Jerry Kopel

KOPEL: COLORADO HISTORICAL SOCIETY VICTIM OF 'INSPIRED' DRAFTING

HB 1272 cuts state’s revenue from casinos

House Bill 1272 is an anti-Colorado Historical Society and pro-community college measure, as was its parent, Amendment 50 on the November 2008 ballot. Chief bill sponsors are Rep. Tom Massey, R-Poncha Springs, and Sen. Abel Tapia, D-Pueblo.

It addresses the division of tax revenues obtained under two constitutional amendments. The first is the Colorado Limited Gaming Act of 1990, which limited bets to a $5 maximum. The second is the Limited Gaming Revision of 2008, which passed as an amendment to the state Constitution in November. The revision allowed 24-hour gambling, added craps and roulette and raised maximum bets to $100.

Both versions use “78 percent” as the portion of the tax revenue that goes to major funding. In the 1990 version, the general revenue fund gets 50 percent, and the Historical Society gets 28 percent. Under the 2008 version, community colleges get 78 percent of that funding.

If this is (presently) a “compromise” bill, the Historical Society board ought to resign en masse. The board took “no position” either in support of or in opposition to the 2008 amendment, even though anyone with a fifth-grade education could see that it stifled Historical Society funding.

But legislators ought to be concerned about the larger loss to the general revenue fund, which had been protected by the original 1990 casino language.

Presently, 20 percent of casino gaming profit goes to casino-revenue taxes.

Contention revolves around interpreting a new subsection (7), which concerns the newly liberal language allowing casinos to be open 24-seven, craps, roulette and new games and $100 maximum bets. The new constitutional language takes effect July 1. The language includes the following:

“(c) from gaming tax revenues attributable to the operation of this subsection (7), the treasurer shall pay:

(ii) Annual adjustments in connection with distribution to limited funding recipients in subsection (5) (b) (II) of this section (Kopel: That’s the 1990 version, which includes 50 percent to general revenue) to reflect the lesser of 6 percent of, or the actual percentage of annual growth in gaming tax revenue attributable to this subsection (7)...”

That seems to say that — of the money that comes in as additional tax revenue due to increased hours, higher bets and new games — 6 percent is the most the 1990 beneficiaries get. In other words, (7) eats up all the money, from the first penny, and not just from $5.01 upwards.

Assume during the 2009-’10 fiscal year, a quarter billion dollars in gross profit could be attributed to longer hours, more games and increased bet limits. That would produce $50 million in gaming taxes, based on the 20 percent tax presently in place.

HB 1272, as written, would give 6 percent of that $50 million to beneficiaries of the language passed in 1990, or $3 million. Fifty percent of that ($1.5 million) would go to general revenue, and $840,000 (28 percent) would go to the Historical Society.

Those sums would be placed on top of the money received by 1990 beneficiaries from the gaming tax revenue in the 2008-’09 fiscal year. That new total would be used as a base for the fiscal year 2010-’11.

The Historical Society should claim against all of revenue — from the first $5 that’s bet from both the 1990 and 2008 versions, plus 6 percent on the rest of the new funds (from $5.01 to the $100 maximum) coming in from the 2008 revision.

At least, that’s how I interpret a comment in the Denver Post by Colorado Preservation Inc. President Dan Love, who said, “We expect to receive revenue as if Amendment 50 hadn’t been passed.”

In my opinion, the drafter of the 2008 amendment drafted the language in HB 1272 that expands what the citizens voted on. It states:

“Annual growth in extended limited gaming tax revenue means the simple year-to-year change in the amount of revenue from extended limited gaming between each current fiscal year and the immediately preceding fiscal year.

“The annual adjustment shall be applied only to the annual growth in extended limited gaming tax revenue and shall not be subject to compounding or accumulation.”

The wording “not subject to compounding or accumulation,” is not in the constitutional amendment. It appears only in HB 1272. It means the first growth in tax revenue for fiscal year 2009-’10 (which I estimated at $50 million) is NOT available in future years.

Suppose during fiscal year 2010-’11 there is another increase of $10 million in tax revenue beyond the $50 million growth that happened in 2009-’10. General revenue and the Historical Society don’t get a 6 percent shot at $60 million ($50 million, plus $10 million). They would be limited to 6 percent of the $10 million, giving $300,000 to general revenue and $168,000 to the Historical Society.

The fiscal year is the one ending June 30, 2009, which is a fiscal year when casino revenues are expected to drop considerably — and reduced revenues mean reduced taxes.

So the “ratchet effect” criticized in the (Doug Bruce) TABOR constitutional language would be adopted by HB 1272 for the benefit of casino operators.

How do the new funds from casino profit affect general revenue funds for community colleges?

The Legislature must provide sufficient funds for appropriations for the fiscal year. The 2008 casino amendment did not provide a “floor” on top of which other funds can accumulate. For example: education under Article 9, Section 17: “the statewide base... for public education funding... shall grow annually at a rate set by the General Assembly....”

To get around the lack of a floor, HB 1272, under subsection (e), ties any percentage reduction for community colleges to no more than the same percentage reduction in funding for any other state-funded higher education institution during the same fiscal year.

Even if that language remains in the bill, a statute cannot override the legislative duty to fully fund the fiscal year appropriation. The Legislature can ignore the statute and reduce the community college general revenue funding by at least the amount the colleges will be receiving from casino tax funds.

Two members of the Joint Budget Committee are on HB 1272. Tapia is chief Senate sponsor, and Rep. Jack Pommer, D-Boulder, vice chairman of the JBC, is a co-sponsor.

Will the University of Colorado bring pressure on Pommer to transfer to CU some of the general revenue funds scheduled for community colleges? If that happens, community colleges — the supposed beneficiaries of the new casino tax money — could stay at their present funding levels, with no increases.

Here are a few suggestions for regulations that might help general revenue and the Historical Society gain more funding.

First, the Gaming Commission might consider setting up licensing that would separate games with maximums of $5 from games with larger maximum bets, with smaller licensing costs for the $5-or-less games.

If you happen to be a “small” player, do you want to be sitting at a slot machine next to someone who is shoveling in $100 tokens or chips? Or sitting at a blackjack table or craps table next to someone betting $100? I don’t think so.

Casinos may have to make decisions based on middle-income “social” gamblers vs. hard-core, “obsessive” gamblers or “high rollers vs. low rollers.” This may actually lead to a two-class industry, similar to what you have between family and gourmet restaurants.

Another suggestion is to tax at a rate higher than 20 percent and up to 40 percent.

Such a decision by the Gaming Commission can then be introduced as a bill to be passed by a majority of legislators in the House and Senate, then referred to voters statewide.

There is no need to amend the state Constitution. The tax measure can be voted on in November 2009. Since it is referred to the people, it does not go to the governor for approval.

It might be a good idea to publicize information about publicly owned casinos, revealing their profits, who gets them and the compensation paid to their various executives. Citizens already are madder than all-hell at greed at the top. For the first five years under the 2008 amendment, additional casino profit is expected to be about $1.5 billion, with a mere $300 million tax paid.

Campaign donations to fund the cost of persuading voters to approve a tax hike could be solicited from wealthy supporters of the Historical Society.

Another alternative: Strike the safety clause in the bill and allow three months to obtain signatures to place the issue on the November ballot.

The failure to pass HB 1272 before July 1, 2009, would not infringe on the Gaming Commission’s duty to pass rules under CRS 12-47.1-302 to allow the 2008 amendment to proceed smoothly. In fact, the commission probably would be more impartial than HB 1272 supporters would like.

That would offer an opportunity for Historical Society supporters to petition to place HB 1272 on the November ballot and for Colorado’s voters to vote it down.

Jerry Kopel served 22 years in the Colorado House.