BILL ANALYSIS
Bill No: SB
213
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 213 Author: Florez
As Proposed To Be Amended: May 14, 2009
Hearing Date: May 14, 2009
Consultant: Chris Lindstrom
SUBJECT
Gambling establishments: proposition players.
DESCRIPTION
SB 213 makes a number of substantive changes to the
Gambling Control Act. Specifically, the bill:
1)Maintains local control over the issuance of local key
employee licensing. (The proposed author's amendments
delete section 1 of the bill which would have allowed a
state key employee license to serve as a local temporary
license.)
2)Creates a new moratorium of the issuance of gambling
licenses for new gambling establishments. Prohibits the
California Gambling Control Commission (CGCC) from
issuing a gambling license for a gambling establishment
that is not licensed to operate on January 1, 2010.
Provides that this moratorium on the issuance of new
gambling licenses shall remain in effect until January 1,
2020. (This is a proposed author's amendment that will
replace sections 2 and 3 of the bill.)
3)Prohibits a local jurisdiction that issues gambling
licenses, key employee licenses, or work permits from
appointing a person to manage or oversee the issuance of
those licenses or permits who, within two years prior to
that appointment, was employed or retained by, or derived
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substantial income from, a gambling establishment, or was
a principal in a partnership or corporation that was
retained by, or derived substantial income from, any
gambling establishment. (Section 4 of the bill.)
4)Prohibits a member of CGCC, the executive director, the
chief, and any employee of CGCC or the Department of
Justice (DOJ) designated by regulation, for a period of
two years after leaving office or terminating employment,
from being employed as a consultant or key employee of a
gambling establishment. (Section 5 of the bill.)
5)Prohibits the duration of a contract between a gambling
establishment and a third party provider of proposition
player services from exceeding 2 years. (Section 6 of
the bill.)
EXISTING LAW
Existing law provides for the licensure of certain
individuals and establishments involved in various gambling
activities, and for the regulation of those activities, by
CGCC. Existing law provides for the enforcement of those
activities by DOJ. Existing law provides that any
violation of the Gambling Control Act for which a penalty
is not provided is punishable as a misdemeanor.
Existing law expresses the intent of the Legislature that
nothing in the Gambling Control Act shall be construed to
preclude any city, county, or city and county from
prohibiting any gambling activity, from imposing more
stringent local controls or conditions upon gambling than
are imposed by the Gambling Control Act or by CGCC.
Existing law requires the commission to establish a program
for personal portable licenses for key employees, and to
seek to implement that program on or before July 1, 2008.
Existing law prohibits CGCC, until January 1, 2015, from
issuing a gambling license for a gambling establishment
that was not licensed to operate on December 31, 1999,
unless an application to operate that establishment was on
file with DOJ prior to September 1, 2000.
Existing law prohibits a member of CGCC, the executive
director, the chief, and any employee of CGCC or DOJ
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designated by regulation, for a period of 3 years after
leaving office or terminating employment, for compensation,
from acting as agent or attorney for, or otherwise
representing, any other person by making any formal or
informal appearance, or by making any oral or written
communication, before the commission or the department, or
any officer or employee thereof, if the appearance or
communication is for the purpose of influencing
administrative action, or influencing any action or
proceeding involving the issuance, amendment, awarding, or
revocation of a permit, license, or approval.
Existing law allows a licensed gambling establishment to
contract with a third party for the purpose of providing
proposition player services, subject to specified
conditions.
BACKGROUND
The State of California has permitted the operation of
gambling establishments for more than one hundred and fifty
years dating back to the gold rush. Until 1984, all forms
of non-house-banked gaming were legal provided it wasn't
prohibited by the Penal Code or by local ordinance. In
1984, the Legislature enacted the Gaming Registration Act,
which required the Attorney General's office to provide
uniform, minimum regulation of California's cardrooms.
However, the scope of the Attorney General's authority was
extremely limited - it was basically a registration
program. Recognizing the need for broader oversight of
California's gambling industry, the Legislature enacted the
Gambling Control Act (Chapter 867, Statutes of 1997). The
Act created a comprehensive scheme for statewide regulation
of legal gambling.
The provisions of the Act are administered through a
bifurcated system at the state level. The Bureau of
Gambling Control within DOJ was created to investigate,
among other things, the qualifications of persons who apply
for state gambling licenses and to monitor the conduct of
these persons to ensure compliance with the Act. In
addition, the Act created a five-member, Governor-appointed
California Gambling Control Commission to establish minimum
regulatory standards for the gambling industry and to
ensure that state gambling licenses are not issued to or
held by unsuitable or unqualified individuals.
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The Act also recognized that the primacy of the
authorization and regulation of controlled gambling resides
with local jurisdictions. The Act provides that no person
in this state has a right to operate a gambling enterprise
except as may be expressly permitted by the laws of this
state and by the ordinances of local governmental bodies.
The Act provides that no new gambling establishment may be
opened in a city, county, or city and county in which a
gambling establishment was not operating on and before
January 1, 1984, except upon the affirmative vote of the
electors of that city, county, or city and county.
The Act requires local jurisdictions, in order to allow for
lawful gambling at authorized premises, to adopt a gambling
ordinance governing the hours of operation of gambling at
those premises, patron security and safety in and around
those premises, the location of those premises, wagering
limits in permissible games conducted in those premises,
and the number of tables permitted in those premises and in
the jurisdiction as a whole.
Finally, the Act does not preclude any local jurisdiction
from prohibiting any gambling activity, from imposing more
stringent local controls or conditions upon gambling than
are imposed by the Act or the CGCC, from inspecting
gambling premises to enforce applicable state and local
laws, or from imposing any local tax or license fee, if the
prohibition, control, condition, inspection, tax, or fee is
not inconsistent with the Act.
Purpose of the bill . According to the sponsors, SB 213
"specifically seeks to broaden existing provisions in law
which preclude former executives from the Gambling Control
Commission from appearing before the Commission for a
period of three years. The proposed change in this bill
will also preclude "the revolving door" for former
employees of the Commission precluding them from
representing card clubs. Proponents note that this bill
further extends the conflict of interest provisions which
currently apply to members of the Commission and the
executive director, and applies them to those in charge of
gaming at the local level. In addition, this measure also
extends the moratorium on the expansion of gambling for an
additional five years."
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Analysis of the bill - section by section . SB 213 makes a
number of substantive changes to the Gambling Control Act.
The following comments are intended to provide background
regarding each of the proposed changes and the arguments in
support and opposition to the proposed changes.
Section 1 - State key employee license serves as a local
temporary key employee license . The proposed author's
amendments strike this section from the bill.
Sections 2 and 3 (replaced by proposed author's
amendments) - Creates a new moratorium on the issuance of
gambling licenses for new gambling establishments .
Background . There are currently two moratoria in state law
limiting the growth or expansion of controlled gambling
in California. One moratorium, specifically, (Business
and Professions Code Section 19963) prohibits CGCC, until
January 1, 2015, from issuing a license for a gambling
establishment that was not licensed to operate on
December 31, 1999, unless an application to operate that
establishment was on file with DOJ prior to September 1,
2000. When Section 19963 became operative, there were
approximately 140 gambling establishments statewide that
either possessed a gambling license or had an application
on file with DOJ. Since then, approximately 50 gambling
licenses expired. Today, there are 92 licensed gambling
establishments operating in California.
Over the past few years, there has been a significant
amount of interest regarding the intent of Section 19963
and the status of the expired licenses. Generally, there
were two schools of thought. One believed that once a
license expired, it was surrendered to the state and no
longer reachable. The other school of thought
interpreted Section 19963 as simply establishing the
total number of authorized licenses available in the
state. They contend that if one of the existing licenses
expired, it was not necessarily surrendered to the state.
They argue that these licenses should be considered
dormant, capable of being resurrected and becoming active
again.
It is the understanding of committee staff that there may
be as many as two licenses that expired that have been
resurrected by CGCC. Additionally, there may be two
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Page 6
other license applications on file at CGCC to resurrect
expired licenses.
In the last two years, there have been at least two
legislative attempts to allow CGCC to resurrect some or
all of the expired licenses. Those attempts were
unsuccessful.
In addition, CGCC, beginning in April 2008, held its first
of two workshops to receive public input on how to
interpret and implement the moratorium provisions of
Section 19963. On May 15, 2009, CGCC will conduct
another workshop at which time it will present and
receive comments on proposed regulations that will
establish a process for the submittal and hearing of
applications to operate a gambling establishment under a
resurrected dormant license.
The proposed author's amendments will create a new
moratorium that adds a new section to the Business and
Professions Code that reads:
19963.5. (a) Notwithstanding any other limitation
imposed by this article, the commission shall not
issue a gambling license for a gambling establishment
that is not licensed to operate on January 1, 2010.
(b) This section shall remain in effect only until
January 1, 2020, and as of that date is repealed,
unless a later enacted statute, that is enacted before
January 1, 2020, deletes or extends that date.
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The net effect of the proposed amendment will:
1. Close the door on any dormant license that is not
resurrected and re-issued as of January 1, 2010;
2. Validate any license that has been resurrected and
re-issued prior to January 1, 2010; and
3. Prohibit CGCC from issuing any new license for a
gambling establishment until January 1, 2020.
Committee staff has been advised by CGCC staff that, at
this time, there is no set date as to when the
regulations will be promulgated. Once regulations are
promulgated, CGCC will then be able to receive and
consider owner-licensee applications to resurrect dormant
licenses and begin the licensing process which is a
thorough, deliberate, and time-consuming process. Given
the uncertainties as to when the regulations will be
completed or the length of time it takes for an
application to wind its way through the licensing
process, it is unclear how many dormant licenses will be
resurrected, if any, before the January 1, 2010 date.
Also, as it relates to the existing moratoria on the
expansion of gambling that has been in place for the
better part of a decade, there have been a number of
policy attempts to relax various aspects of the
moratoria, such as eliminating wagering limits, modifying
the interpretation on hours of operation, and increasing
the number of authorized licenses in the state, among
other things. In addition, committee staff is aware of a
number of complaints about the moratoria from individual
citizens who would like to open new gambling
establishments or who believe local governments could
realize increased revenues from new gambling
establishments or the expansion of existing
establishments, especially in light of the increased
popularity of poker. Finally, a number of individual
citizens express dismay that the state continues to
control the growth of controlled gambling in California
when other segments of the gambling sector are not being
treated similarly (the Lottery, charitable bingo,
raffles, Indian gaming, and horse racing).
Arguments in support . The sponsors argue, "California
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has had a longstanding policy against the proliferation
of gambling establishments. Since 1995, California has
discouraged and precluded additional cities and counties
from adopting ordinances providing for expansion of
gambling. The Governor has adopted an executive order
discouraging casinos in the urban area. This measure
will continue this longstanding public policy and
preclude an expansion of gambling in California until
after 2020."
Section 4 - Employment restrictions on local gambling
control agencies .
Background . The Gambling Control Act does not impose upon
local jurisdictions employment restrictions on persons
who manage or oversee the issuance of local gambling
licenses or permits. Local jurisdictions that have
licensing authorities implement their own employment
standards. Nothing in current law precludes a local
jurisdiction from imposing restrictions upon the
employees or officers of its licensing authority similar
to the restrictions that state law places upon the
members of CGCC.
The Gambling Control Act contains employment restrictions
on the members of CGCC. Under the Act, a person is
ineligible for appointment to the commission if, among
other things, within two years prior to appointment, the
person, or any partnership or corporation in which the
person is a principal, was employed by, retained by, or
derived substantial income from, any gambling
establishment.
Arguments in support . The sponsors argue, "This language
is intended to have the prior employment restrictions
apply to a director of Gambling Control in a city or
county as it applies to the state. An individual should
not go directly from working for the gambling industry to
being a regulator. From a public perception stand point,
it is better for the individual who is in charge of
overseeing gambling to be someone from outside the
industry."
Arguments in opposition . The City of San Jose argues that
the change proposed by section 4 of the bill is
overreaching, preempting local control and steps on the
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Page 9
authority of the local jurisdiction to regulate the
qualifications of its employees and officers. Further,
the City argues that the proposed change to the Act will
have the undesired affect of eliminating qualified
persons that have sufficient knowledge of, and expertise
in, the gambling industry that would enable them to
effectively administer and enforce strict local
regulatory controls over controlled gambling. The City
argues that this change to the Gambling Control Act could
undermine local regulation of controlled gambling, making
it ineffective and fail to achieve its purpose of
protecting the public.
The City also notes that its gaming regulatory control
ordinance contains a code of ethics provision. Moreover,
San Jose's civil service rules strictly regulate and
restrict outside work employment by City employees. City
employees cannot accept any outside employment unless it
is preapproved by the City and no employee can engage in
any outside work that is detrimental to the service,
prevents or impedes the efficient performance of the
employee's duties in his or her city employment, or which
in any way is in conflict with his or her city
employment.
Finally, the City argues that Title 8 of the San Jose
Municipal Code is devoted to ethics regulation. This
title includes, for example, a gift ordinance applicable
to all employees that is stricter than the gift
regulations in the Fair Political Practices Act. The
Municipal Code details revolving door restrictions to
prevent former officials and designated employees from
using their positions with the City for personal gain and
to prevent private for-profit business entities from
gaining a real or perceived unfair advantage in dealing
with the City by hiring former officials and designated
employees.
Also in opposition, Stand Up For California writes that the
language in section 4 of the bill is intended to protect
the public interests from corruption. Nevertheless, the
language has unintended consequences detrimental to local
jurisdictions currently employing persons who may not
meet this specific standard. Local government is the
first line of defense ensuring the public's welfare.
Should local government, the employer set the standard
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for employment?
This language could potentially leave a city or
county without a skilled employee to manage or oversee
the issuance of key employee licenses and work permits
and,
Create a financial burden on a city or county in
seeking a qualified applicant.
Both represent impacts defeating the presumed intent of
the language. Thus, Stand Up For California suggests
this section be further clarified.
Section 5 - Revolving door provisions for designated
employees of CGCC and DOJ .
Background . Existing law imposes post-employment revolving
door restriction on designated employees of CGCC and DOJ.
The restriction prevents designated employees of CGCC
and DOJ, for a period of three years after terminating
employment, from acting as an agent or attorney for, or
otherwise representing a person before CGCC or DOJ if the
appearance or communication is for the purpose of
influencing any action or proceeding involving the
issuance, amendment, awarding, or revocation of a permit,
license, or approval.
The proposed change to the Act put forward by SB 213 would
impose additional post-employment restrictions on
designated employees of CGCC and DOJ prohibiting them,
for a period of two years from terminating employment,
from being employed as a consultant or key employee of a
gambling establishment.
Just as arguments are made that the hiring restrictions on
local jurisdictions may negatively impact local
regulation, a similar argument could be made by gambling
establishments that the restriction on designated
employees of CGCC or DOJ may prevent gambling
establishments from hiring people who are most familiar
with the laws and regulations governing controlled
gambling. As a result, gambling establishments may incur
compliance issues that could have been avoided with the
advice and counsel of former government licensing and
enforcement personnel who may have written, implemented,
or enforced state gambling laws and regulations.
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Arguments in support . The sponsors argue, "This provision
extends the revolving door provisions in the Fair
Political Practices Act to the Gambling Control
Commission so that an individual cannot go directly from
working for the Commission to working for a gambling
establishment."
Section 6 - Third party provider of proposition player
services contracts .
Background . Existing law provides that third party
providers of proposition player services must have a
written contract with a gambling establishment, approved
by DOJ, in order to provide its services to a gambling
establishment. Third party providers of proposition
player services contracts currently are a year in
duration, as prescribed by state regulation. The
proposed change to the Act would allow for the contracts
for proposition player services to be up to two years in
duration. It is the understanding of the committee staff
that CGCC is currently considering regulations to allow
for proposition player contracts to be two years in
duration. SB 213 would codify that practice, making it
permissive for the state gaming agency to authorize and
approve proposition player contracts that are two years
in duration.
Arguments in support . The sponsors argue, "Regulations
adopted by the Commission require a gambling
establishment and a third party provider of proposition
player services to submit any contract for renewal four
months prior to the expiration of the current contract.
Thus, approximately seven months into the contracts
parties begin working on the contract renewal. Often
times the renewed contracts is identical to the previous
contract, yet the contract still must be submitted four
months prior to the expiration. Proponents argue that
this creates a lot of busy work on the part of the
parties to the contract and additional work load for the
Bureau."
Arguments in opposition . Stand Up For California states
that it "has long held the position that the statutory
authorization of prop players is unconstitutional. That
being said, there is still the issue of this language
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conflicting with current administrative law."
Author's amendments . The author will be proposing
amendments to strike section 1 of the bill and to replace
sections 2 and 3 of the bill with language that will create
a new moratorium that will prohibit CGCC, until 2020, from
issuing a gambling license for a gambling establishment
that was not licensed to operate prior to January 1, 2010.
The proposed amendments are reflected in the committee
analysis.
PRIOR/RELATED LEGISLATION
AB 293 (Mendoza), 2009-2010 Legislative Session . Makes
numerous changes to the Gambling Control Act, including
replacing references to "gambling establishments" with
"gambling enterprises" in specific sections of the Act.
(Pending on the Assembly Floor.)
SB 1697 (Florez), 2007-2008 Legislative Session . Among
other things, would have allowed CGCC to consider
applications to activate expired gambling licenses. (Died,
Assembly G.O. Committee)
AB 560 (Richardson), 2007-2008 Legislative Session . Among
other things, would have allowed CGCC to consider
applications to activate expired gambling licenses provided
that the card club remains in the same city, county, or
city and county in which it was located. (Died, Assembly
G.O. Committee)
SB 730 (Florez), Chapter 438, Statutes of 2007 . Among
other things, authorizes CGCC to issue licenses for a
two-year period and requires CGCC to establish a portable
key employee license program.
AB 1973 (Bermudez), Chapter 854, Statutes of 2006 . Among
other things, requires DOJ, in determining whether there
has been expansion of gambling relating to "hours of
operation," to consider the hours in the day when the local
ordinance permitted the gambling establishment to be open
for business on January 1, 1996. Changes the eligibility
requirements that one member of CGCC shall be "a certified
public accountant with auditing experience" to "a certified
public accountant or a person with experience in banking or
finance." Changes the eligibility requirements that one
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member of CGCC shall have "a background in business with at
least five years of business experience" to "or
alternatively five years of governmental experience."
Extends the moratorium on the expansion of gambling from
January 1, 2010, to January 1, 2015.
SB 1198 (Florez), Chapter 181, Statutes of 2006 . Deletes
"wagering limits" from the list of items that are
considered expansion of gambling pursuant to the moratorium
on the expansion of existing gaming in a locality.
AB 635 (Bermudez), Chapter 694, Statutes of 2005 . Permits
local governments to revise their ordinances limiting the
number of tables in card rooms by 24.99 percent or two
tables, whichever is greater, as compared with the level or
number operated or authorized on January 1, 1996, without
voter approval.
AB 864 (Firebaugh), Chapter 872, Statutes of 2004 . Permits
cities and counties to adopt ordinances permitting the
expansion of gambling that result in less than a 25 percent
increase, without voter approval.
SB 814 (Vincent), Chapter 799, Statutes of 2003 .
Authorizes CGCC to renew gambling licenses for a period of
up to 2 years. Specifies that for any license issued for
more than one year the licensee shall continue to pay the
annual gambling license feed. Extends the moratorium on
the expansion of gambling from January 1, 2007 to January
1, 2010.
AB 2431 (Governmental Organization Committee), Chapter 738,
Statutes of 2002 . Renumbers various sections and article
headings within the Gambling Control Act, eliminates
outdated references, resolves conflicting provisions, and
makes other technical and clarifying changes.
SB 8 (Lockyer), Chapter 867, Statutes of 1997 . Repealed
the Gaming Regulation Act, and instead enacted the Gambling
Control Act, which provided for DOJ to investigate and
enforce controlled gambling in the state. It also
establishes CGCC to regulate gambling in this state to
issue, suspend, or revoke gambling licenses.
SUPPORT: As of May 8, 2009:
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California Gaming Association
Commerce Club (sponsor)
Lucky Chances Casino
Hollywood Park Casino
Village Club (sponsor)
OPPOSE: As of May 8, 2009:
City of San Jose
Stand Up for California
FISCAL COMMITTEE: Senate Appropriations Committee
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