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Texas Lottery Commission dies and is reborn

And we have our first curveball of the legislative session.

Is this the end?

The House voted Tuesday to defeat a must-pass bill reauthorizing the Texas Lottery Commission, a stunning move that casts doubt on the lottery as a whole and may potentially cost the state billions in revenue.

House Bill 2197 began as a seemingly routine proposal to continue the operations of the commission that oversees the lottery until September 2025. But opposition mounted after one lawmaker called it a tax on the poor, and the House eventually voted 82-64 to defeat the measure.

A short time after the vote, the House called an abrupt lunch recess and could reconsider the measure if any lawmaker who voted against it offers such a motion. Unless lawmakers reconsider, the commission would begin a one-year wind down, and cease to exist by Sept. 1, 2014.

“There are more members than I thought who are against the lottery and just have a psychological aversion of it,” said Rep. Rafael Anchia, D-Dallas, who sponsored the failed bill.

The state Senate has yet to consider the matter, but it can’t because the so-called “sunset bill” on the Lottery Commission initiated in the House.

For now, there’s no one to operate the lottery, which means a potential loss of $1.04 billion in annual revenue for the Permanent School Fund and $27.3 million to cities and counties from charitable bingo.

The state budget already under consideration in the Legislature has factored in the $1.04 billion — and losing the lottery proceeds would create a deficit lawmakers would need to fill.

Here’s HB2197. I think it’s fair to say no one saw this coming. Here’s more from the Trib:

During a spirited debate on the bill, state Rep. Scott Sanford, R-McKinney, got a round of applause in the House as he spoke against the bill, calling the lottery a “predatory tax” and “a tax on poor people.”

As soon as the vote was over, House leaders were already discussing possible workarounds to keep the programs going. Anchia said the House may reconsider the vote.

Texans spent $3.8 billion on lottery tickets in the 2011 fiscal year, according to the Legislative Budget Board. The majority of that was paid out to players and retailers, with $963 million transferred to the Foundation School Account. Another $8.1 million was transferred to the Texas Veterans Commission.

Anchia warned that charity groups around the state would be outraged at learning they could no longer host bingo games.

“VFW Bingo’s dead now,” Anchia said. “They’re going to have to go back to their constituents and explain why bingo is illegal.”

I don’t disagree with what Rep. Sanford says, though I wonder if he will feel the same way when the payday lending bill comes to the House floor. In the end, however, everyone sobered up after taking a lunch break.

In a 91-53 vote Tuesday afternoon, the Texas House passed House Bill 2197, continuing the the Texas Lottery Commission. An earlier vote Tuesday had failed to continue the commission.

Bill supporters spent the hour after the first vote impressing on those who voted against it the impact of cutting $2.2 billion from schools. The House Republican Caucus hastily assembled to discuss the situation.

“I think when people took a sober look at the budget dilemma that would ensue, they voted different,” said state Rep. Rafael Anchia, D-Dallas, the bill’s author.

Several lottery critics in the House saw the day’s drama as a victory, setting the stage for a more thorough debate on the lottery in the future. Public Education Chairman Jimmie Don Aycock, R-Killeen, said he originally voted “no” largely to make clear his opposition to gambling. Once that statement was made, it made more sense to back the Lottery Commission for now.

“I don’t like gambling, but I do like school funding,” Aycock said. ‘It was, for me, at least, a signal vote. I sort of anticipated I would switch that vote when I made it.”

State Rep. Lon Burnam, D-Fort Worth, said school funding was also the primary motivator for his switch.

“When you weigh principle vs a billion dollars in public ed, I set aside my principle for a billion dollars in public ed,” Burnam said. “I still hate the lottery.”

I had always wondered why they vote on bills three times in the Lege. Now I understand. Having had their fun and having made their statements of principle, if the Lege is serious about wanting to eliminate the Lottery, let’s go about it in the next session by filing a bill and letting it go through the usual committee process, mmkay? Thanks. BOR, who notes that failure to pass this bill could have led to a special session, and Texpatriate have more.

The bingo business

Really interesting story about how bingo, which is legal in Texas as a charitable fundraiser, operates without a whole lot of scrutiny.

In June 2006, police responded to a call from Daytime Bingo Hall in Midland reporting that $100,000 in cash was missing from a floor safe. As investigators began digging into the apparent theft, they had questions: Since bingo operations are not allowed to have so much money on hand overnight, what was the cash doing there in the first place? And how had it escaped notations on the hall’s books?

According to police reports and descriptions of the case in Texas Lottery Commission transcripts, workers at the hall revealed several possible sources for the money. Bingo prizes were often overstated, they claimed; the hall would report a $100 prize as $200 and keep the difference. They said the operator also was selling tickets without reporting the sales to the state and placing proceeds in the safe — another violation of Texas bingo rules.

The police contacted the agency that regulates bingo, the Lottery Commission, and requested an audit of the hall and the three nonprofit organizations that sponsored bingo games there — the B’nai B’rith Youth Club, B’nai B’rith Men’s Club and Lou Rosenberg Scholarship Fund.

The commission’s Bingo Operations Division had recently audited two of the charities, finding only minor bookkeeping errors. This time, auditors found that about $250,000 could not be accounted for.

The incident highlights the serious regulatory challenges facing the agency reponsible for keeping an eye on a business that generates about $700 million every year in Texas, the vast majority in cash. A small — and shrinking — state enforcement staff, laws ripe for manipulation and the fragmented nature of the game have resulted in a legal gambling enterprise that critics contend in some ways is free of meaningful scrutiny from government regulators.

Experts and participants say the vast majority of games are conducted fairly, with proceeds accounted for and ending up in their proper places; most nonprofits use the $35 million they earn annually from bingo for charitable purposes. Yet without adequate oversight, they add, money can simply disappear, with few repercussions.

“In this business, that’s more the case than not,” said Kenneth Messer, who runs an American Legion bingo hall in Longview.

How well the state keeps track of bingo money could have costly implications. As legislators grapple with a projected $27 billion budget shortfall, several have said they would consider expanding legalized gambling to bring in more revenue. If that happens, the bingo industry wants a share of the action.

As this and a companion story show, the lack of strong oversight and uniform standards means that an awful lot of bingo-generated cash can wind up in the hands of the operators and not the charities for which it is supposedly intended. A lot more often winds up getting stolen as well. And thanks to a court case won by bingo interests (currently under appeal), they’re in there lobbying the Lege to keep them in mind for any expansion of gambling they may see fit to allow. Worth keeping an eye on.

Here come the bingo interests

In the discussion of expanded gambling so far, I’ve spoken of two potentially competing interests, casinos and racetracks. Turns out there’s a third player in the game, and they’re not about to be left behind: Bingo interests.

Steve Bresnen, who represents bingo halls as a lobbyist for the Bingo Interest Group, said charitable bingo groups would be devastated if the state expands gambling without giving them the electronic-game technology that would allow them to compete in a market that includes casinos or video lottery terminals at racetracks.

The industry previously has sought the ability to offer electronic instant bingo in a gambling expansion, which has failed before in the Legislature.

State law prohibits using bingo proceeds on lobbying the Legislature and prevents bingo charities from working for or against a proposed constitutional amendment on the state ballot, which a gambling extension would require.

Bresnen said a federal court lawsuit is planned to challenge that law.

They plan to use the Citizens United decision to argue their case. Quite the can of worms the Supreme Court opened there.

Bingo charities net about $36 million a year in bingo proceeds, Bresnen said. Bingo interests want to establish a fund of at least $5 million “to mount a major media campaign that will allow bingo charities to defend their interests,” according to a “plan of action for survival of Texas charitable bingo.”

Even if the bingo industry doesn’t prevail in the lawsuit, it will work to affect the debate through such means as a statewide voter registration and mobilization campaign targeting those attending Texas bingo halls.

Well, if they’re looking for someone to design a logo for them, I have a suggestion for them. It’s going to be very interesting trying to keep up with all of the groups that want a piece of whatever gambling pie that may come out of the next legislative session. Seems to me a viable strategy for the anti-gambling folks will be to get these competing interests to work against each other as much as possible. Just keeping track of all the bedfellows is going to be a full-time job.

I should note that there is at least one other interest that will be involved, though I have not heard anything from them yet: Poker interests, who managed to get a bill passed out of committee last session, but it died without coming to a vote in the House. Someone may want to print up a scorecard, we’re going to need all the help we can get.

CLC gambling update

Today there will be committee hearings on various gambling-related bills. I am reprinting here an email sent by Suzii Paynter of the Christian Life Coalition, which is one of the leading organizations that are fighting the expansion of gambling in Texas, as it has a pretty good summary of what has gone on so far.

Casino Hearing

On Wednesday, April 8, the House Committee on Licensing and Administrative Procedures will hear all the major gambling bills filed in the House this session. There are 16 gambling related bills currently on the notice of hearing which can be found here. This hearing is sure to draw the most vocal gambling proponents from all segments of the casino industry. We think it is important that the committee hear the other side of the argument as well. The CLC will be at the hearing to offer testimony. This is an entirely new committee made up of members who may not know this issue. It is important that they know people out in the state care about the issue and are paying attention. If your representative sits on this committee it would be an excellent time to let them know you oppose the expansion of gambling in Texas. A list of the committee members and their contact information can be found here.

The CLC recently completed a comprehensive newsletter outlining our most important arguments against the expansion of predatory gambling and in support of our current family-friendly economy. You can view the newsletter here (large PDF).

First Gambling Bills Voted Out of Committee

On the same afternoon that the House Licensing and Administrative Procedures Committee announced the agenda for Wednesday’s hearing, they quietly passed out two gambling expansion bills. Both bills now sit in the Calendars committee and await a chance to be considered on the House floor.

The first bill is HB 222, by Rep. Menendez (D-San Antonio). This bill would legalize poker to be played at electronic tables in certain bars, restaurants, horse and dog race tracks and on Indian reservations. The proponents claim that only simple majorities in both the House and Senate are needed to pass this bill. It is the opinion of the CLC, based on previous opinions offered by the Attorney General, that the element of chance inherent in this card game requires a constitutional amendment and the support of 2/3rds of the House and Senate. Additionally, the electronic facsimile of a game of chance makes this a Class III game as described under the Indian Gaming Regulatory Act (IGRA). As other states have experienced, and according to IGRA, the approval of a Class III game in Texas will lead to the expansion of Native American gambling in Texas above and beyond what is contemplated in this bill and in a way that weakens the state’s ability to control further casino expansion.

The second bill is HB 1474 by Rep. Geren (R- Ft. Worth). This bill is meant to be a “clean up” bill to standardize and improve the regulation of Bingo in Texas. However, the bill also greatly increases the number and type of organizations that are eligible to receive a bingo license. The CLC is concerned that bingo in this state is moving far beyond the original public understanding of the game and that the charitable purpose is being watered down. Specifically, during the legislative interim period after last session, the lottery commission approved new bingo games which would allow versions of electronic pull tab bingo as well as a type of Keno. We are concerned that these new games could lead to a rapid expansion of electronic casino-style games. This threat is even more possible with the broadening of organizations eligible to apply for a license stated in HB 1474.

The list of members on the Calendars Committee can be found here. If your representative is member of this committee, let them know that the best way to defeat these bills is to never allow a vote on the House floor.

Indian Gambling Bills Get Hearing

On Monday, March 30, two Native-American casino bills by Rep. Chavez (D-El Paso) were heard in committee. The first bill, HB 1308 was heard in the subcommittee on Criminal Procedure of the Criminal Jurisprudence Committee.

The CLC testified in opposition to this bill. HB 1308 would give a defense to prosecution for Indian tribes that conduct otherwise illegal casino gambling operations. The bill is the exact same piece of legislation which failed to pass the House last session. According to Rep. Chavez and other supporters, the bill would simply allow two tribes, the Tigua of El Paso and the Alabama-Coushatta of Livingston to reopen illegal casinos that were shut down several years ago. While sympathetic to the desperate conditions on these two reservations, the Christian Life Commission opposes this piece of legislation because we believe that the consequences of passage may be far more expansive than what proponents are indicating.

HB 1308 does not improve the legal standing of gambling by the Texas tribes bound by the Restoration Act. The state has never used criminal charges to shut down illegal Native-American casinos. The state has the right to sue the tribe in federal court and seek injunctive relief. This is how the casinos were closed in the past and the bill cannot prevent the state from closing any casino opened by the Tigua or Alabama-Coushatta. The gambling activity the tribes seek to conduct is not just an illegal violation of the penal code that this bill amends; it is UNCONSTITUTIONAL according to the Texas Constitution. A statute passed by a simple legislative majority cannot trump the state constitution. While it may preclude criminal penalties the state may still seek to have any operating casino shut down in federal civil court. The bill is an attempt to expand gambling by a simple majority vote in the legislature rather than the two-thirds majority needed for a constitutional amendment. The end result of this bill would likely be more costly litigation on the part of the state in federal court.

Additionally, the vague language in the bill would actually open a legal loophole to Native-American tribes that are 1) named in the list of tribes referenced in the bill, 2) which have historic, recognized land ties to Texas and 3) are not bound by the Restoration Act. The list of tribes referenced in the bill includes over 300 tribes from across the country, several of whom have entered into agreements with state agencies acknowledging “historic property” in Texas. There are currently letters of intent to petition for recognition on file with the Bureau of Indian Affairs from 10 tribes seeking recognition in Texas.

The members of the Criminal Jurisprudence Committee should hear from those opposed to this bill so that it is defeated in committee. A link to the committee and their contact info can be found here.

That afternoon, the House Committee on Border and Intergovernmental Affairs heard testimony on HJR 108. This Joint Resolution proposes a constitutional amendment to allow the Tigua tribe of El Paso to operate a full blown, Las Vegas style casino. The CLC testified in opposition to this bill as well. Any constitutional amendment which would allow Class III gambling as defined under the Indian Gaming Regulatory Act (IGRA) would be a “trigger” for further Native-American casinos beyond what is authorized in this resolution. It is impossible to authorize gambling for only one tribe without affecting the rights of other tribes in this state. As has been the case in other states, once the Class III threshold is crossed, the state loses much of the ability to control casino expansion since many of the decisions will be made on the federal level.

A link to the members of the Border and Intergovernmental Affairs Committee can be found here.

A news report of these two hearings can be found here.

To learn more about HB 1308 and the history of Native-American gambling in Texas see here (PDF).

Couple things. First, as you know, I support HB222. Of all the various gambling expansion options I’ve seen, allowing for poker seems to me to be the most sensible and least potentially harmful. Plus, as a bridge player who has had the chance to play for money legally, I think poker is a legitimate game of skill and should be treated as such. In fact, poker players in Pennsylvania and South Carolina recently won court rulings that agreed poker is a game of skill. As such, it’s not clear to me that the AG’s opinion would agree with the CLC about the inherent level of chance here. Of course, I Am Not A Lawyer, and Lord only knows what Greg Abbott will do. The point is that recent legal history is on the poker players’ side. I welcome any feedback on that question, and on the other legal points raised, by anyone who has more expertise on the topic.

Second, you can’t talk about the Tigua and Alabama-Coushatta tribes and the litigation over their past attempts to open casinos without noting that a lot of the opposition to them has come from out of state Indian tribes and casinos, who have an obvious interest in minimizing their competition, and that along the way some really sleazy double-dealing was done by former Christian Coalition honcho Ralph Reed and Tom DeLay’s felonious friend Jack Abramoff. Here’s some previous blogging on the subject, plus a couple of corrected links to Observer articles to give you the background.

Finally, just to reiterate, outside of HB222, I am officially agnostic on the subject of expanded gambling in Texas. I have plenty of issues with it, and I may wind up voting against any future ballot propositions to allow for more gambling, but I am not comfortable being opposed to the idea. I thought this email was informative and worth highlighting, but please don’t take that as an endorsement, because it’s not intended as one.