House Gaming Oversight Committee 05/05/11, 9:30 a.m., Room G-50, Irvis Office Building
By Jason Gottesman
The committee met to hold a public hearing on four bills relating to small games of chance.
HB 169 Delozier - (PN 61) Amends Local Option Small Games of Chance Act increasing prize limits;
providing guidelines for the proceeds of games of chance; requiring a maximum of $50,000 in cash or
merchandise may be awarded in any calendar month for monthly drawings; requiring a licensed
distributor to pay a 1% surcharge on the amount of all games sales, to be paid directly to the General
Fund; and providing for enforcement.
HB 906 Miller - (PN 971) Amends the Local Option Small Games of Chance Act providing for additional
definitions, editorial changes, and increases in prize limits. No more than 50 percent of the proceeds shall
be used for operating expenses. Eligible organizations are allowed to conduct small games of chance
using insured games. Eligible organizations must report prize winnings to the department. Allows licensed
facilities to sell raffle tickets on their
premises and requires a licensed facility to open a bank account to hold proceeds. Account records shall
reflect proceeds kept in the account for the past two years.
Additional components are added for applications for licenses and background checks must be
conducted by the Pennsylvania State Police for the executive officer or secretary of the eligible
organization making the application and all other responsible persons listed on the application. Required
demonstrations are required by the facility in order to be licensed and facilities shall be charged a monthly
assessment of 30 percent on all proceeds to be deposited in the General Fund. A licensed facility
conducting small games of chance must contribute 20 percent of their small games of chance revenue to
a charitable organization with a public interest purpose. An additional licensed establishment fee of two
percent shall be placed upon facilities operating small games of chance. This amount shall be divided
equally between the department and the Bureau of Liquor Control Enforcement of the Pennsylvania State
Police for administrative and enforcement costs. A license may be revoked for failure to keep records for
two years. Concurrent enforcement authority is given to the Office of the Attorney General and the local
district attorneys. Penalties and advertisements provided for. Distributions from the State Lottery Fund to
the General Fund are provided for if the decrease in the General Fund is determined to be caused by
small games of chance.
HB 1288 Benninghoff - (PN 1424) Amends Local Option Small Games of Chance Act to increase
individual prize limits to $1,000 and weekly prize limits to $25,000. Payouts of less than $26 shall not be
counted toward the weekly limit. Editorial changes are made.
HB 1323 Grove - (PN 1502) Amends the Local Option Small Games of Chance Act to provide a definition
for “coin auction” and add the term to the definition of “games of chance.”
Chairman Schroder began the hearing by explaining the prize limits for small games of chance have
stayed the same while costs of operating clubs and fraternal organizations have risen. He noted these
organizations want changes to raise the payout limits to reflect costs. He noted other legislation being
discussed would extend small games of chance to for-profit taverns and restaurants. He noted all bills are
similar in principal, but have significant differences and the committee will hear from all sides before
taking action.
Rep. Sheryl Delozier (R-Cumberland) spoke on HB 169, of which she is prime sponsor. She indicated the
payout limits for small games of chance have not been increased since the games were first legalized in
1988. She noted the bill was moved out of the House last session and noted it is important to provide
charitable organizations fiscal relief in this form, especially considering the work these organizations do in
the community. She said such organizations should be applauded in their work, not impeded. She said
although she cannot support HB 906, she would like to see the bill moved to the full House so that both
bills can be vetted fully.
Rep. Kerry Benninghoff (R-Centre) discussed HB 1288. He noted the bill is essentially “HB 196 lite” and
noted he is concerned the non-passage of these bills will hinder the organizations the legislation is
designed to help. He noted his legislation deals only with increasing prize limits and noted since times
have changed and the cost of living has increased, the prize limits should increase as well.
Rep. Seth Grove (R-York) gave an overview of HB 1323, noting it adds coin or quarter auctions to the list
of acceptable small games of chance. He said these games have become popular with non-profits and
explained the complicated process by which the game is played, resulting in a drawing for a bidded upon
prize. He noted this popular game is illegal along with 50/50 drawings.
Dana Alwein, Majority Executive Director gave a brief overview of HB 906 in the absence of the prime
sponsors.
Ted Mowatt, Executive Director, Pennsylvania Federation of Fraternal and Social Organizations noted
“our members have for years supported the updating of the Local Option Small Games of chance Act, as
a way of supporting club activities.” As such, he said his organization urges the passage of HB 169 in
order to generate additional revenues and clarify how revenue raised from small games of chance may
be used by the organization. In order to help with the clarity of what the money may be used for, Mowatt
suggested placing a list in the bill specifically delineating what the proceeds cannot be used for. He
further called for having the percentages to be used for operating costs be a ceiling, rather than a “shall”
requirement. He indicated his organization has no problems with HB 1288 or HB 1323, but advocated
against the passage of HB 906. He said HB 906 may lead to the placing of small games of chance in all
for-profit entities and noted the taxing portion of the legislation could eventually lead to the taxing of non-
profits. He noted drafting issues with both HB 906 and 169, and specifically relating to HB 196 said the
background check and violation penalties are problematic.
Chairman Schroder asked if Mowatt had a draft piece of legislation implementing his concerns. Mowatt
indicated he can put that together and said the thrust of his concern is that there either should be a list or
not a list and the use of the proceeds should be as flexible as possible.
Rep. O’Brien asked Mowatt to address regulation of the organizations and if raising the payouts will make
the gaming in these facilities more attractive. Mowatt said people will always take a different direction
than what is initially set up and said raising the payouts is just one area where organizations that are
struggling to survive can attract a younger crowd.
Rep. Stephens asked on the dollar amount brought in or the number of permits issued to organizations.
Mowatt responded there are thousands of groups without liquor licenses that have small games of
chance. Rep. Stephens asked how much revenue is brought in statewide and about the prevalence of
small games of chance. Mowatt said there is not study on this, but the organizations he represents are
just a small percentage of all the organizations with small games of chance. He said there is more
prevalence in some regions than others.
Rep. Paul Costa asked who monitors clubs. Mowatt said generally they are monitored by the Bureau of
Liquor Control Enforcement or the district attorneys, but this only applies with facilities with liquor licenses.
He noted loose enforcement in clubs without liquor licenses. Rep. Costa asked about electronic monitory.
Mowatt conceded he does not know how this will work, indicating the monitoring requirement is not clear
and seems patterned after the gaming law.
Rep. Vulakovich asked how much Mowatt’s organizations contribute to communities as a whole. Mowatt
noted all money above costs is required to be donated. He said not all do this, but he is unaware of this
percentage and conceded the biggest violation is going over the statutory limits. Rep. Vulakovich asked
what a fair number would be for the amount going to operating costs. Mowatt indicated 40 percent is
reasonable. Rep. Vulakovich asked if most clubs permit smoking. Mowatt explained clubs can vote to
allow smoking, though many do not in an attempt to attract a younger crowd. Rep. Vulakovich asked if
some clubs have some “social members.” Mowatt said this is true. Rep. Vulakovich asked Mowatt would
be interested in a compromise for all groups. Mowatt stated the legislation should be limited to non-profits
because when it is not, too many doors are opened.
Chairman Youngblood asked how Mowatt’s organizations estimate operating costs. Mowatt explained the
clubs have books detailing previous years’ operating expenses and said the clubs look at overhead costs,
food costs, and staff salaries. He said small games of chance revenue is separate from operating costs.
Rep. Davis asked what keeps a non-profit from using the money for personal gain. Mowatt said the non-
profit is to submit IRS forms, but conceded some small groups violate the law, which he said is clearly
wrong given the charitable purposes of the clubs. He said liquor control enforcement is the primary
oversight agency, but they do not have jurisdiction over four-fifths of the organizations. Rep. Davis asked
how many non-profits are without liquor licenses. Mowatt said there are several thousand and this
information can be obtained form the Bureau of Charitable Organizations.
Thomas Helsel, Secretary, Pennsylvania Association of Nationally Chartered Organizations (PANCO),
noted the charitable work of his member organizations and urged the passage of HB 169 since “our
members are being asked to bear a greater financial responsibility in their communities due to budgetary
constraints by government, an increase in charitable requests and by our own obligations to our projects
and programs. He explained organizations in his association pay local taxes and hire many community
employees. He gave support to HB 1288 and HB 1323, but argued against adoption of HB 906 saying
“opening the eligibility of small games of chance to for profit businesses is a significant expansion of
gambling.” He said this would have a negative impact on small games of chance currently in place and on
the Pennsylvania Lottery.
Chairman Youngblood asked if Helsel has contacted the Department of Revenue for an estimate on how
HB 906 would affect the lottery. Helsel said there were some limited discussions during the last
administration and noted the lottery has not seen a negative impact from gambling as of yet, but opined
there may be an impact with adding small games of chance to for-profit businesses and said the lottery is
concerned about the impact this may have on lottery machines already in some for-profit businesses.
Rep. Knowles asked if there is a belief people will be drawn to taverns merely because small games of
chance are offered. Helsel said he does not see this type of competition for customers and reiterated
clubs are businesses as well. He argued small games of chance were developed to help these
organizations with the charity work they do. He added the taverns will pocket the money and pay their
taxes and said these for-profit businesses already have an advantage over the clubs. Rep. Knowles
indicated he is torn and does not want to hurt the clubs, but sees taverns struggling.
Rep. O’Brien stated he is concerned with the clubs maintaining their original purpose and asked if there
are guidelines in order for a club to keep their charter. Helsel said there are guidelines and noted clubs
have had their charters revoked. He detailed the structure of the Elk’s Club and what happens when a
charter gets revoked including loss of liquor license and building. He noted other organizations have
similar structures and penalties.
Rep. Goodman asked how many small games of chance licenses have been issued in the
commonwealth. Helsel said he does not know and said permits are issued by the counties with oversight
from the Department of Revenue. Rep. Goodman indicated he would be interested in seeing how the
increase in payouts would affect the lottery. Helsel said there was likely no initial impact when small
games of chance were legalized since most places were already conducting small games of chance.
Rep. Brooks asked if there are any statistics as to how many licenses have been revoked and asked if it
is a widespread problem. Helsel said revocation numbers are “slim” or nonexistent. He said a number of
Elk’s Clubs have closed due to the economy, but only one or two due to mismanagement. Rep. Brooks
said HB 169 will help fire companies as well.
John Brenner, Chairman, Pennsylvania State Veterans Commission noted his member organizations
unanimously support HB 169 since “we believe that this bill best captures the improvements most needed
to modernize small games regulations into the 21st century.” He also said veterans organizations “should
not be compared to commercial enterprises that exist to make a profit. We urge you to not allow bars and
taverns into small games of chance.” He then continued to advocate against HB 906, but added his group
is in favor of adding additional accountability, noting “there is confusion now about how small games
regulations are enforced and what role local and county official will play.” He noted the negatives that will
stem from veteran and other service organizations no longer being able to operate due to a lack of funds.
He introduced Joel Ellis a member of a Veterans of Foreign Wars (VFW) Lodge who detailed the
charitable work his lodge does and advocated for passage of HB 169.
Chairman Youngblood asked what percentage of Brenner’s members are tavern owners. Brenner said he
is not sure, but would welcome in to the organization any otherwise qualified tavern owner.
Rep. Millard said communities asked organizations like Brenner’s are asked to perform services, often
times better than the government, but are given 20th century tools to operate in a 21st century world. He
said more money for payouts equates to more money for services and said due to the good intent and
work of these organizations they deserve to have the payouts increased.
Rep. O’Brien asked about the membership criteria for being in a VFW lodge. Brenner stated one needs a
combat ribbon, to have served in a foreign war, and receive imminent danger pay. Rep. O’Brien asked if
associate members are allowed by veteran’s organizations. Brenner said social members are allowed in,
but they are only allowed to use the canteen and do not have voting rights and cannot hold office.
Amy Christie, Executive Director, Pennsylvania Tavern Association advocated against HBs 169 and 1288
saying “not only would the bills allow clubs to substantially increase the prizes they offer and the
availability of the games, the legislation offers no new enforcement tools for state officials, which is
problematic even under the existing law.” She noted further expansion of payouts would put taverns at a
greater competitive disadvantage when they are already struggling. She also pointed out non-profit clubs
and organizations use small games of chance proceeds for purposes other than their charitable mission
while they are forced to cut services due to an otherwise lack of money. She urged passage of HB 906 to
allow taverns the option to implement small games of chance to help this struggling industry while adding
tax dollars to the commonwealth’s general fund.
Chairman Schroder asked what enforcement mechanisms are being advocated for by the Tavern
Association. Christie said she is advocating for electronic monitoring, which is already used in other
states. She said this will help in that it will remove the hassle of accounting. Chairman Schroder asked
what the average cost of electronic monitoring is. Christie said around $1,500. Chairman Schroder asked
if the Tavern Association would be for a referendum in the municipality to see if the municipality wants
small games of chance in local taverns. Christie said her organization has no problem with it, especially
since a recent poll shows 60 percent are in favor of taverns having small games of chance.
Chairman Youngblood if Christie would be opposed if HB 906 had a requirement that taverns must
advertise an 800 number for problem gambling. Christie said she is not opposed.
Rep. Knowles asked if there have been a lot of taverns closing. Christie said she is down 47 members
this year and several hundred from last year. She said this is due to the inability of taverns to compete
with clubs that are major offenders or compete with casinos.
Rep. Stephens asked for revenue projections for HB 906. Christie said the Department of Revenue
projected with a 20 percent tax with 6,000 taverns participating $85 million could be put into the general
fund. She said a 30 percent tax puts that number over $100 million. Rep. Stephens asked how many
taverns are in Pennsylvania. Christie said 8,000.
Rep. Murphy asked if taverns would be opposed to mandated contributions to the problem and
compulsive gambling fund. Christie said she does not have a problem with this.
Rep. Delozier expressed support for the referendum idea and said her preference is for both bills to run
together so both can be fully vetted. Christie said since Helsel even admitted clubs are run like
businesses any change should effect both clubs and taverns. Delozier stated the difference is HB 169
helps those with a charitable purpose while under HB 906, the tavern can pocket 48 percent of the
earnings.
Jim Laufenberg, Legislative Committee Chair, Pennsylvania American Legion called for the passage of
HB 169 saying “we need this bill to enable us to support our veterans and our communities.” He said
liquor control enforcement inspects those with liquor licenses, but said this enforcement is varied and
subject to individual interpretation of the law. He also noted the advent of casinos in the commonwealth
has had an adverse effect on small games of chance and noted money spent at casinos does not go
back into the local community.
Joseph Cocco, American Legion member also spoke in support of HB 169 and discussed the specific
charitable work of his legion and how it would be benefited from higher payout limits.
Chairman Schroder asked if the testifiers would be amenable to electronic monitoring. Laufenberg stated
the might be if they knew more about it and the costs involved. He noted more than $30,000 was spent
on implementing touch screens for other small games of chance.
Pennsylvania Association
Of
Nationally Chartered
Organizations
PANCO
Testimony provided to the
PA House Gaming Oversight Committee
Small Games of Chance Reform
May 5, 2011
Thomas W. Helsel, Jr., Secretary
Pennsylvania Association of Nationally Chartered Organizations
Good morning Chairman Schroder and Chairman Youngblood, distinguished members of the
House Gaming Oversight Committee. I would like to thank you for the opportunity to present
testimony on legislation concerning Act 156, The Local Option for Small Games of Chance. My
name is Tom Helsel and I am the secretary of the Pennsylvania Association of Nationally
Chartered Organizations. Additionally I serve as the Government Relations Chairman for the
Pennsylvania Elks State Association.
The Pennsylvania Association of Nationally Chartered Organizations (PANCO) is a statewide
association of nationally chartered fraternal and veteran groups. We count amongst our
membership fraternal organizations such as the Eagles, Elks and Moose as well as veteran posts
of the American Legion and Veterans of Foreign Wars. As nationally chartered organizations
we are tasked by our respective constitution and statutes to provide charitable works for our local
communities. Our programs are funded by the largess of our membership and more importantly,
through the ability to conduct small games of chance.
Our fraternal and veteran members take on varying projects within their communities ranging
from supporting local youth sports activities, providing scholarships and grants, funding local
charities, supporting veteran programs and funding and supporting state association major
projects. The legislature is well aware of the veteran programs funded and supported by the
American Legion and VFW. They are less aware of the programs operated by our fraternal
members.
As Government Relations Chairman for the Pennsylvania Elks State Association I can point to
our state major project, The Elks Home Service Nurses Project as a prime example of what our
fraternal groups do. The Home Service Project began in 1963 funding nurses to deal with
children afflicted with cerebral palsy. The project has since grown to incorporate all
developmental disabilities which are diagnosed by age 22. The Elks employ 25 nurses statewide
who provide services to these individuals at no charge. The annual budget for this is around $1.6
million. The Eagles major project is Alzheimer’s while the Moose focus their energies on
Mooseheart and Moose Charities.
I mention these programs as they are funded primarily by our local lodges across Pennsylvania
which in turn receives a great deal of their funding from small games. Small games is the life
blood of charity within our organizations.
We are being asked to comment on four pieces of legislation being proposed for small games of
chance; HB169, HB906, HB1288 and HB1323. The most far reaching and significant bill of
these four is HB169 sponsored by Rep. Sheryl Delozier. PANCO and our members strongly
support the passage of HB169.
I have personally been involved in the reform of small games of chance since 2005 when then
HB11 was introduced before the General Assembly. Since that time we have worked hard to get
this issue passed into law. This will make the third session that HB169 has been proposed and
brought before this body. I will remark that the previous 2 bills were overwhelmingly passed by
this chamber (173-27 in June of 2007 and 166-24 in May of 2010) and I thank those members for
that.
Over the past three sessions the issues within small games have been discussed and many of the
needs and concerns are addressed in this latest version. We have asked the legislature to address
the inadequate weekly prize limit and single prize limit as set forth in Act 156 and you have
responded by raising the limits to $25,000 per week and $1000 per single prize respectively.
Last session we discussed the necessity of dealing with use of proceeds and again, you responded
favorably.
The weekly limit of $5000 is an arbitrary number reached by the legislature in 1988. In essence,
by placing this nominal limit on organizations, it impacts our ability to raise money by capping
the potential profits. While we understand the reason behind not allowing an unlimited weekly
prize limit, we question the logic of placing the limits at a seemingly nominal amount. You have
seen wisely to increase this limit to $25,000, one that is more in keeping with today’s economic
levels.
Of growing concern is the issue of use of proceeds. Our members are being asked to bear a
greater financial responsibility in their communities due to budgetary constraints by government,
an increase in charitable requests and by our own obligations to our projects and programs. Our
lodge and post buildings are places of gathering by community groups and in many instances by
the community itself. We are asking that we be able to use a portion of the money raised by
small games for general operating expenses. We are asking to use these monies to offset our
utilities, our real estate taxes, our insurance and other general operating costs. HB169 will allow
us to do so.
I contend that allowing our organizations to do this is within the original intent of Act 156.
Without our core organization and facilities; the lodge, the aerie, the post or the club, we would
not be able to provide the funding and services to our communities that we do. It withstands that
by allowing us to use these funds in such a manner it is consistent to the purpose and original
intent of the Act.
Our many detractors have alleged that we do not pay taxes and therefore have an advantage. I
strongly disagree and would like to point out that we are only tax exempt in the realm of paying
net income tax and even that is conditional. Our members, with the exception of those veteran
groups constitutionally exempted, pay real estate taxes to our municipalities and school districts.
I would wager to say that our real estate tax burdens are greater than most of our detractors. We
pay the same employer and employment taxes as all businesses. We pay the same fees
associated with business that all others do. And we are liable for income tax on Unrelated
Business Income, that income that is not ordinary to our primary business.
Additionally our economic power within our communities has been downplayed by our
detractors. In many parts of Pennsylvania, our organizations are major employers. We provide
for our communities. The loss of any one of our organizations within a locality can have a
negative impact. The loss of jobs, the loss of charitable funding, the loss of funding for youth
activities, the loss of scholarships provided, and the loss of taxes are just a few items not to
mention the social impact of the loss of a fraternal or veteran organization.
Given what I have just outlined, PANCO and our members strongly support HB169 and ask that
you report it favorably from committee.
With respect to HB1288, we support Rep. Kerry Benninghoff’s bill and are grateful for his
support and intentions to our issue. Likewise we support Rep. Seth Grove’s bill HB1323. Rep.
Grove has simply asked to add a specific type of game to the list of approved small games of
chance. Adding coin auctions would give our organizations and other non-profits an added tool
to their limited chest.
Lastly we look at HB906, introduced by Rep. Ron Miller. With all due respect to Rep. Miller
and the bill’s cosponsors we oppose HB906. The primary intent of the bill is to add for profit
businesses to the list of eligible entities by basing eligibility on the possession of a liquor license.
In essence it would allow taverns to participate and profit from small games of chance. We
believe this is in direct conflict and in opposition to the intent of Act 156.
Opening the eligibility of small games of chance to for profit businesses is a significant
expansion of gambling. Under HB906, it would open small games gambling to another 10,000
plus locations throughout Pennsylvania. I would surmise that the Lottery Bureau of the
Department of Revenue would question what impact expanding to these types of businesses
would have on the Lottery.
I would argue that in today’s economic climate, the potential addition of over 10,000 venues
would have a negative impact on the original intent of small games as well as on the
Pennsylvania Lottery. There is a finite amount of entertainment and/or charitable dollars
available. By expanding to such a large venue, programs funded by current small games
licensees would be negatively impacted as well as the state lottery.
Those businesses claiming the need to expand small games to them based on the premise of “tax
me” are doing so to increase their personal wealth by offering up to the state a nominal tribute
which in the long run diminishes the good work that small games does. Our organizations accept
our responsibilities to our communities. In addition to paying the taxes and fees imposed upon
us, we give of ourselves willingly to our communities. We believe that expanding small games
as proposed by HB906 is not in the best interest of the Commonwealth and oppose it.
I thank you Chairman Schroder and Chairman Youngblood for the opportunity to present my
testimony.