthered that in large measure these challenges have been and will be met by the resourcefulness and innovation of gaming’s own entrepreneurs at all levels. At the same time though Nevada’s gaming industry is unlike any other industry, inextricably linked to the state government that created it, freed it from corruption and for now, at least, is its sole and sovereign regulator. Senate Chairman James pointed out that government is this Legislature. As legislators, Senate Chairman James stated they have the ultimate responsibility to assure both that gaming control is strong and that Nevada’s gaming industry is governed by a fair and reasonable legal structure allowing for proper exercise of business judgment. The legislators also have the obligation to prevent the spread of gaming from damaging neighborhood quality of life.

Senate Chairman James continued that representatives of the Nevada Gaming Commission and the State Gaming Control Board were invited to this joint committee on judiciary meeting to present a full report on the status of gaming control and what may be necessary in the way of legislation in 1999 to allow the gaming industry to maintain its preeminent position in the world. Among other aspects, Senate Chairman James stated he believed the joint committee on judiciary would be especially interested in the regulators’ responses to suggestions that the evolution of demands on the Nevada Gaming Commission has created a need for reallocation of resources to enable the Nevada Gaming Commission to function with full efficiency and effectiveness.

Senate Chairman James stated he had also requested that the regulators provide information regarding an important matter the Legislature addressed in their 1997 session. Two years ago the Legislature was able to pass S.B. 208 of the Sixty-ninth Session and control the expansion of neighborhood casinos in Clark County.

Senate Chairman James said for various reasons the Legislature did not deal in that bill with the unrestricted spread of slot machines into neighborhood retail establishments and that issue had to be postponed to a later time. Senate Chairman James continued with reference to what has been termed as retail gaming by the National Gambling Impact Study Commission, and the negative comments on it by the National Gambling Impact Study Commission Chair, K. Cole James, in Las Vegas in January. In light of these comments, it is important that the Legislature review the issue of neighborhood retail casinos and make an informed policy decision regarding the further spread of retail gaming. Senate Chairman James furthered that the joint committee on judiciary had requested representatives of the Nevada Resort Association to provide the joint committee with a status report on the gaming and entertainment industry in Nevada, including the problems that it faces, its prospects for the future, and identification of any 1999 legislation it may consider necessary. Senate Chairman James then asked Assembly Chairman Anderson if he would like to make opening comments.

Assembly Chairman Anderson stated part of the regular pre-session orientation for the joint committee on judiciary should be a review of the gaming industry. Assembly Chairman Anderson said he hoped this would be the first of what would come to be a semiannual event in preparation for the legislative process. He furthered that the committees on judiciary have the oversight responsibility of state laws governing Nevada’s gaming industry. The committees should be fully informed of the needs of this vital industry in Nevada and the problems it faces, both from the regulators and from other sources. Assembly Chairman Anderson stated the Legislature can only know what is really happening by listening to the people who participate in the gaming industry.

Don Williams, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, stated as committee staff he could not take a position on any of the issues before the joint committee on judiciary today. He stated Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, prepared the document Gaming in Nevada (Exhibit C), which is a briefing on gaming and gaming issues. It contains information on the Nevada Revised Statutes (NRS) chapters concerning gaming. Mr. Williams continued Exhibit C describes the regulatory agencies, addresses recent and proposed legislation, and contains a glossary of gaming terms at the back of the document. Mr. Williams stated if the joint committee on judiciary members need clarification of anything in the document or need further information, the Legislative Counsel Bureau, Research Division, will provide it to them.

Bill Curran, Chairman, Nevada Gaming Commission, testifying from Las Vegas, gave an overview of legislative issues significant to the gaming industry. He stated there is a two-tiered system of gaming regulation in Nevada with the Nevada Gaming Commission composed of five lay members. He furthered by statute, no more than three can be members of one political party and the Nevada Gaming Commission members are supposed to come from different kinds of disciplines and careers. The Nevada Gaming Commission members are directed not to be involved in the political process and do not involve themselves in any way in the electoral process. Mr. Curran stated the Nevada Gaming Commission works in conjunction with the State Gaming Control Board, but does not direct the activities of the State Gaming Control Board. The State Gaming Control Board sets its own agenda, does its own activities, and does not report to the Nevada Gaming Commission. Mr. Curran continued the gaming commission members, however, are the ones vested with decision-making authority. The Nevada Gaming Commission members act on input received from the gaming control board. The State Gaming Control Board consists of three members, also appointed by the Governor. The State Gaming Control Board members are required to have backgrounds in law enforcement, general administration and accounting. Those three members oversee the State Gaming Control Board and its 430 employees. The Nevada Gaming Commission exclusively sets the policies in the adoption of regulations.

Mr. Curran, in speaking only on behalf of the Nevada Gaming Commission, stated that some important issues are the lack of resources and no clerical staff. The Nevada Gaming Commission has no travel or training budget and has no staff to provide simple clerical functions. He furthered most members of the gaming commission have not even seen other major gaming jurisdictions. If they have, it has been more than 10 or 20 years ago. Mr. Curran said he attempts to see as many gaming jurisdictions as possible in his travels. Although the cost of attending national and international gaming conferences is high, Mr. Curran stated he believes the cost of not attending is also high. He suggested that $1,000 to $2,000 per biennium would go a long way towards at least allowing the Nevada Gaming Commission members to register for conferences. Mr. Curran stated a statute establishes the Nevada Gaming Commission members’ compensation which does not get adjusted every biennium as with other state employees. Mr. Curran further stated he believes participation in the Public Employees Retirement System would be a valuable opportunity. The Nevada Gaming Commission now has some people with a long history of public service to the state. Two Nevada Gaming Commission members have substantial service in the Legislature.

Mr. Curran reported there have been almost 2 years of study, input and public hearings on the issue of neighborhood gaming. While a large number of states have seen fit to adopt casino gaming, very few have felt that neighborhood gaming was something that was desirable from their state’s standpoint. Nevada has a long history of gaming and Mr. Curran stated he could not imagine anything that would undo that history. He said he does not believe anybody on the Nevada Gaming Commission feels it would be provident to do anything to pull the rug out from under people whose livelihood is based on what has already been permitted. Mr. Curran said he believes that by April final action will be taken on some of the things that are now under consideration, which includes limiting advertising and limiting slot tournaments in grocery and convenience stores. Mr. Curran furthered while gaming is supposed to be incidental to the primary business at a restricted location, the reality is oftentimes to the contrary. If the activity is viewed on the basis of revenue, it is the gaming that justifies the business and pays the bills of the business. Mr. Curran stated the Nevada Gaming Commission is not going to extend approval of slot machines to any area beyond the traditional. He continued while gaming would not be appropriate in a fast food location, some McDonald’s, which are located inside convenience stores, have slot machines. Mr. Curran stated the Nevada Gaming Commission is considering a requirement of alcoves for slot machines in newly constructed buildings where a large number of minors are present.

Senate Chairman James asked Mr. Curran if he had a suggestion for the Legislature to address defining a limit to the spread of retail gaming. Mr. Curran replied he suspected the Legislature would find it every bit as difficult as the Nevada Gaming Commission has found in trying to establish standards that can clearly be applied. Mr. Curran further stated the gaming commission is reaching towards a consensus with the industry. He said he believes the Nevada Gaming Commission has finally come to a point where most everybody is going to be happy and, while modest, will be meaningful and will be accomplished.

Senator Porter asked Mr. Curran with regard to his earlier testimony regarding expenses and costs, and in looking for some additional benefits, if he had approached the Legislature for additional funding, if he had a bill draft request, and how he planned on handling those requests.

Mr. Curran responded he believed Sue Wagner and Brian Sandoval had been working with the money committees in that regard. He stated their requests are very modest in recognizing the financial situation of Nevada, but as a long-term proposition it is very vital to the continued viability of the state.

Dennis K. Neilander, Chief, Corporate Securities Division, State Gaming Control Board, addressed the issue of growth in the gaming industry with reference to Tables 1 through 4 (Exhibit D) regarding restricted and nonrestricted licenses. Table 1 addressed the growth in the number of licenses in effect.

Assembly Chairman Anderson requested Mr. Neilander to delineate the differences between restricted and nonrestricted for the newer committee members.

Mr. Neilander stated the Legislature has long recognized the difference between restricted locations and nonrestricted locations and the licensing that attaches to each. The restricted locations are by definition 15 or fewer slot machines only. No table games are allowed in a restricted location. The nonrestricted location is by definition more than 15 slot machines and/or additional games which are not limited to table games. Mr. Neilander stated that distinction has been recognized almost from the beginning of the Nevada Gaming Control Act. He furthered the regulations adopted by the commission do address restricted and nonrestricted locations somewhat differently.

Mr. Neilander went on to address Table 2 (Exhibit D) which delineates the number of machines and Table 3 (Exhibit D) which addressed the tax structure for restricted versus nonrestricted locations. Mr. Neilander continued restricted locations are not taxed on a percentage basis. He said there are a series of regulations which escalate depending on the amount of revenue generated by a particular operation.

Senate Chairman James asked Mr. Neilander the cost associated with operating a slot machine in a nonrestricted location versus a restricted location.

Mr. Neilander replied the costs in a restricted location are somewhat less because there is not the audit ability and other internal controls that exist in a nonrestricted operation. He did not have an exact dollar breakdown for Senate Chairman James, but assured the costs are somewhat in a restricted environment. Mr. Neilander furthered because gross revenue is not calculated on a percentage basis, there is no need to track the revenue per machine. A device inspection program is in place on the restricted side wherein on a periodic basis the computer chips in the restricted machines are inspected to make sure the random number generators are good.

Senate Chairman James asked Mr. Neilander if there is a difference in the return to gaming patrons between machines in restricted locations and machines in nonrestricted locations.

Mr. Neilander referred to Commission Regulation 14.040 which establishes a minimum threshold of 75-percent payout. He explained it is up to the marketplace to decide where above 75 percent the payout is going to be. Generally, payouts are in the range of 90 to 95 percent. Mr. Neilander stated the difference between restricted and nonrestricted payout is only about one-half percentage point in terms of payout.

Assembly Chairman Anderson asked Mr. Neilander with regard to Table 3 (Exhibit D), if a restricted location would also be subject to city and county taxes. Mr. Neilander responded a restricted location would be subject to city and county taxes and the subject taxes vary from county to county.

Assembly Chairman Anderson asked if Mr. Neilander had the statistical information on the variance of taxes required. Mr. Neilander replied he did not have the statistical information with him, but could certainly get that for Assembly Chairman Anderson at a later date.

Assembly Chairman Anderson stated he was of the opinion gaming is treated in Nevada as just another business that happens to be the primary generator of tax dollars. Mr. Neilander replied gaming is just another business, but is very strictly regulated in comparison to other businesses.

Senator Washington asked Mr. Neilander with regard to the fees collected, referenced in Table 3 (Exhibit D), if fees are collected by the federal government also. Mr. Neilander replied the federal government is not involved in any respect regarding gaming in Nevada. However, if a licensee is a corporation, the income that corporation generates is subject to federal taxation at the corporate level, but is not tied directly to the slot machines. Mr. Neilander further explained the licensee has the responsibility of complying with the federal law which is not specific to gaming at this time.

Mr. Neilander continued with reference to Table 4 (Exhibit D) which is a listing of the kinds of locations where restricted devices are currently operating.

Senator Washington asked Mr. Neilander with regard to Table 4 of Exhibit D, referring to Bill Draft Request (BDR) 15-1267 which establishes standards for placement of slot machines in grocery stores, if Mr. Neilander would define supermarket and grocery stores, drug stores and general merchandising stores as one category under the regulatory practices.

Mr. Neilander replied the reason those stores are broken out in Table 4 (Exhibit D) is because of the coding system used in the computer. He explained when an application comes through it is categorized and in some cases drug stores and supermarkets would be considered the same.

Senator Washington asked if the bill was to pass, if supermarket and grocery store along with drugstores would be categorized as one.

Mr. Neilander replied one of the things looked at in the licensing process is if the applicant’s location complies with the local zoning requirements and the local restrictions. In the case of a drug store there is a 10,000 square foot minimum level that has been established in some localities.

Mrs. Angle asked Mr. Neilander to define the classification "other." Mr. Neilander replied the classification "other" is something that does not fit into any of the other categories listed in Table 4 of Exhibit D. Mr. Neilander gave examples of there being some slot machines at the Ponderosa Ranch at one time and an antique machine which was in a car dealership in Pahrump.

Senate Chairman James asked Mr. Neilander to briefly comment on Gaming Commissioner Brian Sandoval’s written testimony (Exhibit E).

Mr. Neilander stated, with regard to Mr. Sandoval’s testimony, gaming on Native American lands in California essentially right now is status quo because California Proposition 5 has been challenged. He continued the Supreme Court in California has declared that California Proposition 5 is not effective until the litigation has been resolved. Mr. Neilander furthered there are several lawsuits that have advanced to the Ninth Circuit Court of Appeals declaring certain kinds of gaming on tribal lands is in violation of the Indian Gaming Regulatory Act. He said a stay had been issued against enforcing an order to remove those slot machines. Mr. Neilander said he believes there are approximately 15,000 slot machines operating in California that were in operation prior to the passage of California Proposition 5 and continue to be operated. Mr. Neilander stated Mr. Sandoval’s testimony expands upon this brief summary.

James F. Mulhall Jr., Lobbyist, Nevada Resort Association, stated he planned to show a video to the joint committee on judiciary that was shown to the National Gaming Impact Study Commission, but because of the time constraints of this meeting in the alternative he will make it available to those committee members who want to view it. The video was used to outline the gaming industry and its history in Nevada.

Mike Sloan, Chairman, Nevada Resort Association, Vice President, Circus Circus Enterprises, acknowledged the significant role the regulators in Nevada have played in the success the gaming industry has enjoyed over the past few years. He declared the actions of this Legislature and the regulatory system which was created have been strengthened through the years. Nevada is unparalleled today in world gaming both from the point of view of its success and its integrity in terms of the regulatory process. Mr. Sloan stated gaming is the principle economic contributor to Nevada’s economy. He furthered the rate of growth of gaming revenues and taxes has dropped significantly in recent years and this has led to a good deal of speculation as to the overall economic well being of Nevada’s gaming industry.

Mr. Sloan highlighted some of the economic statistics and information about Nevada’s gaming industry by reviewing some of the charts in Nevada Resort Association’s (NRA) handout entitled "Presentation to the Nevada Senate and Assembly Judiciary Committees" (Exhibit F. Original is on file in the Research Library.). He pointed out the NRA’s contribution is not limited only to state revenues, but it also makes a significant contribution at the county level. As an industry, gaming makes a significant contribution at the state, federal and local levels throughout the United States. He furthered there is no gaming revenue in California, but 48 percent of its general fund is funded by corporate and personal income tax. Mr. Sloan pointed out Nevada is one of three states which has the luxury of no personal income tax and no business tax on receipts. He continued the special relationship the Nevada Legislature created years ago with the gaming industry has created a unique framework for the people who live here to enjoy a level of prosperity free from taxation that is unknown anywhere else in the United States.

Mr. Sloan said the overall contribution of gaming to the economic base of Nevada is dramatic. A number of years ago the Legislature enacted the business tax, which is based on the number of employees, and since the gaming industry is the biggest employer in the state it pays the bulk of Nevada’s business tax. Mr. Sloan furthered 55 percent of Nevada’s taxes come from gaming-related activities, and the health of gaming industry income is important to all Nevadans in preserving Nevada’s unique tax structure. He continued the only admission tax left in Nevada is the casino entertainment tax. Notwithstanding the economic contribution, only 22 percent of the workforce is directly involved in gaming. He also stated there is a wide range of business activities that have been able to establish themselves and flourish in Nevada because of the tax base created by gaming, yet the overall employment picture is not such that gaming alone is the predominant group of employment.

Assembly Chairman Anderson inquired of the 22 percent of people directly involved in the gaming industry, if that percentage would include those people who are involved in other parts of the hotel industry.

Mr. Sloan replied that percentage includes hotel employees, but it does not include ancillary people; i.e., food suppliers and the like. Mr. Sloan furthered contributions of the gaming industry are not limited solely to taxes and employment, but also include significant private and charitable contributions. He said the role of the gaming industry is still central to the economic welfare of Nevada. However, Nevada is facing some unparalleled challenges. Less than a decade ago the nation had gaming in two states, New Jersey and Nevada. Today, Nevada is surrounded on all sides by gaming. Mr. Sloan pointed out every state but two has some form of gaming and the expansion of gaming in the west, particularly on Native American lands, is such that every state but Utah has some form of untaxed, unregulated Indian gaming. Mr. Sloan continued, as a result Nevada is challenged in a competitive sense it has not faced previously. In response to that challenge, leaders of the gaming industry have attempted to broaden the nature of the industry in order to attract a wider and more diverse clientele for the State of Nevada for tourism.

Mr. Mulhall stated in addition to tribal gaming, Nevada is also competing with the mid-west which is gearing toward riverboat gambling.

Steve Comer, Partner in Charge, Arthur Andersen LLP, supported his overview with charts in Exhibit F on the areas of Wall Street concern and return on equity in the growth of earnings.

(The joint committee recessed for Assembly and Senate floor sessions; the joint meeting reconvened upon adjournment of both floor sessions.)

Mr. Sloan stated the gaming industry is committed to doing all it can to change in order to meet the challenges of increasing competition. He furthered there are four new hotel/casino properties on the Las Vegas market and each of these properties will add a new dimension to the tourism/gaming market in Nevada. Mr. Sloan explained these new gaming facilities will feature different types of restaurants and there will be a greater emphasis on the nongaming aspect of entertainment. He pointed out the gaming industry is aggressively pursuing marketing efforts in that two of the properties have helped fund a new airline in an effort to bring in more long-haul destinations. He furthered the gaming industry is currently underserved in long-haul capacity in Reno and Las Vegas. Mr. Sloan said although the gaming industry will not be as prosperous in the future as it has been in the past, it can still make a very good living, pay more than its fair share to Nevada and hopefully be able to maintain the type of tax regime with which Nevadans already have prospered.

Senate Chairman James asked Mr. Sloan on behalf of Senator Care to comment on the concept of a hotel room moratorium and asked Mr. Sloan if he thought the hotel rooms now in Las Vegas could be filled.

Mr. Sloan replied the estimate now is the gaming industry needs to get 6 million new visitors over the course of this year to maintain an 85 percent occupancy level in the number of rooms that are going to be in Las Vegas and that is a major increase in visitation. He pointed out from 1987 to 1997 the number of visitors grew from 22 million to 37 million and added the issue of the moratorium is not easily answered. Mr. Sloan stated there is some value to recognizing the gaming industry cannot have unlimited growth. He furthered the new major hotel/casinos have taken down old facilities in the processing of putting up new facilities. He stressed the issue has to be faced on how to better manage growth to preserve the economic climate Nevada has.

Senate Chairman James indicated another big issue before the Legislature is economic diversification. He asked Mr. Sloan to comment on the NRA’s position on the economic diversification issue.

Mr. Sloan stated he does not believe people are opposed to diversification so long as they understand the ramifications of diversifying under the present tax base. He said each new family that moves to Nevada requires more in governmental services than they pay in taxes. He furthered a study was done a number of years ago about diversifying the economy which indicated bringing other businesses to Nevada does not help unless the business pays something. Mr. Sloan pointed out the NRA is not against diversification as long as everybody pays their fair share of the cost of government.

Senate Chairman James stated Assembly Chairman Anderson had pointed out it would be beneficial to have access to the study to which Mr. Sloan referred. Mr. Sloan stated the second study has not been released, but will in the near future. In the meantime, he will provide copies of the original study. Mr. Sloan said he thinks within the next month the NRA would have the additional study which is an update of the first one addressing the cost of growth.

Senate Chairman James asked Mr. Sloan if he had a legislative proposal to address the issue of where the revenue will emanate. Mr. Sloan stated the Legislature needs to evaluate whether or not Nevada can afford to have a tax base having one principle pillar in terms of an industry and the other pillar being the sales tax which is principally linked to the gaming industry. He stated he believes there are a range of businesses in Nevada that are perfectly capable of paying something towards the cost of government. He further stated he does not believe the gaming industry solely can carry the entire burden.

Senate Chairman James pointed out to Mr. Sloan that there are gaming industry critics who would say the spread of gaming across the country is in part a result of the decision of the gaming industry itself to advocate the legalization of gaming in other jurisdictions throughout the country. Senate Chairman James stated he knows there are Nevada casino companies that have interests elsewhere and some people have said even Indian gaming was not opposed as much as it could have been in the beginning because of the prospect they might be appropriate partners for Nevada operators. He asked Mr. Sloan what he had to say to those particular criticisms and how the NRA will address it in the future.

Mr. Sloan responded for years Nevada enjoyed the monopoly they had in gaming and that the referendum organized in Atlantic City was organized and financed almost wholly by the people from Resorts International who had no Nevada presence, resulting in a jurisdiction that then came on line and made huge sums of money. He stated gaming spread not because Nevada was driving it, but because there were people selling equipment and people who were entrepreneurial who were the driving force. In response to the Indian gaming issue, Mr. Sloan stated the gaming industry spent millions of dollars in Washington, D.C., in 1988 trying to fight the Indian Gaming Regulatory Act as it was originally envisioned. He stated he believes the gaming industry has done its best to try and preserve what it has in Nevada.

Assembly Chairman Anderson asked Mr. Sloan if approximately the same percentage of the gaming industry’s gross revenue is going toward the tax burden in Nevada as in comparable states.

Mr. Sloan replied Nevada’s gross tax rate is lower than in other states. He explained the NRA is a partner in a riverboat in Illinois and the NRA’s total investment in the boat was $100 million. Mr. Sloan furthered the NRA has one of ten licenses in Illinois that has ten times the population of Nevada and the NRA’s return on its investment is probably ten-fold of what it is in Nevada. He continued unlike Nevada, Illinois does not require a full hotel be built and does not require provision of full resort amenities. However, the NRA has to pay a corporate income tax and a gaming tax in Illinois. Mr. Sloan referred to a chart on page 32 of Exhibit F which shows that while the NRA pays a lower gaming tax than many of its competitors, the properties generate substantially more of Nevada’s budget than in any other state. Mr. Sloan pointed out that gaming in all states except Nevada is either a regulated monopoly or geographically limited.

Assembly Chairman Anderson asked Mr. Sloan, with regard to page 32 in Exhibit F, if he believed the function of market saturation is a deterrent to Nevada’s ability to have a healthy gaming environment.

Mr. Sloan stated the gaming industry is certainly going to test the envelope on the market saturation issue in southern Nevada with the new capacity that is coming online. He furthered the reason there is not a tremendous amount of growth in northern Nevada gaming is that there does not appear to be a demonstrable need to put in new capacity. Mr. Sloan said he thinks it could be too late for Nevada to go back and restrict the number of gaming licenses.

Ms. Leslie asked Mr. Sloan what he believes the gaming industry’s responsibility is to provide affordable housing and child care for the casino employees.

Mr. Sloan replied those are the kinds of issues which are economically driven. For example, the Circus Circus property in Reno is a unionized property in terms of wages and benefits. He stated union employees in many instances tend to get a better range of benefits. He furthered he would not distinguish the obligation of people in the gaming industry than he would from the business community generally. Therefore, if a person owns a bank or a retail mall, Mr. Sloan stated he believes their responsibility on those issues is just as great as the gaming industry. He pointed out he was not saying these issues should not be addressed, but the gaming industry should not be singled out to address them.

Mr. Collins asked Mr. Sloan if the NRA is working beyond the committees on judiciary in addressing the tax issues and when Nevada is going to see the tax growth it needs to provide for its citizens. Mr. Sloan responded he believes necessity is going to force government to evaluate the tax structure in Nevada.

Mr. Collins stated he knows the gaming industry’s profits are in decline, yet Mr. Sloan is saying the gaming industry supports an increase in business tax and property tax of which they are obviously going to pay more.

Mr. Sloan stated the gaming industry is not going to maintain the same level of profits if paying more taxes. However, the gaming industry is committed to the notion that if there is a demonstrated need to have taxation, so long as the gaming industry is not singled out, they will certainly consider participation.

William R. Eadington, Ph.D., Professor of Economics, and Director of the Institute for the Study of Gambling and Commercial Gaming, University of Nevada, Reno, stated the proliferation of gaming throughout the world has been driven by a number of factors, including the increased social acceptance of gambling as a legitimate entertainment activity, the improved legitimacy of commercial gaming industries and corporations involving gaming, as well as an increased competence of gaming regulation in the ability to address concerns of the general public about gaming operations. Dr. Eadington pointed out the rapid spread of permitted gambling throughout the United States, especially in the last decade, poses very obvious and serious competitive implications for Nevada. He pointed out the most important aspect of this issue is non-casino slot machines absorbing a very substantial portion of overall demand for casino style gaming; non-casino slot machines being retail gaming or restricted licenses.

Dr. Eadington further stated Nevada has a number of lessons to learn from Proposition 5 in California. First, Proposition 5 has indicated Californians have a high degree of sympathy for the concept of Indian self-reliance. Second, the tribes in California, as well as throughout the United States, have become quite politically sophisticated and are willing to spend substantial amounts of money to influence the outcome of elections and the outcome of legislation. Third, Californians do not mind the idea of casino gaming on Indian lands within the State of California; and fourth, Californians are not very concerned about Nevada’s economic well-being.

Dr. Eadington explained some of the implications of these lessons are California now has a much friendlier governor and attorney general on Indian issues. Therefore, the probability of a pro-Indian gaming compact is much greater than it has been in the past. Dr. Eadington continued the machines that have been developed and tested so far within Indian casinos in California more or less suggest it is quite possible these machines are going to have a degree of consumer acceptance and general appeal that make them virtually the same as Nevada-style slot machines. Therefore, the legal and constitutional challenges of California Proposition 5 may indeed go by the wayside in spite of whatever happens within the court system.

Dr. Eadington stated he believes Proposition 5 in California has created an inherently unstable political environment for California’s public policy towards gambling. He explained a California gaming industry has the potential to generate revenues within the State of California of anywhere from $6 billion to $12 billion per year. If the State of California took the attitude of taxing its domestic gaming industry in the same manner many of the other new jurisdictions have, it could generate revenues from $1 billion to $2 billion in taxation. However, Proposition 5 suggests the tax to be generated by the State of California will be somewhere in the vicinity of zero. Therefore, there is going to be considerable pressure from other economic interests within the State of California to grab a share of California’s gambling market.

Dr. Eadington furthered this pressure is going to come from the card-club industry, the racing industry, and the amusement-location industry, which includes such things as bowling alleys, entertainment centers and arcades. He said if these entities are successful they would be candidates for placement of slot machines or gaming devices in non-casino locations. The important question is will Californians accept this additional step with regard to where they may have gambling within the State of California. Dr. Eadington pointed out this poses a very significant external threat to the State of Nevada and its gaming industry.

Dr. Eadington stated if California Proposition 5 was to survive, whether through a newly negotiated compact with California Governor Davis or in its current form, Indian gaming is going to have a significant presence in California and the other existing gaming industries in California are going to lose a significant amount of revenue.

Mr. Carpenter asked, with gaming establishments on a reservation, how much authority does the state legislature have with regard to taxation. Dr. Eadington replied the legislature does not have a tremendous amount of authority in this regard. He said the Indian Gaming Regulatory Act pointed out substantial autonomy on the part of Indian tribes in setting their own internal policies. He furthered many state legislatures and administrations were surprised at the absence of their own authority to oversee, regulate or tax gaming on Indian land.

Dr. Eadington went on to discuss emerging Internet gaming technologies. He stated Internet gambling is one of the great unknowns being dealt with in regard to the evolution of permitted commercial gaming and the demand for gambling services. He furthered approximately 300 Internet sites are presently offering gaming services. Even with substantial legislation, the enforcement of anti-Internet gambling law is going to be tricky at best as it gets into privacy issues and is going to be very difficult to ferret out. Dr. Eadington continued the United States is likely to run into conflict with countries that have authorized Internet gambling under a fairly legitimate regime. He pointed out even if Internet gaming is widespread, available and legal, there is not a good sense of how big that demand is going to be and how much it is going to cannibalize demand for resort-style casino gaming such as Nevada offers.

In summary, Dr. Eadington stated the gaming industry dominates the economics of Nevada. He furthered a greater emphasis is emerging on conventions, outdoor recreational activities, live entertainment and on other destination-resort activities that diversify the visitor experience. Dr. Eadington pointed out even though economic diversification is desirable, it does not provide growth in the tax base.

Senator Porter asked Dr. Eadington to go into more detail about gaming-industry cooperation for those entities not necessarily on the Las Vegas Strip.

Dr. Eadington said the Las Vegas Strip’s challenges and issues are somewhat different from downtown Las Vegas, Laughlin, Reno or Tahoe. He said the gaming industry has been evolving more and more toward the corporate industry and pointed out cooperation has not always been high in the gaming industry.

Assembly Chairman Anderson asked Dr. Eadington about the inability of various states to regulate the development of Native American gaming and if Nevada gaming regulations would apply in any way to Native American properties if they were to open up such a casino in this state.

Dr. Eadington replied the issue of Indian casinos in Nevada is not an issue of tremendous importance for the gaming and tourism industry in Nevada because the Indians would have to compete against a well-established industry as it stands. He furthered nonetheless, Nevada has the ability to regulate Indian gaming very well because of the state’s longstanding expertise.

Assembly Chairman Anderson stated in prior legislative sessions there has been concern about out-of-state Internet gaming because of the race-book operations in Nevada which rely heavily on information from out-of-state tracks and other sporting events to the gaming industry. He inquired of Dr. Eadington if Nevada is going to be able to regulate Internet gaming activities.

Dr. Eadington commented on the position taken by regulators in Australia and New Zealand on this issue. These regulators have taken the position the major problems of the existing Internet gaming industry are the lack of credibility and the integrity of the game. There is the potential for dishonesty or nonpayment for winners. Dr. Eadington continued under a regulated regime, a confident regulatory body can oversee licensed operators and provide all the guarantees in much the same way the Nevada regulatory structure provides those guarantees for Nevada customers. He pointed out the difficulty he sees with prohibiting Internet gaming is that it is going be very difficult because of the obvious absence of borders with the Internet and the ability of individuals to call up whatever sites they wish, enter credit card numbers, and perform whatever activities they desire. Dr. Eadington furthered Internet gaming poses continuing challenges and at this point it is just one area Nevada needs to watch very carefully and make reasonable decisions in order to not undermine Nevada’s gaming credibility in the eyes of the general public.

Mr. Collins stated Utah would not raise its taxes for 10 years to repair its highways, and then all of a sudden Utah did a dramatic tax increase to correct a crippled situation. He asked Dr. Eadington if he sees Nevada in that kind of lagging position.

Dr. Eadington replied he certainly hopes the Legislature tries to get ahead of the Internet gaming situation before it becomes a crisis. He stated it is clear that a crisis is coming. It is just a question of when the crisis will be here and if the Legislature is going to be proactive or reactive.

There being no further comments, Senate Chairman James closed the Senate and Assembly joint committee meeting on discussion of gaming issues, at 1:49 p.m.

RESPECTFULLY SUBMITTED:

Janice McClure,

Committee Secretary

APPROVED BY:

Senator Mark A. James, Chairman

DATE:

APPROVED BY:

Assemblyman Bernie Anderson, Chairman

DATE: