COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES GAMING OVERSIGHT COMMITTEE * * * * * * * * * * PUBLIC HEARING IN RE: HOUSE BILL 1317 * * * * * * * * * * BEFORE: DANTE SANTONI, JR., Chairman Bryan Barbin, Christopher Sainato, Michael Reese, Randy Vulakovich, Fiorindo J. Fabrizio, Members HEARING: Thursday, May 7, 2009 9:22 a.m. LOCATION: 2112 Commissioners Hall Westmoreland County Community College 145 Pavilion Lane Youngwood, PA 15697

WITNESSES: Stephen H. Stetler, Secretary, Kathleen M. Shaw, Ph.D., Deputy Secretary, Doctor Joe D. Forrester, President, Doctor Tony Atwater, President, Major John P. Lutz, Director, Amy Christie, Executive Director, Tom Scott, Owner, Sherman Smith, Owner, Steve Fritz, General Manager, John P. Milliron, Esquire, Stephen Drachler, Executive Director Reporter: Valerie B. Gregory Any reproduction of this transcript is prohibited without authorization by the certifying agency.

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1 I N D E X 2 OPENING REMARKS 3 By Chairman 3 - 5 4 STATEMENT 5 By Mr. Harhai 5 - 7 6 DISCUSSION AMONG PARTIES 7 - 9 7 TESTIMONY 8 By Stephen J. Stetler 9 - 25 9 By Kathleen M. Shaw, Ph.D. 25 - 59 10 By Doctor Tony Atwater 61 – 69 11 By Doctor Joe D. Forrester 69 - 77 12 DISCUSSION AMONG PARTIES 77 - 89 13 TESTIMONY 14 By Major John P. Lutz 89 - 103 15 By Tom Scott 104 - 106 16 By Amy Christie 106 - 115 17 By John P. Milliron 115 - 120 18 By Sherman Smith 120 - 122 19 By John P. Milliron 122 - 123 20 By Steve Fritz 123 - 127 21 DISCUSSION AMONG PARTIES 127 - 147 22 TESTIMONY 23 By Stephen Drachler 147 - 158 24 CERTIFICATE 160 25

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1 P R O C E E D I N G S 2 ------3 DOCTOR OBARA: 4 Doctor, one that is very critical, 5 certainly to all students who attend the 14 community 6 colleges in the state as well as all the Pennsylvania 7 State University --- assisting universities. So this 8 legislation of course would provide tuition relief for 9 students attending those institutions. So we're very 10 pleased to be able to provide the venue for this 11 hearing and hope that you find all the accommodations 12 very satisfactory. Thank you and welcome to the 13 college. And I will bring this mic over here.

14 CHAIRMAN: 15 Thank you, Doctor Obara, we appreciate 16 your hospitality and we thank Westmoreland County 17 Community College for hosting today's hearing. And I 18 want to thank you all for coming. We're here today to 19 hear testimony on House Bill 1317, The Tuition Relief 20 Act. 21 This is the second of our four scheduled 22 hearings on this legislation. It is my intention as 23 Chairman to make sure that all perspectives on this 24 proposal have an audience and I believe we will hear a 25 broad range of opinions over the course of these four

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1 hearings. We've already had one in Harrisburg; this 2 is number two as I've said. 3 Again, we're meeting here at Westmoreland 4 County Community College for several reasons. First, 5 it gives the people of Western Pennsylvania a chance 6 to be part of the discussion, to hear from you and to 7 also let you know that our committee cares about what 8 your opinions are. Second, community colleges like 9 this one will be significantly impacted if the Tuition 10 Relief Act becomes law. Initially, I just want to 11 mention that this college is located in the district 12 of one of our committee members, Representative Mike 13 Reese. And I know that there's a couple of other 14 committee members here from Westmoreland, 15 Representative Ted Harhai and Representative Tim 16 Krieger. 17 I'm going to ask Representative Ted 18 Harhai to make some brief remarks before announcing 19 the members and then get on with the hearing. 20 Representative Harhai, welcome.

21 REPRESENTATIVE HARHAI: 22 This is for a guy in the MBA. First, I'd 23 like to congratulate Doctor Obara on his recent 24 appointment or election as the president. He's a fine 25 man, had many dealings with him over many years and

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1 just congratulations. Well deserved. 2 DOCTOR OBARA: 3 Thank you much. 4 REPRESENTATIVE HARHAI: 5 I'd like to thank all of you for being 6 here today and I have some prepared testimony that I 7 would like to present because I feel very strongly 8 about this issue, especially for our local people that 9 are involved with video gaming. 10 I want to thank you, Mr. Chairman, for 11 bringing the Committee to Westmoreland County along 12 with my colleagues, Representative Krieger and 13 Representative Reese. And for giving me the 14 opportunity to speak here today. As the native son of 15 Monessen, just 20 some miles down the road, I have 16 seen Westmoreland County Community College grow from 17 its finding in 1970 into the pillar of the community 18 that it is today. Since its inception, the college 19 has provided an avenue to a college education for many 20 students who would otherwise be unable to afford the 21 degree they need to succeed in our modern economy. 22 Unfortunately, despite the college's best efforts to 23 control costs, a college education is simply getting 24 more expensive. 25 I am pleased that the Governor and

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1 Chairman Santoni have stepped up to offer a proposal 2 that will allow young men and women across 3 Pennsylvania to have access to quality higher 4 education. 5 House Bill 1317 is a good starting point 6 for the discussion of how to provide tuition relief. 7 And I would like to add my voice to that discussion 8 here today. To maximize the efficiency and 9 effectiveness of the funding mechanism for tuition 10 relief, I believe Pennsylvania must consider the 11 models used by most other states that have legalized 12 video lottery terminals. 13 In my view, the Commonwealth will be 14 making a big mistake if it excludes private industry 15 from the equation. By including carefully regulating 16 vendors, Pennsylvania can provide an added economic 17 stimulus, raise additional revenue through the sales 18 tax, drastically cut overhead costs for the State and 19 guarantee a more efficient system for servicing the 20 terminals. 21 As you will hear today the Pennsylvania 22 State Police is the agency charged with investigating 23 illegal terminals and it rightfully receives funding 24 to accomplish that. However, these video lottery 25 terminals are located in our boroughs, our townships

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1 and our cities. The people who use these machines use 2 our local roads and enjoy themselves in bars and 3 taverns that occasionally need to rely on our local 4 police forces. As such, our municipalities also 5 deserve a portion of the revenue and I feel very 6 strongly about that. To be generated by legalized 7 video lottery terminals, and I'll emphasize it a 8 second time, that’s how strongly I feel about it. As 9 such, our municipalities also deserve a portion of the 10 revenue to be generated by legalized video lottery 11 terminals. 12 I hope the Committee will consider the 13 points I've raised here today as the study of House 14 Bill 1317 continues. As Chairman Santoni said, this 15 is the second of four hearings and hopefully it moves 16 forward. I believe my suggestions will strengthen a 17 proposal that we must pass to help the young men and 18 women of Westmoreland County, especially, and of all 19 Pennsylvania to get the education they deserve. I 20 want to thank you once again for moving me up on the 21 schedule, letting me offer my remarks, and thank all 22 of you for being here today. And if you have any 23 questions, I'd be willing to listen, or if you want to 24 hold them to the end.

25 CHAIRMAN:

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1 I think we'll get started with the 2 hearing. I think what I want to do is --- so 3 everybody knows who we are and where we're from --- 4 let's start to my right with Representative Krieger. 5 If you could just tell who you are and where you're 6 from. 7 REPRESENTATIVE KRIEGER: 8 Thank you, Mr. Chairman. I'm Tim 9 Krieger. I represent the 57th District in 10 Westmoreland County.

11 REPRESENTATIVE REESE: 12 I'm Mike Reese, I represent the 59th 13 District in Westmoreland and Fayette County and this 14 is a part of the 59th District. 15 REPRESENTATIVE HARHAI: 16 Obviously, I'm State Representative Ted 17 Harhai. I represent the 58th Legislative District, 18 Westmoreland and part of Fayette County. 19 REPRESENTATIVE SAINATO: 20 I'm Representative Chris Sainato, I 21 represent the 9th Legislative District, which is parts 22 of Lawrence and a small section of Beaver County. 23 CHAIRMAN: 24 I'm Dante Santoni, I'm from Berks County, 25 the City of Reading.

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1 REPRESENTATIVE FABRIZIO: 2 I'm Fiorindo Fabrizio, 7th District, Erie 3 County. 4 REPRESENTATIVE BARBIN: 5 I'm Bryan Barbin, 71st State District, I 6 represent Johnstown. 7 REPRESENTATIVE DEASY: 8 Good morning. Daniel Deasy, 9 Representative 27th District, Allegheny County.

10 CHAIRMAN: 11 Thank you all. And first to testify in 12 today's hearing will be from the Pennsylvania 13 Department of Revenue, our good friend Secretary 14 Stephen Stetler. Secretary? 15 MR. STETLER: 16 Thank you, Mr. Chairman. I won't read 17 through my testimony, you all have copies in front of 18 you. But I wanted to point out --- I wanted to point 19 out two or three things that I have added to that 20 testimony since we've last met in Harrisburg. 21 Chairman Shroder at the first hearing 22 raised the issue of political contributions and 23 whether the Administration would be willing to have 24 discussions about that being taken some place in this 25 legislative proposal. Subsequent to that hearing the

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1 Supreme Court ruled that the language in the Gaming 2 Control Act was unconstitutional and so the 3 Administration still remains open to the discussions 4 about how, you know, that both of the Chambers would 5 like to address the issue going forward. 6 The other question that was raised in 7 particular dealt with how did we arrive at the profit 8 figure of $86 per machine per day? And that was based 9 upon information that we gained from Louisiana, 10 Montana, West Virginia and South Dakota. And as I 11 testified at the prior hearing, you know, we based it 12 on 35,000 --- approximately 35,000 machines in 13 Pennsylvania operating on a certain number of days per 14 month, per year, and that’s how we arrived at the $86. 15 Another question that came up, and I want to correct a 16 minor typo in the sixth paragraph, and that was with 17 the over --- you know, the appropriate administrative 18 costs for administrating House Bill 1317 when it 19 becomes law. The typo is well we and the Department 20 of Revenue think we are efficient and effective 21 managers to taxpayers’ dollars, we realize that $17 22 would not cover operational costs and that that number 23 should be $17 million. 24 With that, Mr. Chairman, I'll be willing 25 to take any questions. And to my right is Juliet

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1 Sheridan, the Deputy Counsel in the Department of 2 Revenue. 3 CHAIRMAN: 4 Representative Harhai has a question. 5 REPRESENTATIVE HARHAI: 6 The question I have is I've heard 7 numerous figures on what's going to happen with 8 vendors, what's going to happen with municipalities, 9 that they will be included in the mix. I've got a 10 strong feeling and a lot of response from a lot of my 11 vendors, which I see several here in the audience. Is 12 it etched in stone or do we have a chance to continue 13 to fight as representatives representing these people, 14 especially in my district? And I'm sure everybody 15 feels the same, that they're going to be a part of the 16 pie, part of the mix in this thing. Or aren't we that 17 far along in 1317 yet?

18 MR. STETLER: 19 I think I could give you several 20 different answers. I mean, I guess at this point in 21 time the Department and the Administration has taken a 22 position that the lottery, you know, we're going to 23 follow the basic idea of the lottery law as it was 24 passed and how it's implemented today. And, you know, 25 the idea of ownership of the --- I'm sorry. Ownership

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1 of the machines, you know, and the providing in the 2 machines we wanted to be able to control through 3 contracts competitively, but at the State level. So 4 in that sense at this point in time, you know, the 5 vendors are not part of this piece of legislation. 6 You know, how the, you know, distribution of monies 7 raised as a result of the implementation of this 1317, 8 you know, certainly that’s ---. I'm sure that that’s 9 something that’s always going to be discussed until 10 final vote is taken. But at this point in time there 11 is no provision for local governments.

12 REPRESENTATIVE HARHAI: 13 I've heard that the Governor is looking 14 at about 50 percent for the education tuition relief, 15 which I have no problem with. The issue that I have 16 is that the current vendors that are involved in any 17 vending machine from cigarettes, et cetera, et cetera, 18 on down. These are livelihoods. These people employ 19 people. They're contributors to the economic stimulus 20 of our areas around here and it's a big thing. 21 I mean it affects a lot --- adversely 22 would affect a lot people if they were cut out. And 23 I'm advocating for them to be definitely a part of the 24 mix, if they can be a part of the mix, because they’ve 25 been doing this for years and years and years. This

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1 has been passed down through their families, and just 2 a lot of people involved in it. And that’s pretty 3 much the crux of the phone calls that I've received. 4 And discussions I've had in person with my vendors is 5 to make sure that somehow we can get a, you know, 6 place for them at the table and that they don’t lose 7 their livelihoods. And, you know, as I've said, they 8 have employees and it's run as a business. And, you 9 know, that’s how they survive. So that’s my concern, 10 is to see if we can get them in and maybe through the 11 amendment process if it's not done. Then I would just 12 like to see that occur if we can. This is a 13 viewpoint.

14 MR. STETLER: 15 And I guess just as a follow-up to that, 16 two different thoughts. The first is that, you know, 17 the success of the Pennsylvania Lottery is built a lot 18 on the integrity of its system and the controls it has 19 over the systems. And the fact that they control the 20 product that administers and disperses the tickets and 21 things like that is very critical to the integrity of 22 the lottery system and so that kind of drives the 23 philosophy of the Department in terms of drafting or 24 participating in the drafting of this legislation. 25 And another part of that, Representative, is that, you

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1 know, we're talking solely about the video lottery 2 terminals and we're talking about this group and not 3 all the other things that you were just referencing. 4 But that’s --- I mean I understand that that’s the 5 part they wanted, but this legislation does not 6 exclude them from cigarette vending machines and 7 things of that nature. 8 REPRESENTATIVE HARHAI: 9 Okay. This isn't going to be run under 10 the lottery. It would be a separate parallel issue; 11 or is that incorrect?

12 MR. STETLER: 13 This will be --- it will be administered 14 by the Department of Revenue and will have a separate 15 governance Bureau in the Department. 16 REPRESENTATIVE HARHAI: 17 Similar like the lottery though but it 18 will ---? 19 MR. STETLER: 20 Yes. 21 REPRESENTATIVE HARHAI: 22 Okay. That’s all I have, thank you. 23 CHAIRMAN: 24 Representative Sainato has a question. 25 REPRESENTATIVE SAINATO:

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1 Thank you. Thank you, Mr. Secretary. 2 It's great to see you in Western Pennsylvania. 3 MR. STETLER: 4 A good hockey game last night. 5 REPRESENTATIVE SAINATO: 6 Yes, great hockey game last night. My 7 question is simple. And I think you hit a little bit 8 on it, is the integrity of the system and most states 9 that operate video terminals and lotteries, do they 10 have a central like computer that knows exactly what's 11 going on in every establishment?

12 MR. STETLER: 13 I guess there's a couple of answers to 14 that. And the first is that depending on the 15 different states, some states ---. 16 CHAIRMAN: 17 I'm sorry to interrupt but I know people 18 in the back are having trouble hearing you. And I 19 know it might be a little awkward to get close to the 20 microphone but maybe --- you need to get as close as 21 you can because I know that they can't hear you. I 22 see some faces back there and they're like what's he 23 saying? So thank you. And other testifiers, just 24 remember, try to speak as close --- it might seem a 25 little awkward but that’s what we're going to have to

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1 do. 2 MR. STETLER: 3 I'm sorry. They might even say that if 4 they hear me. There's at least one state that will 5 operate the same way we do now or we're proposing with 6 the central system. I mean it's --- I mean, I think 7 the control part of it really lends itself to the 8 integrity of the lottery and it works. You know, our 9 experience over the years in the lottery will lend 10 itself well if we operate a system like that.

11 REPRESENTATIVE SAINATO: 12 Yeah, because I know that you’ve also 13 been a man of integrity and I think that’s important. 14 The whole system has to be run that way as well as the 15 lottery and I think, you know ---. There will be a 16 minimal amount of payoff in these machines; is that 17 correct? 18 MR. STETLER: 19 There will be ---. 20 REPRESENTATIVE SAINATO: 21 I mean they'd have to pay out --- 22 MR. STETLER: 23 They'd have to pay all of it.

24 REPRESENTATIVE SAINATO: 25 --- 87 percent?

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1 MR. STETLER: 2 Yes. Yes. There will be a legislative, 3 you know. 4 REPRESENTATIVE SAINATO: 5 Similar to what we do with the slot 6 machines? 7 MR. STETLER: 8 Yes.

9 REPRESENTATIVE SAINATO: 10 Okay. I think that's critical to any, 11 you know, proposal, which we do --- I think the 12 complaints that you hear now with these illegal gaming 13 machines that are out there is they can be set 14 anywhere they want. And we have people, you know, 15 putting their money in these machines and never get 16 anything back. 17 MR. STETLER: 18 I mean that was one of the arguments from 19 a business perspective as to why if there's one 20 facility that has legalized gaming devices and one 21 that doesn’t, why would one go to the one and not the 22 other? And I mean the answer is the payouts in the 23 regulated machines in the bars and taverns, that we 24 would manage payout would be at a higher rate. And 25 over time if you're going to gamble you'll obviously

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1 want to increase your odds of getting a payout. And 2 you're not going to be using the machines that payout 3 55 percent, you'd like the 85 or 87 percent. 4 REPRESENTATIVE SAINATO: 5 I think that’s just --- you know, it goes 6 back to your original comments about the integrity of 7 the system. In order for a system to succeed and be 8 able to accomplish the goals which we're looking at as 9 far as putting money into education and putting money 10 into these goals. If, you know, if people feel that 11 the machines aren’t being fair and adequate, they 12 won't use them. And I think that that’s, you know, I 13 think that needs to be a major part of this, is, you 14 know, keeping the whole system if and when this 15 happens that, you know, so the integrity is there. 16 And from all standpoints to know that people are being 17 treated right, the businesses are being treated right 18 and there's nothing --- no chance of any outside 19 forces.

20 MR. STETLER: 21 Absolutely. 22 REPRESENTATIVE SAINATO: 23 Thank you, Mr. Secretary.

24 MR. STETLER: 25 Thank you.

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1 CHAIRMAN: 2 We have been joined by Representative 3 Vulakovich, a member of the Committee. The next 4 question is from Representative Barbin. 5 REPRESENTATIVE BARBIN: 6 Thank you, Mr. Chairman. I have two 7 questions for you, Secretary Stetler. The first 8 question that I have is ---. My first question that I 9 have relates to the sources or the recipients of the 10 funds and it indicates that 25 percent ---. That the 11 bill indicates that 25 percent of the fund would go 12 for the Department of Revenue, The Liquor Control 13 Board and the State Police. And I know having 14 reviewed the Governor's budget for next year that 15 there isn't an allocation for a new class of State 16 Police Troopers. And I'm wondering will this money be 17 segregated in a way that will allow the complements 18 which will --- of State Troopers which were passed in 19 2001? Which are now 370 --- we have 370 troopers 20 lower than that amount. Will these funds be used for 21 the purposes of providing additional State Troopers 22 since that allocation is not funded under a current 23 budget proposal?

24 MR. STETLER: 25 I guess my answer, Representative Barbin,

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1 has two points to it. The first is the money, that 25 2 percent will be --- should the expenses of any one of 3 those three Departments succeed, what it would be 4 initially proposed in the legislation that there might 5 be access to some of the 25 percent to make whole the 6 Departments for the administration of this 7 legislation. 8 The other part is that money will go into 9 the general fund and it will be appropriated 10 accordingly. I mean I would suggest that in a future 11 meeting that the Chairman might invite Mary Sitabird 12 to come in and discuss the actual budget implications.

13 REPRESENTATIVE BARBIN: 14 Well, the reason why I'm asking this 15 question is that when the video slot machine 16 legislation was proposed, there was a specific 17 percentage that was allowed for the horseracing 18 association. We've now found that that horseracing 19 association has significant funds to cover all of 20 their expected expenses but we're still generating a 21 percentage that is going to that particular 22 association. Would you --- is the Administration 23 opposed to a provision that would allow this money not 24 to go to the general fund but to the Pennsylvania 25 State Troopers Association specifically? Because

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1 there isn't language in the bill as proposed and what 2 I'm asking for is the Administration's position with 3 regard to setting up a fund where a specific amount 4 would be used to increase the funding available for 5 the Pennsylvania State Troopers Association, their 6 officers statewide. 7 MR. STETLER: 8 And let me just say that I would carry 9 that question back to the Administration and I will 10 --- when I testify in Reading at the next hearing, 11 I'll have an answer for you at that time, 12 Representative Barbin.

13 REPRESENTATIVE BARBIN: 14 Okay. I have one final question, which 15 is --- concerns a follow-up to Sainato's question 16 where --- and he was asking concerning the integrity 17 of the system. I viewed the computer lab in 18 Harrisburg and I know that that technology allows each 19 machine itself to be accessed by the State to 20 determine that the proper payouts will be made. When 21 you enter into a contract with, you know, as the 22 Department of Revenue entering into the contract, is 23 the technology going to be similar to ensure that each 24 terminal has access to the specific payouts, specific 25 amount played at any particular time?

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1 MR. STETLER: 2 The answer would be yes. The real time 3 access. 4 REPRESENTATIVE BARBIN: 5 Thank you, Secretary. I appreciate your 6 being here today. 7 MR. STETLER: 8 Thank you.

9 CHAIRMAN: 10 Representative Reese, a question? 11 REPRESENTATIVE REESE: 12 Thank you. Mr. Secretary, question. If 13 revenues aren’t where we expect them to be with these 14 poker machines, are commitments made to students? And 15 if those commitments are made to students and the 16 revenue is not there, where would the funds come from 17 to cover the program? 18 MR. STETLER: 19 There's whole harmless language in the 20 legislation so in the event that that would happen, 21 you know, there would be access to other funds. 22 REPRESENTATIVE REESE: 23 Other funds? General fund?

24 MR. STETLER: 25 Yeah.

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1 REPRESENTATIVE REESE: 2 So right now we're looking at close to a 3 $3 billon deficit by June 30th and next year an even 4 greater deficit. This program potentially could be 5 drawing down more general fund dollars if the revenues 6 aren’t there. 7 MR. STETLER: 8 Potentially, yeah. But based upon the 9 industry and the models that we've looked at, you 10 know, we're very confident that the numbers that we 11 are using are very conservative in their nature. And 12 that achieving those numbers we'd feel very confident.

13 REPRESENTATIVE REESE: 14 Okay. Thank you, Mr. Secretary. 15 CHAIRMAN: 16 Just a couple things from me. In your 17 --- just to follow-up on what Representative Reese was 18 saying about the funding. I know that there's been a 19 lot of discussion as to how much when fully 20 implemented this program we'll have to deal with. And 21 I think that that’s important because when we're 22 talking about percentages if ---. And I've heard 23 anywhere from $1 billion dollars to $2 billion and 24 we're talking about percentages of handing out monies 25 to the schools and to municipalities and to licensees,

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1 et cetera. I mean that’s going to be significant. 2 Now, it says your testimony about first year generates 3 $128 million and than after that $550 million. Is 4 that just for the educational component of it? 5 MR. STETLER: 6 Yes. 7 CHAIRMAN: 8 Okay. Now, that answers that question 9 and the other question I have is I know that you spoke 10 to this, Mr. Secretary, at the last hearing. But I 11 think it's important to point out the affect that this 12 will have on the lottery. In your opinion and looking 13 at other states, it has not had a negative impact on 14 their lottery playing; is that correct?

15 MR. STETLER: 16 Yes. I mean --- and I would refer you to 17 the Legislative Budget and Finance Committee Report 18 that just was issued, you know. In your wisdom in 19 with the Gaming Legislation, you've required them to 20 do a study every year on the impacts of, you know, 21 casinos on the lottery and the study again came back 22 this year and indicated that they could not detect any 23 impact on the lottery. And, you know, we feel very 24 confident. Just because of the different venues 25 involved and who participates in each of these

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1 different types of venues, we feel very confident that 2 there will not be an impact on the lottery. 3 CHAIRMAN: 4 That’s all I have. I think --- we 5 appreciate you coming out. I know your schedule's 6 tight, you're on your way to the wonderful City of 7 Pittsburgh. Have a safe trip and we will see you 8 again. You'll have your homework for the next 9 hearings. We're giving you a lot of homework, Mr. 10 Secretary.

11 MR. STETLER: 12 Well, we're at school, aren’t we? 13 CHAIRMAN: 14 Exactly. Thank you. My next testifier 15 is Pennsylvania Department of Education, Doctor 16 Kathleen M. Shaw. Doctor Shaw is a Deputy Secretary, 17 Office of Postsecondary and Higher Education. Doctor 18 Shaw, welcome. 19 DOCTOR SHAW: 20 Thank you. Thank you for the opportunity 21 to speak to you today about the kinds of educational 22 benefits that will come to the State of Pennsylvania 23 should we pass the Tuition Relief Act. I know that a 24 lot of the focus today is going to be on the revenue 25 streams and the other issues around the legality of

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1 the bill. But it's important for everybody here to 2 understand what will happen to our citizens across the 3 state should the Tuition Relief Act be passed. 4 As many of you know, Pennsylvania 5 families are suffering because of the national 6 recession. And in the coming months and, in fact, 7 right now thousands of families are sitting at their 8 kitchen tables and making the final decision about 9 whether or not they can afford to send their children 10 to college this fall. The legislation before you 11 today can make the difference in what those families, 12 your constituents, decide. 13 We have an immediate need for Tuition 14 Relief, but please make no mistake, the benefit of 15 this bill will last far beyond the current national 16 recession and help Pennsylvania adjust to the global 17 economy our students are entering. 18 In 1950 unskilled jobs that did not 19 require a postsecondary credential made up 73 percent 20 of our workforce. Today they make up only 24 percent. 21 The workforce of today and tomorrow demands a 22 postsecondary education. Yet national data indicates 23 that in this decade alone two million academically 24 qualified students will not attend college because 25 they cannot afford to go to college. As a result, for

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1 the first time in our nation's history, we have a 2 generation of workers that is less educated than the 3 previous generation. And what's more disturbing is 4 that this trend is occurring exactly at the same time 5 that the rest of the developed world is heading in the 6 opposite direction and becoming more educated. 7 The United States now lags behind 8 counties as diverse as Canada, Japan, Korea, New 9 Zealand and Ireland. And a percentage of adults aged 10 25 to 34 that hold Bachelor's degrees. 11 In Pennsylvania, a college education has 12 become increasingly out of reach for too many 13 families. In fact, Pennsylvania is the sixth most 14 expensive state in the union in which to go to 15 college. Some basic statistics paint a very grim 16 picture. 17 One third of our students in community 18 colleges graduate with debt averaging $7,000. 19 Students in four year colleges and universities 20 graduate with an average debt of $23,613 in student 21 loans. And according to a recent survey, when all 22 types of borrowing are accounted for, our students are 23 leaving college with an average of $34,000 in debt. 24 But it gets worse. When the amount of money borrowed 25 by parents is included, and this is money that’s

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1 borrowed using credit cards or using second mortgages 2 on homes or borrowing against retirement, the total 3 debt a family takes out to put a student through 4 college averages about $48,000. This mountain of debt 5 threatens students' ability to earn a degree and find 6 a well paying job and it also threatens the financial 7 well-being of their families as well. 8 Very recently a study was released in 9 which it was found that private loans have tripled and 10 one third of students in this country are putting 11 tuition on credit cards. And we all know the level of 12 interest that credit cards are charging. 13 This situation has not happened 14 overnight. The cost of college has been a growing 15 concern across this nation and this Commonwealth for 16 at least the past two decades. It is the national 17 economy has soured; the situation has taken a sharp 18 turn for the worst. The rising unemployment rate is 19 fast making a college education no more than a distant 20 dream for too many families. And an increasing number 21 of families operate in crisis mode just to make ends 22 meet. And as they do so they're watching the savings 23 that they so diligently put aside for the future 24 college class of their children evaporate due to the 25 floundering economy.

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1 In fact, in Pennsylvania college savings 2 accounts for students, who were just a year or two 3 from graduating from high school, have seen double 4 digit losses in the last year, 40 percent in many 5 cases. This crisis is having a real effect on college 6 going and on subsequent employment decisions. 7 Consider these facts. One in ten young adults in 8 Pennsylvania report that they want to attend college 9 but they cannot because it is too expensive. Those 10 who drop out of college in our Commonwealth report 11 that cost is the most significant factor for doing so, 12 not bad grades, cost. 13 In 2008, a survey of recent Pennsylvania 14 college graduates found that 72 percent report feeling 15 overly burdened by their education debt. Fifty-five 16 (55) percent report having a difficult time paying 17 back student loans and 48 percent report that student 18 debt led them to choose a career other than their most 19 preferred career in order to repay their debt. 20 In short, hundreds of thousands of 21 Pennsylvanians are facing a financial emergency that 22 is threatening their future and is threatening the 23 economic future of the Commonwealth as a whole. The 24 Tuition Relief Act is designed to quickly and 25 effectively address this crisis by making it possible

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1 for hundreds of thousands of Pennsylvania students to 2 graduate from college free from debt. This bill will 3 enact tuition relief to help families who have worked 4 hard to send their children to college and it will 5 also benefit working adults who need to return to 6 college to boost their own economic opportunity. 7 Here's a brief overview of how the plan 8 works. Over 170,000 students at our public colleges 9 and universities, the states of higher education and 10 our 14 community colleges, would benefit from this 11 program when it's in fully in place. Plus, an 12 additional 10,000 students will be able to go to 13 college who otherwise would not be able to go to 14 college. And they will be staying in Pennsylvania 15 instead of leaving our state to go to college in a 16 state that has cheaper higher education. 17 In this plan, everybody pays something. 18 This is not a free ride for students, everybody has to 19 pay something. But the key to the Tuition Relief Act 20 is that students only have to pay what they can afford 21 to pay. We will eliminate the gap between what a 22 family can afford to pay and what they are forced to 23 pay often by borrowing tens of thousands of dollars. 24 Many families earning under $32,000 a year will pay 25 just $1,000 a year for tuition fees, room and board

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1 and books at the State system. All other families 2 that qualify for PHEAA grants will receive at least 3 $4,000 in additional grants at State system 4 universities per year. And in many cases far more up 5 to $7,600 annually in emergency relief. Over four 6 years, that means that there's $30,000 in debt that 7 those families will not have to take out in order to 8 send their children to college. 9 So, for example, under the Tuition Relief 10 Act, a family that earns $45,000 will pay 77 percent 11 less if they send their child to a participating 12 institution. So currently a family that earns $45,000 13 pays $9,600 a year to send their kid to college. 14 That’s about a quarter of their annual income. Under 15 the Tuition Relief Act that amount would be down to 16 $2,250, clearly something that’s more within the range 17 of families with that kind of modest income. And even 18 for families earning about $75,000 a year, going to a 19 State university will cost 35 percent less and 20 attending a local community college will cost 28 21 percent less under the Tuition Relief Act. Families 22 that don’t qualify for State grants but who earn under 23 $100,000 a year will also benefit. They would receive 24 a grant of about $2,700 a year. 25 While laying the groundwork for long-term

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1 economic health, the Tuition Relief Act would also 2 function as a critical component of our immediate 3 economic recovery strategy by benefiting adults as 4 well. Those who have never gone to college or have 5 attended college years ago but never finished can go 6 back and pursue a certificate, an Associate's degree 7 or a Bachelor's degree as a part-time or as a 8 full-time student. So this would include all those 9 adults who have recently been laid off in the State of 10 Pennsylvania. Often, when the economy turns down 11 college --- the need for college increases as workers 12 understand that they need to increase their 13 credentials and become more competitive in looking for 14 a job. The Tuition Relief Act is designed to benefit 15 those students as well in addition to traditionally 16 aged students. 17 So it will provide a pathway for our 18 workforce to upgrade their training or gain additional 19 educational credentials so that they can compete for 20 minimum wage jobs and our entire economy would benefit 21 as Pennsylvania's workforce becomes stocked with the 22 credentials and skills sought by the high-tech high 23 paying employers we need. 24 In short, everyone benefits when we send 25 more students to college. For example, a worker with

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1 a Bachelor's degree is far more likely to be employed 2 than someone who has only a high school diploma. In 3 fact, when you look at the unemployment statistics, 4 you see that a high school graduate is twice as likely 5 to be unemployed as a college graduate in the State of 6 Pennsylvania. And a Pennsylvanian with a Bachelor's 7 degree will earn over his or her lifetime $1 million 8 more a year than somebody who only received a high 9 school diploma. So a college degree is critically 10 important to the long-term well-being of all families. 11 And our economy benefits even more when our college 12 graduates are free from the crushing burden of college 13 debt. 14 Consider this. For the $550 million per 15 year that it would cost for the Tuition Relief Act 16 when it's fully implemented, families will save $3 17 billon a year in money that they would otherwise be 18 spending on student debt and repaying student debt. 19 So that's about a 600 percent return on investment 20 there. That’s money that will be driven back into the 21 economy because it's money that families will have --- 22 will be able to use to buy houses and to buy other 23 goods instead of repaying loans. And that’s an 24 important part of this. This is a very, very good 25 investment.

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1 So I'm going to wrap up my testimony. 2 Thanks for the opportunity to speak with you and I'd 3 be happy to take any questions you might have. 4 CHAIRMAN: 5 Representative Sainato. 6 REPRESENTATIVE SAINATO: 7 Thank you, Mr. Chairman, and thank you, 8 Doctor Shaw.

9 DOCTOR SHAW: 10 Sure. 11 REPRESENTATIVE SAINATO: 12 I think your testimony is enlightening. 13 I remember your testimony in Harrisburg and ---. 14 DOCTOR SHAW: 15 I just wanted to remind you. 16 REPRESENTATIVE SAINATO: 17 Yes, I know you do. I still look at, you 18 know, when I look at that point where you say a family 19 earning $32,000 will only pay $1,000 a year for 20 tuition fees, room and board and books at the State 21 system. And sort of going back to what Representative 22 Reese said as far as, you know, if we don’t generate 23 all the money that’s there, things ---. Is there 24 something that this could be adjusted? I mean, what's 25 $1,000 for tuition, maybe $1,500, it may be $2,000?

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1 DOCTOR SHAW: 2 Right. Right. It's my understanding 3 that if we don’t have enough resources through the 4 revenue source, that the amount that students would 5 get would be adjusted accordingly. So if it was --- 6 if the fund fell say one percent or two percent short 7 of the full amount then we would adjust the awards 8 downward to accommodate that. But again, it's my 9 understanding that our estimate of the amount of 10 revenue that will be generated from legalizing video 11 poker would fully cover this.

12 REPRESENTATIVE SAINATO: 13 Right. I understand. I know Secretary 14 Stetler was saying about it --- 15 DOCTOR SHAW: 16 Right. 17 REPRESENTATIVE SAINATO: 18 --- and going to the general fund. 19 DOCTOR SHAW: 20 Yeah. I think that we need to get back 21 to you to have --- to make sure that they're answering 22 that question consistently. 23 REPRESENTATIVE SAINATO: 24 You know, I actually think you're --- I 25 would be happier with what you're saying because I

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1 don’t really think we should be going into the general 2 fund if this program isn't generated into dollars that 3 we're getting because with our economic situation and 4 hopefully we'll be improving, we'll actually be taking 5 dollars away from other vital programs out there --- 6 DOCTOR SHAW: 7 Right. 8 REPRESENTATIVE SAINATO: 9 --- and to pay for this. And, you know, 10 I think I said at the last hearing this is a work in 11 review and I think you're going to see a lot of 12 changes.

13 DOCTOR SHAW: 14 Sure. 15 REPRESENTATIVE SAINATO: 16 And, you know, I still believe that --- I 17 would like to see more institutions covered, if 18 possible, and a higher income limit. 19 DOCTOR SHAW: 20 Okay. 21 REPRESENTATIVE SAINATO: 22 And possibly having these lower income 23 limits raised somewhat because I mean $1,000 for a 24 college ---. I mean there has to be input from the 25 students as well. I mean they need to work in the

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1 summer, they need to have some income coming in and 2 pay, you know, for some of the stuff. 3 DOCTOR SHAW: 4 Sure. 5 REPRESENTATIVE SAINATO: 6 Because, you know, there shouldn’t be a 7 free ride for anybody. 8 DOCTOR SHAW: 9 Right.

10 REPRESENTATIVE SAINATO: 11 I think that’s the concern that many of 12 us have, but if we could encompass --- I mean, and we 13 need to help. If we want to make college affordable, 14 we want to make sure that, you know, that everyone has 15 that opportunity to go. 16 DOCTOR SHAW: 17 Right. 18 REPRESENTATIVE SAINATO: 19 But, you know, to make it where it's 20 almost free --- but then if you --- you know, people 21 are actually working. And two family parents and 22 everything else, they're not getting that much relief. 23 So, I mean, you’ve got to find I think a happy 24 balance. 25 DOCTOR SHAW:

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1 I just want to clarify that this is not a 2 free ride and what --- the way that the money would be 3 distributed we'd be dependent upon the financial aid 4 application that students and families put in. So 5 when you apply for financial aid what happens is you 6 get something from the financial aid organization 7 telling you what your estimated family contribution 8 is. And depending on your income and all other kinds 9 of factors such as the number of kids that you have, 10 the amount of debt that you're in, et cetera, the 11 estimated family contribution varies. That’s the 12 amount of money that students would pay every year to 13 go to college. 14 The problem in Pennsylvania frankly is 15 that we have many, many poor families that make under 16 $30,000 a year. And so for those poorest of families 17 ---. Actually those estimate --- the financial aid 18 organizations come back and tell us that they 19 shouldn’t have to pay any money. So we know they do 20 have to pay something, because they should have some 21 skin in the game. But then we --- according to the 22 Tuition Relief Act they would be $1,000 a year for the 23 first two years. The third year they'd pay $1,500 and 24 then the 4th year they'd pay $2,000. So they'd be 25 paying $5,000 or $6,000 if there was that unmet need.

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1 But many of those students, for example, might decide 2 to go to a community college where they might not have 3 to take out any, you know, loans in the first couple 4 of years. Or find other ways to economize to afford 5 to pay. So we agree with you that we don’t want to 6 give anybody a free ride and, in fact, we know that 7 when people do pay money and have some economic 8 investment in an education, they tend to due better 9 because they tend to take it more seriously. So we 10 agree with you. But the Tuition Relief Act is 11 sensitive to those issues, but what we want to make 12 sure happens is that nobody decides that they can't 13 afford to go to college and then they don’t do well 14 in, you know, public school because they're thinking 15 they're not going to go to college. That’s bad for 16 families and that’s bad for the economy in 17 Pennsylvania.

18 REPRESENTATIVE SAINATO: 19 Thank you. Thank you, Mr. Chairman. 20 CHAIRMAN: 21 Thank you. Doctor Shaw, I thank you 22 again for your testimony. Just a couple of questions 23 from me now. Now, let me just reiterate, you said 24 that the money generated from the --- whatever we get 25 in will be the ---. And the money that goes out to

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1 the students will be adjusted based on the amount that 2 comes into that pot. We're not going to dip into the 3 general fund; is that ---? 4 DOCTOR SHAW: 5 That’s my understanding but, again, I 6 think that we need to provide clarification for this 7 committee to make sure that I'm answering you 8 correctly.

9 CHAIRMAN: 10 And just a couple of things that I've 11 been hearing since we've introduced this and since the 12 last hearing. And if we do get the amount of money 13 that we're all estimating, as I said earlier some are 14 estimating a lot less than others, but just say we 15 compromise and where we think we are with what was --- 16 well, with the testimony from Secretary Stetler and 17 from what you think. If we include other 18 universities, for instance, the State related, Penn 19 State, Pitt, Temple, Lincoln --- 20 DOCTOR SHAW: 21 Right. 22 CHAIRMAN: 23 --- and/or the privates. What effect 24 would that have on the overall system and how would it 25 effect --- I'm sure it would affect negatively, but

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1 I'm just asking for your opinion as to would there be 2 enough money to really effectively help students with 3 their debt from going to college? 4 DOCTOR SHAW: 5 Yeah, I think that the quick answer to 6 that is there's not enough money. The problem that we 7 have in Pennsylvania which is a problem that exists in 8 many states in the union, is that education --- higher 9 education is so expensive that a lot of people are 10 deciding not to go to college. There was a national 11 study that comes out every two years that focuses on 12 affordability and accessibility of college and 13 Pennsylvania received a grade of F in affordability. 14 And what that means is that many, many people cannot 15 afford to attend college. So the Tuition Relief Act 16 is designed to make it possible for people to go to 17 college, pay what they can afford but not pay any more 18 than they can afford. 19 In order to cover the students at the 20 State University System and the community colleges 21 that fit the income requirements, that’s $100,000 or 22 less, it would cost $55 million a year. If we include 23 the State related, it would double the cost to achieve 24 that goal and that’s only if we give them the maximum 25 amount of money we would give someone to go to the

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1 State University System. As you know, the State 2 related universities charge much more tuition in the 3 state than the State University System. And so --- 4 more than double I believe. And so even if we only 5 gave those students the amount of money that we would 6 give to the State University Systems, students --- it 7 would double the cost of the program. And so what 8 starts to happen when you take a finite amount of 9 money and you start to spread it more thinly, is that 10 pretty soon it doesn’t really make much impact on 11 families and it doesn’t impact the decision making of 12 families. And that’s something that I think that we 13 need to think carefully about. So what the Governor 14 has been saying, and I fully agree with him, is that 15 if we can find additional revenue to include those 16 institutions, by all means include those institutions. 17 This is not about penalizing one sector versus another 18 sector. 19 But what we're trying to do is focus on 20 the institutions where we would get the maximum impact 21 for the minimum amount of money. And because the 22 State University System and the community colleges 23 have controlled their tuition and charge so much less, 24 it's the easiest avenue to get to the policy goal and 25 the policy goal is to provide an affordable education

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1 option for students. And if students decide that they 2 don’t want to attend a community or a State 3 university, at least they're making an informed 4 decision about how much, you know --- they're doing a 5 financial calculus to determine whether or not they 6 think it makes sense to go to a more expensive 7 institution where they could benefit from the Tuition 8 Relief Act.

9 CHAIRMAN: 10 You raised a good point there. I think 11 the point that you made about community colleges and 12 the State system and their tuition increase is staying 13 within the rate of inflation as why it's in the bill 14 quite frankly. Say we would propose to the State 15 related something where they would have to stay within 16 a certain percentage on the tuition increase and 17 within the rate of inflation just as the other 18 universities are doing. Would that be something that 19 we could consider? 20 DOCTOR SHAW: 21 Yeah, I think that that’s one of the 22 things that we would like to see happen if they are 23 included. Because what can happen is that if --- if 24 you provide this kind of resource for students that go 25 to institutions where the State has no control over

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1 what the tuition is, often what will happen is tuition 2 will continue to increase and then the amount of money 3 that these students are getting really doesn’t even 4 make a dent in the total cost of going to those 5 institutions. 6 So, again, the Governor is on record as 7 saying that, you know, if we were to include those 8 institutions, one of the criteria would be you've got 9 to keep your tuition under control and keep it at or 10 below the rate of inflation. Like the community 11 colleges have done and like the State University 12 System has done. We know that it's possible because 13 we've seen those two sectors do it. So we would 14 encourage those State related to do the same thing 15 that the State universities and community colleges 16 have done and really find ways to economize and keep 17 the tuition increases out or below the rate of 18 inflation.

19 CHAIRMAN: 20 My final question, again, this was 21 something that was brought up at the last hearing and 22 has been percolating about making some changes. What 23 a student's GPA is, is a link to what they can get if 24 they maintain a certain GPA? Is that something that 25 can work ---- is that feasible I mean ---?

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1 DOCTOR SHAW: 2 Well, the way that all financial aid 3 works now is that --- and this is Pell Grants and also 4 our PHEAA Grants. Students need to maintain what's 5 called good academic standing. In other words, if 6 they flunk out of college, they're not going to keep 7 getting grants or loans from us. That’s the standard 8 that we would like to apply to the Tuition Relief Act 9 for a couple of different reasons. The first one is 10 that for many poor students we know that even if 11 they're going to college full-time they're also 12 working and many of our community college students in 13 particular also have families. And so --- and also, 14 many of those first generation students are entering 15 college without the best preparation because maybe 16 they came from school districts that are under funded 17 or there had been, you know, issues in the quality of 18 the curriculum they've taken. We don’t want to 19 penalize those students. If a student can find a way 20 to, you know, have a passing GPA and stay in college 21 we want to encourage that student to stay in college. 22 Why? Because it's good for the Commonwealth to have 23 college graduates. We want more people to be 24 graduating from college. 25 So the other thing about a GPA

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1 requirement can be that sometimes the unintentional 2 effect is that it drives students to elect majors that 3 might be a little bit easier so that you might see 4 less students becoming science, math or engineering 5 majors and more students becoming majors that don’t 6 feel as critical of a workforce need as we have in 7 Pennsylvania. We know that we have a relation in 8 Pennsylvania producing enough Associate and Bachelor's 9 degrees in science and technology. And that could 10 hurt our economy because Pennsylvania becomes a less 11 attractive state for high-tech industry. 12 We want to make Pennsylvania more 13 attractive to high-tech industry so we don’t want to 14 penalize a student who would decide to become a 15 physics major when there's very little grade inflation 16 in, you know, physics and are good in chemistry. We 17 want to say, okay, if you can stay in school, you 18 know, a C plus average in a science or a math major is 19 really a pretty good --- is really a pretty good GPA 20 because there's so little grade inflation. We don’t 21 want to penalize a student for that. We want to say 22 if you can take those courses and you can get passing 23 grades and stay in college keep going. We want to 24 support you.

25 CHAIRMAN:

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1 Thank you. I wanted to try to stay off 2 --- as far away from physics as I could when I was in 3 college. 4 DOCTOR SHAW: 5 Me too. 6 CHAIRMAN: 7 A question from Representative 8 Vulakovich.

9 REPRESENTATIVE VULAKOVICH: 10 Six months expensive college education in 11 the country? 12 DOCTOR SHAW: 13 Yes. 14 REPRESENTATIVE VULAKOVICH: 15 All right. Is that amongst all schools? 16 DOCTOR SHAW: 17 That’s on average, right. 18 REPRESENTATIVE VULAKOVICH: 19 All right. Where does our state schools 20 --- or state colleges rank if we ---? If we just did 21 state colleges in Pennsylvania compared to the other 22 state schools how do we rank? 23 DOCTOR SHAW: 24 That’s a little bit of a complicated 25 question but my understanding is that we're more about

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1 in the middle of the pack. But I can get you an exact 2 ranking. I don’t have it at my fingertips. 3 REPRESENTATIVE VULAKOVICH: 4 All right. 5 DOCTOR SHAW: 6 But we're much --- we compare much better 7 when we look at our public, --- you know, our public 8 state universities and our community colleges are 9 State related. You know, it's a funny higher-ed 10 system we have in Pennsylvania. Not very many other 11 states have what they would call State related 12 institutions. But they were a different category. 13 But when you just look at our public universities the 14 ones that the state --- where the state has a direct 15 control on tuition, we're doing pretty well. And 16 that’s in large part because over the past ten years 17 or so those two sectors have worked really hard to 18 keep their costs down.

19 REPRESENTATIVE VULAKOVICH: 20 Okay. And I guess when we come to the 21 cost about controlling the cost at the state colleges, 22 that’s easier said than done. I mean if I'm the 23 president of the college and I say that we want to 24 cooperate with this new law that’s out and so we have 25 to stay under a certain rate. And I sit down and

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1 these are all my professors and employees there and I 2 sit here and say we're only going to increase by two 3 percent this year. And they say wait a minute. 4 That’s below the rate of inflation and therefore, you 5 know, we want more money. So there's much more than 6 just one person saying we can do this, we can control 7 these costs because there's all those people out there 8 who are going to be probably in disagreement.

9 DOCTOR SHAW: 10 Well, the biggest cost driver when you 11 see large tuition increases at institutions, and I'm 12 not just talking about institutions in Pennsylvania, 13 I'm talking nationally. The biggest cost driver is 14 new buildings and additional student services. And so 15 faculty members and other salaries, you know, that’s 16 not the biggest cost over there. What can help is 17 that the cost of health insurance can be a big reason 18 that institutions struggle with keeping their tuition 19 low. But when you see large tuition increases year 20 after year part of what you need to do is look at 21 where that money's going and often the money is going 22 towards ---. Is not going towards instructional 23 expenses, is going towards other things that the 24 university may decide it needs to improve. It may 25 decide it needs to improve its residents' halls, or

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1 its athletic stadiums, or its science labs. It may 2 also decide that it needs to increase the quality of 3 its technology which is a critically important thing. 4 And you know that technology needs to be improved very 5 rapidly as new technology comes out. So there's lots 6 of different ways that institutions can decide to 7 control costs and the issue of salary is typically not 8 the biggest cost driver.

9 REPRESENTATIVE VULAKOVICH: 10 Okay. The reason why I bring that up is 11 because we're gearing this all towards community 12 colleges and the state colleges. 13 DOCTOR SHAW: 14 Right. 15 REPRESENTATIVE VULAKOVICH: 16 And there's a lot of constituents that 17 have told me that we would like to pick the college 18 that we would like to go to. 19 DOCTOR SHAW: 20 Uh-huh (yes). 21 REPRESENTATIVE VULAKOVICH: 22 So why can't there be a flat amount of 23 money and then you use that as to where you want to 24 go. 25 DOCTOR SHAW:

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1 Uh-huh (yes). 2 REPRESENTATIVE VULAKOVICH: 3 I know a lot of the absence we can 4 control the cost here. 5 DOCTOR SHAW: 6 Right. 7 REPRESENTATIVE VULAKOVICH: 8 I'm pointing out that that may be easier 9 said than done. And the last meeting we had I asked 10 you if the colleges could absorb the influx of all 11 these people or would they have to go out and build 12 new --- hire more professors because maybe they want 13 --- there's 30 in a room now they're going to have 40 14 and they can't handle that. And maybe the lodging, 15 they don’t have enough places to put these students up 16 for their room and board. And the classrooms maybe 17 there's not enough of them. So then that escalates. 18 I believe you told me that they feel they're adequate 19 to handle this ---

20 DOCTOR SHAW: 21 Right. 22 REPRESENTATIVE VULAKOVICH: 23 --- influx.

24 DOCTOR SHAW: 25 And one of the things to note is that

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1 demographically the number of students that are going 2 to be graduating from high school is going to start to 3 go down now. 4 REPRESENTATIVE VULAKOVICH: 5 Yes, I understand. 6 DOCTOR SHAW: 7 And the institutions know that and so 8 part of --- and part of what you'll hear from many 9 institutions before we started talking about the 10 Tuition Relief Act is that many institutions were 11 anxious because there would be fewer students 12 graduating from high school. In our estimations about 13 the increase that the Tuition Relief would cause in 14 terms of the number of students, additional students, 15 that would go, it would be about a total of 10,000 16 students. 10,000 students spread out over 28 17 institutions, it's not so difficult to handle when you 18 think about it in that way. Particularly because many 19 of those students will be part-time students, many of 20 those students will not be living on campus, they 21 might be commuter students, et cetera. 22 And so I think that the representatives 23 of the community colleges and the state universities 24 themselves can speak more directly to this. But I 25 think when we think about the impact that this act

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1 might have on increases and enrollment we also have to 2 think about the demographics and how the number of 3 high school graduates is now going to be gradually 4 going down over the next five to ten years. Where 5 it's peaking maybe last year or this year. So what 6 I'm saying is there's a little bit more room there. 7 REPRESENTATIVE VULAKOVICH: 8 Right. But we are inviting people who 9 never could finish college before for some reason.

10 DOCTOR SHAW: 11 Right. 12 REPRESENTATIVE VULAKOVICH: 13 And because of the economics that are 14 going on right now --- 15 DOCTOR SHAW: 16 Right. 17 REPRESENTATIVE VULAKOVICH: 18 --- trying to bring people back and say 19 continue education. 20 DOCTOR SHAW: 21 Uh-huh (yes). 22 REPRESENTATIVE VULAKOVICH: 23 So there could be more an increase than 24 you think. 25 DOCTOR SHAW:

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1 There might be but also those 2 institutions are receiving more money because the 3 students are enrolling. So institutions are, you 4 know, if there is an increase they will get a 5 corresponding increasing the amount of revenue that 6 they're generating. And so my presumption would be 7 that they would be able to adjust accordingly. 8 REPRESENTATIVE VULAKOVICH: 9 Okay. And one other thing I brought up 10 at the last meeting if you remember about the books?

11 DOCTOR SHAW: 12 Yeah. 13 REPRESENTATIVE VULAKOVICH: 14 I mentioned to you that they buy a book 15 for $120. 16 DOCTOR SHAW: 17 Yeah. 18 REPRESENTATIVE VULAKOVICH: 19 You give them $15. 20 DOCTOR SHAW: 21 I know. 22 REPRESENTATIVE VULAKOVICH: 23 I'm serious about addressing that. I 24 think that’s atrocious. 25 DOCTOR SHAW:

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1 Yeah, I think it's a big problem too. 2 REPRESENTATIVE VULAKOVICH: 3 I've been through that, two kids in 4 college. 5 DOCTOR SHAW: 6 Yeah. 7 REPRESENTATIVE VULAKOVICH: 8 There's something wrong with that and it 9 does need to be addressed. And we're talking about 10 controlling costs and giving more money.

11 DOCTOR SHAW: 12 Uh-huh (yes). 13 REPRESENTATIVE VULAKOVICH: 14 I think we should look at the big 15 picture. Thank you. 16 DOCTOR SHAW: 17 Sure. 18 CHAIRMAN: 19 Representative Fabrizio. 20 REPRESENTATIVE FABRIZIO: 21 Thank you, Doctor Shaw. You've provided 22 this committee over the last couple of hearings 23 valuable incite. Question. Based upon our model, 24 Chairman Santoni asked could we expand to cover the 25 State related universities and/or ---. As my

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1 colleague on the left Randy indicated private 2 institutions. 3 DOCTOR SHAW: 4 Right. 5 REPRESENTATIVE FABRIZIO: 6 Based upon our model we can't but if we 7 can expand the size of a pie. Give an example, okay. 8 The model doesn’t call for distributors or vendors. 9 And looking other states and having just done some 10 brief research on this $100s of millions have been 11 generated by bringing the component in.

12 DOCTOR SHAW: 13 Uh-huh (yes). 14 REPRESENTATIVE FABRIZIO: 15 In some states up to $300 million either 16 through sales tax or vendor taxing or something 17 similar. If we moved in that direction is there a 18 possibility that we could fund the State related 19 universities and/or private institutions because I 20 have two fine private institutions in my District 21 also. 22 DOCTOR SHAW: 23 Sure. Sure.

24 REPRESENTATIVE FABRIZIO: 25 And I'm certainly not against funding,

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1 you know, our State University System. But if we can 2 expand it, you know, through a logical, reasonable 3 approach to making this pie bigger, you know, that’s 4 possible. 5 DOCTOR SHAW: 6 That sounds good to me. Sure. That is 7 possible. I think then the issue would be how to make 8 sure that we work with institutions to try to help 9 them control their tuition. But absolutely. If we 10 had enough money we would like to see every student in 11 the State of Pennsylvania benefit from this.

12 REPRESENTATIVE FABRIZIO: 13 Thank you. 14 DOCTOR SHAW: 15 Sure. 16 CHAIRMAN: 17 Representative Reese. 18 REPRESENTATIVE REESE: 19 Thank you, Mr. Chairman. Doctor Shaw, 20 again, I guess I just want to voice my concern about 21 the potential cost to the general fund. The way I 22 read the legislation is basically once an award is 23 given to a student they shall not receive less than 24 that original award in the next year and the year 25 after. So there is potential for general fund dollars

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1 to cover that if revenues aren’t there. Now I know 2 that there is a reduction clause --- 3 DOCTOR SHAW: 4 Right. 5 REPRESENTATIVE REESE: 6 --- that would basically allow you to 7 steer dollars away from freshman --- 8 DOCTOR SHAW: 9 Right.

10 REPRESENTATIVE REESE: 11 --- to fund people that have already 12 received that award. My concern is --- and I think 13 the state has done this time and time again, that once 14 a program started and, you know, they try to fund it 15 at all costs. And typically that means overspending. 16 And, you know, one of things you had mentioned was you 17 wanted to see people graduate from college and get 18 jobs. And you were concerned about employment and I 19 think you're right to be. 20 My concern is, is if we continue to grow 21 government and the cost of government goes up that 22 we're going to continue to scare businesses away from 23 Pennsylvania. And that’s a big concern for me is, you 24 know, as Government costs more and more and taxes go 25 up, you know, we're not going to have job

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1 opportunities. So I think that’s my concern. And my 2 question to you is what do you think the likelihood of 3 --- if revenues aren’t there. And I'm not saying 4 they're not going to be. But if they're not there, 5 what do you think the likelihood is of funding 6 students out of the general fund, the freshman class 7 coming in, to basically not using the reduction 8 clause?

9 DOCTOR SHAW: 10 To be honest with you, I don’t really 11 know. That is I think a question for Secretary 12 Stetler. 13 REPRESENTATIVE REESE: 14 Okay. 15 DOCTOR SHAW: 16 Yeah, sorry. 17 REPRESENTATIVE REESE: 18 Thank you. 19 DOCTOR SHAW: 20 Sure. 21 CHAIRMAN: 22 You'll have two more opportunities to ask 23 that question. Doctor Shaw, thank you. Again, I've 24 made this statement the last hearing and I'll make it 25 again. Thank you for all that you're doing to try to

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1 help with higher education costs in our Commonwealth. 2 I know that the controversial part of this bill is the 3 video lottery terminal, video poker, whatever you want 4 to call it. But I think we all agree that we need to 5 provide resources so kids can get educated. I think 6 it does our communities well. Obviously I just saw 7 something on the Today Show that it actually has a 8 direct effect on healthcare. So more higher educated 9 kids, more education for kids drives down our 10 healthcare costs. It does help our business. An 11 educated workforce is very critical to our business 12 community. 13 So with the $3 billion budget potentially 14 and some real challenges that we all have in 15 Harrisburg and a bill that I think just came out of 16 the Senate yesterday with even further cuts on the 17 educational component part. We need to look at other 18 resources to provide and no one's willing. And I'm 19 sure that no one on this table or anyone in the 20 General Assembly wants to talk about any kind of a tax 21 increase to help with education, part of our budget. 22 So I just think that this is something that is 23 something that we really need to look at. And I think 24 the governor has looked outside the box and I just 25 want to thank Doctor Shaw for all her hard work.

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1 Our next testifiers, we're going to bring 2 two college presidents up. Doctor Joe D. Forrester is 3 the President of the Community College of Beaver 4 County and Doctor Tony Atwater, President of Indiana 5 University of Pennsylvania. Gentlemen, welcome, and 6 when you're ready you may start. 7 DOCTOR ATWATER: 8 Good morning, Chairman Santoni and 9 Legislators. I'm pleased to be able to join you today 10 to speak to this important item. The first thing that 11 I would say as a University President is that we 12 obviously know that we're facing a financial crisis in 13 the United States and certainly it's felt here in 14 Pennsylvania. But there is another crisis that is a 15 comparable crisis that is not so obvious that the 16 country and the Commonwealth are facing. It is a 17 crisis of our college students and potential college 18 students in terms of access, affordability and 19 indebtedness related to higher education. It is a 20 crisis that deserves a solution and a solution now. 21 The Governor's Tuition Relief Act 22 provides a solution. A solution that I think is an 23 important step, you know, in addressing what I 24 consider to be a national crisis and a crisis in the 25 Commonwealth. Let me just give you an example of why

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1 I say it's a crisis. Just earlier this week I was 2 talking with my financial aid officer, Patty 3 McCormick. And she told me about a very sad case of a 4 student who was trying to continue her education at 5 Indiana University of Pennsylvania where I serve as 6 president. This student had tears in her eyes and was 7 asking for more financial aid consideration because 8 her family was placed in a very, very serious and 9 changeling situation. Her family had to decide on how 10 she could essentially pay her bill, her tuition bill 11 at IUP versus paying the utility bill to keep the 12 lights on. Now, think about that for a second. This 13 family had a choice between paying their utility bill 14 to keep the lights on or paying the tuition payment to 15 IUP. Fortunately, our financial aid officer was able 16 to work with that student and provide some additional 17 support so that her family did not have to turn the 18 lights out or face turning the lights out to pay a 19 bill, tuition bill, to IUP. I just emphasized that 20 kind of case to let you know that this somewhat 21 unobvious crisis is real. 22 Indiana University of Pennsylvania is a 23 State owned university of 14,300 students. We're the 24 only Doctoral granting university in the State System 25 and our students are very good students but they come

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1 from low income families and middle income families. 2 The average household income of these students’ 3 families is about $71,000 a year. So that would 4 clearly be affected by House Bill 1317. 5 The issue of indebtedness is a real one 6 and the issue of reliance on loans is a very real 7 proposition. I'm going to share some statistics with 8 you that I hope will drive home the point. And the 9 very first statistic that I would share with you and 10 this is --- these are statistics relating to IUP. But 11 I think they may be relevant to other universities in 12 the Pennsylvania State System of higher education. 13 Roughly, over the last five years, which we have firm 14 data, we see that in terms of reliance on alternate 15 private loans, that our students have basically seen 16 an increase, you know, in reliance on alternative 17 private loans by a whopping 80 percent. From academic 18 year 2003 to 2004 we have seen reliance on alternative 19 private loans at IUP among our students jumped from 20 just over 6 million to 11 million in 2007/2008. That 21 is from 2003/2004 at 6 million to basically 11 million 22 in academic year 2007/2008. What that means or 23 translates into in terms of debt load, you know, for 24 students in an average year, on average we're talking 25 about for 2007/2008 the average debt load being

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1 borrowed through alternative loans was an average of 2 $7,425 for an IUP student. That’s up from 2003/2004 3 when the average alternative loan was $5,692. Average 4 indebtedness of IUP graduates for 2007/2008 was 5 $22,431 after they graduate. I ask you to consider 6 that. $22,431 is average indebtedness of IUP 7 graduates after they graduate. The percent of IUP 8 undergraduate students graduating in 2007 who borrowed 9 loans was 82.39 percent. So roughly 82.4 percent of 10 IUP students graduating in 2007 were borrowing loans. 11 Some other statistics that I think are 12 relevant here as according to the College Board, the 13 national average tuition fee increase for four year 14 public institutions in 2007/2008 was 6.4 percent. At 15 IUP in 2007/2008 our tuition and fees increased only 16 2.75 percent. What this should suggest to you is IUP 17 and a lot of our system universities, all of them, 18 most all of them, are really holding the line on 19 tuition and fees. And so much so that our average 20 increase, you know, for tuition is roughly half or 21 actually less than half the natural average for four 22 year public institutions for 2007/2008. I emphasize 23 that point to indicate, you know, that we are still 24 maintaining significant quality in our programs and 25 the State System of higher education while basically

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1 keeping the increase in tuition significantly low, 2 other public four year institutions in the country as 3 noted by the College Board. 4 If you were to ask me well what, 5 President Atwater, is the tuition and fees currently 6 at IUP? Basically tuition and fees at IUP currently 7 we're looking at a figure of $6,959. So roughly 8 $7,000 a year for tuition and fees at IUP. As I 9 mentioned earlier, the average debt upon graduation 10 that a student faces is $22,431. In 2007/2008 the 11 alternative loan borrowing figure $11 million. To be 12 specific, $11,070,151. It's anticipated that for 13 2008/2009 alternative loan borrowing is going to be on 14 pace with 2007/2008. So we can see from these figures 15 a couple of things. Number one, there is a high 16 demand, you know, for financial aid and a very high 17 and increasing demand and reliance on loans. 18 The questioned is begged, where does it 19 end? Are we pricing our students out of the market in 20 terms of the kind of students that IUP attracts? As 21 you know we're in Western Pennsylvania, roughly an 22 hour or so north of Pittsburgh. Many of the students 23 we draw from are counties such as Indiana County, 24 Armstrong County, Cambria County. These are students 25 that come from low income families, middle income

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1 families from rural jurisdictions. And very often 2 these are what we call an academia, first generation 3 students. What is a first generation student? A 4 first generation student is a student --- when their 5 entire family is the first to go to college and the 6 very first to achieve a college degree. Those are our 7 bread and butter students. You know, in IUP the 8 majority of them are first generation students. They 9 may struggle quite frankly to keep a float. You know, 10 in terms of paying tuition fees, housing and 11 everything that comes with that. When you include 12 intuition fees, housing and so forth at IUP you're 13 talking about a figure of roughly $15,000 a year. 14 My point is, there is a need to solve 15 this problem and there are not many easy solutions. 16 Governor Rendell has put on the table the Tuition 17 Relief Act, House Bill 1317, a solution. It may not 18 be a perfect solution but let us not make as one of my 19 friends said excellent the enemy of good. Let's not 20 make excellent the enemy of good. Let's start 21 somewhere. Let's start to solve the problem because 22 it isn't going to get any better. And I would say 23 this, what we're talking about here is not only an 24 issue that relates to IUP, you know, it's an issue 25 that relates to our state and our country.

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1 As Secretary Shaw (sic) indicated, we're 2 talking about educational attainment. This country is 3 following behind on an international forum. In the 4 international stage, we've fallen behind in terms of 5 educational attainment in terms of the percentage of 6 individuals that hold Baccalaureate degrees. Now, 7 what does that mean? I think it means something in 8 terms of our workforce competitiveness and our 9 competitiveness in the global market. 10 We also have a college going rate, you 11 know, in Pennsylvania that is good. It's reasonable 12 but it could be better. My understanding is 13 statistics show that on average, you know, in the 14 Commonwealth of Pennsylvania we're talking about 15 college going rate of about 74 percent. In Indiana 16 County it's more like about 69 percent. We need to 17 get, you know, that college going rate, you know, 18 beyond, you know, the ‘60s and the ‘70s. And if we 19 are going to increase our educational attainment 20 performance we need to look at those issues that I 21 just mentioned starting my conversation, the issues of 22 access, affordability and indebtedness because they 23 are killing the system. They are retarding the 24 capabilities, you know, of our young people to be able 25 to have a college degree and help contribute, you

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1 know, in the significant ways that we need them to 2 contribute. Providing the human capital that our 3 Commonwealth and our nation needs. 4 In closing, I would just call your 5 attention to an editorial that was published in the 6 Indiana Gazette that I wrote. And in that editorial I 7 talk about an individual by the name of Dick 8 Macedonia. Dick Macedonia was a student at IUP some 9 30, 40 years ago. He arrived at IUP with two paper 10 bags to hold his clothes and a few essentials. That’s 11 all he had with him, two paper bags holding clothes 12 and a few essentials. He didn’t know how he was going 13 to make it economically or academically at IUP. 14 Fortunately at that time there were facility members 15 and administrators and mentors that came to his aid 16 and helped him quite frankly to be able to keep his 17 head above water. He claims that he graduated from 18 IUP, Magna Conventia (phonetic), by the skin of his 19 teeth. I think Macedonia went on to become CEO of 20 Sodexo, Incorporated, the largest food service company 21 in the world. Those are the kind of stories, success 22 stories, that we like to talk about at IUP. But they 23 can only be possible if we address this less obvious 24 crisis of access, affordability and indebtedness of 25 today's college student and potential college student.

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1 Thank you. 2 CHAIRMAN: 3 Thank you, Doctor Atwater. And I think 4 what we'll do is we'll hear the testimony from Doctor 5 Forrester and then open up for questions. So Doctor 6 Forrester, when you're ready please proceed. 7 DOCTOR FORRESTER: 8 Thank you, Mr. Chairman. My name is Joe 9 Forrester. I'm President of the Community College of 10 Beaver County and that is the role I'm here to speak 11 today and also currently serve as ---.

12 CHAIRMAN: 13 Can you get a closer, my friends in the 14 back are giving me the ear. 15 DOCTOR FORRESTER: 16 Okay. I also serve as Chairman of the 17 Pennsylvania Commission for Community Colleges. In 18 listening to the testimony this morning and having 19 heard some of the prior testimony there's been a great 20 deal of discussion about providing tuition relief for 21 parents who are trying to send their sons and 22 daughters to college. And I think that is certainly a 23 topic of conversation that we need to be having. 24 But I want to suggest this morning that 25 we need to be having a slightly different conversation

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1 and that is a conversation about the need for parents 2 themselves to have tuition relief. We're facing a 3 fairly significant issue in terms of workforce 4 educational development in the Commonwealth. And we 5 need to start finding ways to bring our incumbent 6 workforce back into the marketplace. 7 I want to share with you a quote from the 8 May 11th issue of Business Weekly entitled Help 9 Wanted. The article begins by saying in the midst of 10 the worst recession in the generation and more with 11 more than 13 million people unemployed. There are 12 approximately 3 million jobs that employers are 13 actively recruiting for but have so far been able to 14 unfill --- or unable to fill. The article continues 15 to say this is evidence of an emergent structural 16 shift in the U.S. economy that has created serious 17 mismatches between workers and employers. People 18 thrown out of shrinking sectors such as construction, 19 finance and retail like the skills and training for 20 openings in growth fields such as education, 21 accounting, healthcare and government. 22 The U.S. Bureau of Labor Statistics 23 projects that currently 60 percent of the jobs in the 24 marketplace require education beyond high school. 25 They further predict that that number is heading

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1 towards 80 percent. And if you dig deep enough in the 2 numbers they will say that 80 percent of the 80 3 percent will require less than a Baccalaureate degree. 4 Quite honestly, workers in Beaver County 5 aren’t prepared for that kind of demand. The latest 6 numbers from the Bureau of Census says that in the 7 incumbent workforce, and these are the individuals 8 aged 25 and over, 3.5 percent of the workers in Beaver 9 County have less than a 9th grade education. 8.1 10 percent have at least a 9th grade education but did 11 not make it to graduation from high school. And 43.6 12 percent have a high school diploma or a GED as their 13 highest level of educational obtainment. This means 14 that 56 percent of the workforce in Beaver County has 15 a high school diploma or less at a point in time that 16 the Bureau of Census is projecting or the Bureau of 17 Labor Statistics is projecting that 60 percent of the 18 workforce needs education beyond high school. From 19 the Commonwealth as a whole that number is 52 percent. 20 So the educational levels across the Commonwealth are 21 a little bit better than they are in Beaver County. 22 But with this kind of educational deficit 23 the Commonwealth is going to continue to struggle to 24 create new jobs and attract new industries coming into 25 the Commonwealth.

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1 I think this is time to address some 2 issues of State policy. The National Center for 3 Public Policy and Higher Education and report entitled 4 The Challenges to States Preserving College Access and 5 Affordability in the Time of Crisis. It urges 6 policymakers to undertake three actions: establish 7 undergraduate access and affordability is the highest 8 priority for State educational policy and support. 9 Protect access by accommodating all eligible students 10 seeking to enroll at two year and four year public 11 institutions and prohibit practices that discourage 12 college participation by at risk students. Preserve 13 the educational safety net by prioritizing affordable 14 tuition at broad access institutions serving students 15 from low income and middle income families. And I 16 hope that these guidelines will guide the discussions 17 of the General Assembly as you consider this 18 legislation and as you look at the budget for 19 2009/2010. 20 The proposed tuition relief program 21 recognizes the financial reality being faced by middle 22 income students and their parents. It's a reality 23 that the cost of higher education may be reaching a 24 point where access is denied. And Doctor Shaw made 25 reference earlier to the 2008 report entitled

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1 Measuring Up the National Report Card on Higher 2 Education. Well, Pennsylvania received the grade of F 3 on affordability. 4 Their report noted that students and 5 their families in the very lowest income groups as 6 well as lower middle income groups were, on average, 7 having to divide it up to 44 percent of their annual 8 income to attend community colleges even after 9 receiving financial aid. 10 For the Community College of Beaver 11 County I think the need is pretty much self-evident. 12 In 2008/2009 44 percent of our full-time students 13 received no financial aid. Seventy (70) percent of 14 our part-time students received no financial aid and 15 the fall semester of 2008, 9.9 percent of our students 16 were dropped for nonpayment of tuition and fees in the 17 beginning of the semester. 18 The current programs available through 19 the Pennsylvania Higher Education Assistance Authority 20 are providing minimal assistance to students for 21 community colleges. Typically my colleges enroll 22 about 4,500 credit students annually. And in 23 2007/2008, 463 students qualified for PHEAA State 24 Grants. The average grant was $1,029. Statewide 25 Pennsylvania's community colleges enrolled 22 percent

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1 of all undergraduate students. But our students 2 received only 4.4 percent of the total dollars 3 distributed through the PHEAA grant program. 4 The average awarded to community colleges 5 is $1,566. And for all 14 community colleges, the 6 total State Grant Program coming through PHEAA was 7 less than $19 million. Compare that allocation to the 8 91.5 million being allocated to students at the pass 9 institutions, the 119.2 million per students attending 10 the State related universities and the 159.7 million 11 to students attending private institutions within the 12 state. 13 A recent report from the rural community 14 college initiative noted that State policies often 15 favor higher income students, concentrated at State 16 flagship institutions and private universities over 17 the first generation of college goers at community 18 colleges and reasonable universities. We believe that 19 the Tuition Relief Act with its proposal to assist 20 individuals attending public institutions would help 21 alleviate the disparity. 22 Over the last ten years, CCBC has 23 increased its tuition less than 25 percent. We've 24 stayed below the overall rate of inflation of the 25 Growth and Consumer Price Index for that ten year

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1 period. We think our tuition is relatively moderate. 2 Although our Board of Trustees in about a week and a 3 half proposed a tuition increase that will take our 4 tuition for 15 credits to slightly over $1,700 a 5 semester. But our students in selected programs such 6 as health occupations and visual communications and 7 aviation will also face academic enhancement fees that 8 can range from $200 a course to over $1,000 a course. 9 So if you're a student attending the nursing program, 10 in addition to the tuition rate, you're going to pay 11 an additional $200 a semester as an academic 12 enhancement fee. And if you're in the air control 13 program, that number goes up to about $1,000 a course. 14 Michael Christian once noted that we 15 looked at the world around us as a snapshot when in 16 reality it was a movie constantly changing. Of 17 course, we knew that it was changing but we behaved as 18 if it wasn’t. We denied the reality of change and 19 change always surprised us. I would suggest that what 20 we're seeing in the workplace today is a monumental 21 change that we need to be prepared to address. 22 Anthony Carnevale, a laborer and 23 economist and director of the Center on Education and 24 Workforce Development at Georgetown University, 25 recently noted, in the current recession, temporary

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1 job loss. When people lose jobs but go back to 2 employment in the same --- occupation has essentially 3 disappeared. Jobs are being permanently lost and 4 these are jobs that don’t require a postsecondary 5 education. 6 Meanwhile a whole series of occupations 7 including fields like welding and manufacturing, once 8 considered low skilled jobs, are now requiring 9 postsecondary credentials. This is the challenge we 10 face. 11 Higher education is no longer a luxury. 12 We hear it everyday from employers. They tell us that 13 they need workers with skills in science and math and 14 technology. They need workers who are proficient at 15 problem solving and working in teams and who are 16 culturally literate. 17 Public policy needs to acknowledge not 18 only the needs of traditionally aged college students 19 but the needs of the workers in our economy today who 20 will have need to return to higher education if 21 they're going to maintain their economic 22 competitiveness. 23 In closing, I want to leave you with 24 another quote from coming to our senses. Investments 25 in education are repaid many times over in higher

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1 incomes, increased productivity and more expenditures 2 on public assistance, public housing and the criminal 3 justice system. This expenditure is an investment, 4 not a cost, and I believe the Tuition Relief Act 5 represents an investment of the resources of the State 6 and the assets of the State to strengthen the economy 7 and the future of the State. I'll be happy to take 8 any questions.

9 CHAIRMAN: 10 Thank you, Doctor Forester, and we will 11 entertain some questions. First questioning is from 12 Representative Barbin. 13 REPRESENTATIVE BARBIN: 14 First of all, I want to thank both Doctor 15 Atwater as well as Doctor Forrester for being here 16 today because I think both of you have made a 17 compelling case as to why limited State resources 18 should be addressed to the lowest income families. I 19 have a question though and I'd say that based upon 20 both the amount of money that is received for 21 community college or State related students through 22 the PHEAA Grant System but also with regard to the 23 prior testimony as to how you have held down the price 24 of attending college. I'm wondering if either one of 25 you could answer this question which is, we're in the

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1 midst of the worst recession that we've seen since 2 1982 and we know that the amount of time that it will 3 take to recover tax revenues is going to be at least 4 18 to 26 months until the point where we could get 5 back to a full revenue stream to support our budget. 6 What I want to know is, has either of the community 7 colleges or the State related done a study to show 8 what the impact would be of an additional ten percent 9 of your students who were not able to attend because 10 of the rising cost that would be put into the system 11 requiring either unemployment benefits or healthcare 12 benefits by the State? Because I have to believe that 13 if we don’t keep those people, whether they're the 14 people that have been recently laid off or the 15 students that are coming from low income families from 16 high school, if those people aren’t in the lowest cost 17 educational facilities we're going to have a 18 tremendous additional burden over this next 18 to 26 19 month period, but that’s my question.

20 DOCTOR ATWATER: 21 Well, at IUP I can say that, you know, we 22 certainly have been studying and have, you know, 23 ongoing research relating to scenarios such as the one 24 that you raise, because as I've said before, the 25 crisis is real. We're in unchartered waters here and

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1 we know that in many cases breadwinners of families 2 are basically becoming unemployed, which means that at 3 any point within a student's academic career they 4 could be facing significant loss, you know, of 5 potential to afford a higher education. And so we're 6 doing, you know, the math and we're looking at all 7 kinds of options. Everything is on the table. I 8 certainly can --- I don’t mean to speak for Chancellor 9 Cavanaugh, but I do know that I think he's very 10 sensitive to this issue as well. And we think that he 11 also is very much involved in looking at alternatives 12 to assist our students who come from low income 13 families who are falling on hard times. It is a 14 dilemma for all of our universities, whether they be 15 community colleges or State related universities. Or 16 State related or State system universities for that 17 matter. 18 We're all in the same boat when it comes 19 to families, quite frankly, that are having difficulty 20 to afford tuition and fees at our universities. And 21 we not only have that issue to deal with --- I think 22 we're seeing an influx, you know, of veterans. Of 23 course, with the new GI bill situation, that’s helping 24 out in some ways. But I think we're seeing more adult 25 students that are going to be coming back. History

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1 shows that during recessions more adult students come 2 back to the university to either upgrade their skills 3 to be more competitive in the workforce or to retool 4 altogether. And we expect to see that boom. It will 5 be part of some of the enrolment increase that we 6 anticipate at IUP. 7 DOCTOR FORRESTER: 8 Speaking for community colleges, we've 9 done a number of things to try to help out in the 10 situation. All of the community colleges put a 11 Tuition Relief Program or Tuition Wavier Program in 12 place for individuals within our community who have 13 been laid off. My institution first put that kind of 14 program into place six years ago and we have 15 maintained that because we continue to see layoffs 16 within the workforce in Beaver County. And we feel 17 that the need is there. It's not that we don’t need 18 the money. Certainly, we could use that tuition money 19 that we're foregoing by awarding the scholarships. 20 But these are taxpayers that have helped support our 21 college over the years. And philosophically, my Board 22 of Trustees believes that this is a time of need for 23 them, and by giving them the tuition waiver for one 24 semester we're helping out the taxpayers that have 25 helped out the college.

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1 The reason that we put the one semester 2 limit on this is that gives us the time to work with 3 the students individually, help get them qualified for 4 the Pell Grants or the PHEAA Grants or whatever other 5 programs may be out there to provide that level of 6 financial assistance. But we understand working 7 adults continue to struggle. 8 We also see increasing numbers of 9 students coming into the college straight out of high 10 school. Our enrollment growth over the last four or 11 five years has been fueled largely by students who 12 have interest in pursuing a Baccalaureate degree but 13 whose parents can't afford the cost of having them 14 enrolled straight in a Bachelor's granting institution 15 coming out of high school. Increasingly we're seeing 16 students who went away to a Baccalaureate granting 17 institution that at the end of one semester or at the 18 end of one year are coming back to us for the lower 19 cost. 20 So that’s where we see I think the 21 biggest financial impact. We started seeing the 22 overall impact of the economy last fall and I think 23 our fall enrolment last year was an anomaly. We saw 24 an increase in the total headcount of the institution. 25 We saw a decrease in total credit hours. And what

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1 that said to us was, students that have previously 2 been full-time were having to reduce their course 3 load. Now, whether it's because they were having to 4 work second jobs or because of family economic 5 conditions, we don’t know. But we saw that kind of 6 problem. 7 For the spring we saw a scenario that I 8 would have considered to be more typical. We saw a 9 two and a half increase, two and a half percent 10 increase in full-time students. We saw a six percent 11 increase in part-time students and we saw a three 12 percent overall increase in credit hours. And given 13 the downturn in the economy, with people needing to 14 come back in, that’s a scenario that I would have more 15 typically expected to see.

16 DOCTOR ATWATER: 17 One thing that I would add is, at IUP, we 18 are seeing an increase in the number of requests for 19 considerations of changes in financial circumstances. 20 That has increased, you know, in recent years and we 21 are responding to that. But just to share some data. 22 In 2007/2008 we completed 84 special consideration 23 requests and these are requests from families who have 24 had employment difficulties, layoffs and family and 25 such. And so there were 84 of these special

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1 consideration requests that we dealt with in 2 2007/2008. In 2008/2009 we completed 116 special 3 consideration requests, an increase of 38 percent. 4 And so far for 2009/2010 we've received 97 requests 5 for special consideration forms. And so you can see 6 there is a continuum there. 7 CHAIRMAN: 8 Representative Sainato.

9 REPRESENTATIVE SAINATO: 10 Thank you, Mr. Chairman. Doctor Atwater, 11 Doctor Forrester, I think both of your testimonies 12 were very enlightening. Doctor Atwater, what is the 13 tuition at IUP now? 14 DOCTOR ATWATER: 15 The tuition currently at IUP is --- with 16 tuition and fees, a little over $6,000 per year. 17 REPRESENTATIVE SAINATO: 18 Is that room and board too? 19 DOCTOR ATWATER: 20 With room and board and everything all 21 together, tuition fees, room and board, you're talking 22 about a cost of $15,000 for instate students 23 approximately.

24 REPRESENTATIVE SAINATO: 25 Okay. Because I know Indiana has always

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1 been a great university. When I was a congressional 2 aid I was part of a Legislative District, so I used to 3 get a chance to go up there once and a while and see 4 it. And it was always a neat, you know, school. 5 DOCTOR ATWATER: 6 Please return. 7 REPRESENTATIVE SAINATO: 8 And Doctor Forrester, you're doing a 9 great job in Beaver County. I know what difficult 10 times back there that we're going through, you know, 11 with opportunities. And you've brought up a very 12 interesting point about workforce development and 13 those who have to go back to try to get those skills. 14 And I had a chance to participate in 15 economic summit in Pittsburgh a few months ago with 16 our policy committee, and many employers, they say 17 there are job opportunities out there but there just 18 isn't the skills required to get those jobs. And 19 that’s in the ten county Western Pennsylvania region. 20 And that sort of threw many of us, whoa, we hear all 21 the negative, but are you doing a lot to fill that 22 void at this point?

23 DOCTOR FORRESTER: 24 And we're certainly attempting to fill 25 that void. Part of the issue for us, again, this is

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1 my personal opinion. It does not reflect the opinion 2 of the Commission for community colleges. There's a 3 distance between educational policy --- actually labor 4 policy in the State and workforce demand. We hear 5 from employers the same thing that you're hearing. We 6 need employees who can read, write, compute, have some 7 technological literacy, who can work in groups, who 8 have these kinds of skills. 9 This talks about back to the need for 10 remediation and there have been separate hearings from 11 other committees dealing with the issue of 12 remediation. Remediation is not considered workforce 13 development training in the Commonwealth of 14 Pennsylvania. So if we go in and work with an 15 employer and we're doing workforce training for them 16 and we can build the literacy skills into the training 17 that we're doing, then we can address that need. But 18 if we need a group of individuals --- and I'll use a 19 real life example. We started a new class in our 20 police academy on Monday of this week. We had 40 21 students who applied for admission to the program. 22 And one of the things that they had to do to get into 23 the program is pass a reading test, which tests at the 24 9th grade level. Thirteen (13) of 40 students were 25 unable to pass that test. We can try to encourage

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1 these 13 individuals to enroll in the college and take 2 developmental reading courses and get that reading 3 skill up. But we cannot do that as workforce training 4 and development. 5 So I think there needs to be a better 6 coordination between the demands of the market place 7 and the way that we're supporting the workforce 8 training within the Commonwealth.

9 REPRESENTATIVE SAINATO: 10 All right. Thank you. Thank both of 11 you. 12 DOCTOR ATWATER: 13 If I might, Representative Sainato, I 14 just wanted to give you the specific figure for the 15 tuition and fees at IUP, $6,959 is currently where our 16 tuition and fees are. 17 CHAIRMAN: 18 A question from Representative Reese. 19 REPRESENTATIVE REESE: 20 Thank you, Mr. Chairman. Doctor Atwater, 21 just a quick question, I don’t know if you'll be able 22 to answer it. During your presentation, you talked 23 about low income families and struggling for --- 24 really to pay for their education, which is certainly 25 a big concern, do you have any idea under the current

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1 system what financial aid would be available to them? 2 What percentage of their tuition would be covered by a 3 financial aid package? I know it's kind of a broad 4 question. Do you have an idea as to how much might be 5 covered? 6 DOCTOR ATWATER: 7 Under the Tuition Relief Act? 8 REPRESENTATIVE REESE: 9 No, not under the Tuition ---. If a 10 student today were to go to IUP and they fill out the 11 FAFSA form and go through the process for financial 12 aid. Do you have any idea what they might be looking 13 at?

14 DOCTOR ATWATER: 15 Yeah. I believe as I had mentioned 16 earlier, we have roughly 82 percent of our students 17 that are, you know, dealing with some kind of 18 financial aid and student loan kind of proposition. 19 On average I believe that, you know, our students are 20 getting significantly funded by financial aid to the 21 tune of I would say something in the order of probably 22 $4,000, something like that, on average. You know, in 23 terms of what, you know, they are actually getting. 24 So I think you could probably say that most of our 25 students, you know, are getting some --- they're

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1 relying on financial aid and they have just got some 2 fresh figures here. 3 But I think that what we can say is that 4 for financial aid purposes there is a gap, you know, 5 in terms of what students get, you know, in terms of 6 financial aid and what they put on the table as far as 7 actual dollars. And I'm looking at a table here that 8 Secretary Shaw has provided for me. But, you know, 9 when you're looking at universities, you know, and 10 you're looking at, you know, costs minus grants and 11 loans and the average gap. You're looking at for say, 12 you know, a family that has an income level of say 13 $20,000 to $40,000. You're looking at a remaining gap 14 of about $4,143, you know, after loans. For a family 15 of $40,000 to $60,000, you're looking at, you know, a 16 gap, you know, after the remaining loans of about 17 $2,994. And so it's kind of an interesting scenario 18 that varies in terms of the income level. 19 But I think it's safe to say that our 20 students are getting financial aid in substantial 21 portions based on, you know, their incomes, but 22 there's still a gap there. And I think that’s the 23 bottom line, there is a gap and the Governor's Tuition 24 Relief Act, you know, is specifically aimed, you know, 25 at dealing with that gap, because that is really quite

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1 frankly what figures in in terms of affecting our 2 students in terms of their being able to have 3 continuity, not stop out, have to take on extra jobs 4 and most importantly, you know, the indebtedness issue 5 I referred to earlier. 6 REPRESENTATIVE REESE: 7 Thank you. 8 CHAIRMAN: 9 Doctor Atwater and Doctor Forrester, I 10 thank you for your testimony. Doctor Atwater, you 11 spoke of a famous alum, Mr. Macedonia, and you know 12 you have a famous alum that sits on our committee, 13 Representative Wozniak. He couldn’t make it today but 14 he's an IUP grad, and as a matter of fact, I think he 15 showed up in Harrisburg with two bags of clothing. 16 Jim is a friend of mine, I can say that. Okay. Thank 17 you so much. We look forward to working with you and 18 we do appreciate your testimony. 19 Our next testifier is from the 20 Pennsylvania State Police, Major John P. Lutz, 21 Director of the Bureau of Liquor Control Enforcement. 22 Welcome, gentlemen. Major Lutz, if you could identify 23 the other two gentlemen that are with you and proceed 24 when you are ready.

25 MAJOR LUTZ:

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1 Okay. Good morning, Chairman Santoni and 2 distinguished members of this committee. My name is 3 Major John Lutz and I service as the Director of the 4 Bureau of Liquor Control Enforcement. With me today 5 is Captain Thomas Butler, Director of Operations, to 6 my right. And Captain Patrick Gephardt, Director of 7 Administration for PLCE. I'm sorry --- Butler to my 8 left and Gephardt to my right. I would like to extend 9 my thanks to the House of Representatives, Gaming 10 Oversight Committee. Particularly Representatives 11 Dante Santoni and Curt Schroder for the opportunity to 12 participate in these hearings. Prior to answering 13 your questions, I have a short opening statement that 14 provides a thick overview of the issue of illegal 15 gambling devices in Pennsylvania. 16 The State Police have estimated that 17 approximately 17,000 or more illegal video gambling 18 devices are currently in operation throughout the 19 state. These devices generally consist of two types 20 of machines, video poker and video slide. With slot 21 machines being more popular across the state. The 22 vast majority of those machines, of these machines, 23 are located inside licensed liquor establishments. 24 Most of these illegal machines are owned by vending 25 machine companies who in addition to the illegal

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1 devices also provide other legal machines, such as 2 cigarette machines, jukeboxes and pool tables. 3 There are literally hundreds of vendors 4 located throughout Pennsylvania engaged in this 5 business. The outcome of playing illegal video 6 gambling devices is based entirely on chance. There 7 is no skill involved. The percentage of winning 8 combinations is preset via a circuit board inside each 9 machine that generally ranges from 55 to 80 percent. 10 Players have no idea of the payoff percentage set for 11 any particular machine. If a player wins, the manager 12 or bartender is responsible for paying out the 13 winnings. The credits on the machine are then knocked 14 off or played off. 15 The proprietor also prepares a payout 16 slip to keep track of the winnings paid out. An 17 employee of the vendor usually visits each 18 establishment on a weekly or biweekly basis to empty 19 the machine, at which time the proprietor is 20 reimbursed for payouts. Most machines are equipped 21 with internal accounting devices which serve as the 22 means for the vendor to verify the winnings. After 23 payouts are reimbursed, the profits are split between 24 the vendor and the proprietor based upon their 25 business agreement. Often that split is 50/50

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1 although it can range from 40 to 60 percent for either 2 side. 3 Conservatively, one machine receiving an 4 average amount of play can degenerate $600 or more in 5 profits per week which would then be split between the 6 vendor and proprietor. Machines receiving heavy play 7 can generate much more. In practice, a bar or club 8 having four or five machines can make several thousand 9 dollars per week. The big winner is the vendor who, 10 depending upon the size of his territory, can make 11 well into the millions of dollars per year in untaxed 12 revenue through this criminal enterprise. 13 All these machines are labeled for 14 amusement only. The Bureau has never observed the 15 machine in a licensed establishment that was not used 16 for gambling purposes. We are sometimes asked why 17 these machines continue to flourish, particularly in 18 certain ridges of Pennsylvania. The first reason is 19 that investigations into illegal video gambling 20 devices tend to be resource intensive from the 21 undercover operation used to observe payoffs to 22 obtaining search warrants and transporting and 23 inspecting machines for knock off and internal 24 counting devices. 25 Furthermore, the vast majority of

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1 enforcement actions taken by PLCE are conducted 2 through the Administrative Law Judge where the 3 penalties are relatively light and provide little or 4 no deterrent for the licensed establishment. 5 Finally, most district attorneys, with 6 their offices already busy prosecuting more serious 7 crimes, are unwilling to prosecute illegal video 8 gambling devices criminally. Even when a significant 9 criminal case is made against a vendor, the penalties 10 are usually relatively light. That’s said in fairness 11 to the men and women in the Bureau of Liquor Control 12 Enforcement. I would like to clear up one 13 misconception regarding illegal video gambling 14 devices. The Bureau of Liquor Control Enforcement has 15 not turned the blind eye towards this violation and 16 consistently has and continues to take appropriate 17 enforcement action when illegal machines are observed. 18 Towards that end in 2008 the Bureau 19 initiated 48 criminal prosecutions, issued 174 20 administrative citations and seized 537 illegal video 21 gambling devices from licensed establishments in the 22 Commonwealth. 23 Furthermore, The Bureau of Liquor Control 24 Enforcement is currently in possession of over 2,600 25 illegal video gambling devices being stored in

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1 property rooms across the state, either in conjunction 2 with active investigations or awaiting a Court order 3 authorizing destruction at an overall cost in excess 4 of $100,000 per year. 5 Unfortunately, our experience has shown 6 that illegal machines are usually replaced very 7 quickly after they were seized by either the same 8 vendor or a competing vendor. The State Police 9 believe House Bill 1317 sets forth an effective plan 10 to provide the regulation between underground industry 11 that heretofore has flourished in Pennsylvania. 12 With the additional enforcement 13 provisions of this legislation and the legal 14 alternative it offers to licensed establishments and 15 their patrons, we believe it will result in the 16 removal of illegal machines in Pennsylvania and an end 17 to the criminal enterprise that currently exists. I 18 will now answer any questions you may have.

19 CHAIRMAN: 20 I thank you, Major Lutz. The first 21 questioner is Representative Sainato. 22 REPRESENTATIVE SAINATO: 23 Thank you, Major Lutz. I think you made 24 very informative testimony because I think in Western 25 Pennsylvania you do see a lot of these illegal

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1 machines. I mean especially in clubs and bars and 2 places, and like you say, they come, they go, they're 3 not there for six months and all of a sudden they seem 4 to come in waves and they pop up. But, you know, the 5 cost --- it involves the State Police for this 6 enforcement. If you would have legal machines that 7 are a regulated and --- where would you be able to 8 focus your attention if they were legal and you had 9 that under control?

10 MAJOR LUTZ: 11 Well, obviously if we didn’t have to put 12 that effort into the illegal machines then we would 13 focus more on our other priorities, things like 14 nuisance bars, underage drinking, service to visibly 15 intoxicated patrons, noise and disorderly operations. 16 And really the focus of the Bureau is really on 17 quality of life violations. You know, the types of 18 violations that take their impact on society whether 19 it's, you know, quality of a life in a neighborhood 20 where there's a noisy and disorderly bar or other 21 societal damage that occurs when, you know, minors 22 drink and then, you know, usually that ends up at bad 23 results.

24 REPRESENTATIVE SAINATO: 25 I mean I think that, you know, because I

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1 know a lot of this is involved and when you look at 2 it, you know, it's a problem. I think it is a 3 problem. It's a problem even with society with some 4 of the machines that when you talk about payoff --- I 5 mean, you don’t know how they're regulated, I asked 6 that question to Mr. Stetler from Revenue. And, you 7 know, a lot of customers to these machines, you know, 8 are victims in the sense that they're 30 percent or 40 9 percent ---. I mean, I never hear of anybody winning.

10 MAJOR LUTZ: 11 Well, that’s correct. The player has no 12 idea what that machine is set at because typically the 13 vendor sets the payout and it's just done through dip 14 switches on the motherboard. And usually it's fairly 15 low. And often these machines have a feature where 16 you can actually double your bet or pay up. And often 17 the payout and that’s a separate payout percentage and 18 usually that’s very low, sometimes 30 percent. So 19 your correct, there is --- it runs the gambit, but for 20 the most part they tend to be very low. 21 REPRESENTATIVE SAINATO: 22 Thank you. Thank you for your testimony, 23 thank you, Mr. Chairman.

24 CHAIRMAN: 25 Major Lutz, I know --- thank you for your

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1 testimony, as I said. And thank you for all that you 2 do. I know that your job is very difficult. I guess 3 the question that I would have is if we would pass 4 this legislation and we would fully implement this --- 5 what we have in the bill. As far as resources for --- 6 you would need more officers or do you have what you 7 need now? And do you have some figures as to the kind 8 of dollars that we're looking at?

9 MAJOR LUTZ: 10 Thank you. I've been doing this for a 11 long time and, you know, we never have enough people. 12 That’s kind of a fact of life in law enforcement. But 13 I also feel that we would need additional officers to 14 protect ---. With this type of program I think 15 there's certain safeguards we have to put in place and 16 obviously we don’t want kids playing machines. You 17 don’t want visibly intoxicated persons playing 18 machines. So I have submitted a plan for additional 19 staff and we had included 20 additional liquor 20 enforcement officers on top of my existing staff, five 21 additional supervisors, two additional troopers and 22 some additional support staff at an annual cost of 23 approximately $2.6 million.

24 CHAIRMAN: 25 You submitted that to the budget people

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1 is that ---? 2 MAJOR LUTZ: 3 I submitted it to the Governor's office. 4 I'm not quite sure where it went from there. 5 CHAIRMAN: 6 Okay. When you --- the penalty went ---. 7 Right now if you are notified, I guess you work on 8 complaints maybe. I'm not sure how it goes, but you 9 go in and you knock a place off. Do they --- what's 10 the --- they lose their license, they lose their 11 liquor license; right? And so --- but then they risk 12 taking more machines in immediately, in your 13 experience, so that’s what goes on presently?

14 MAJOR LUTZ: 15 Well, there's two ways this can occur. 16 There's the administrative process that we usually use 17 in LCE and obviously there's the criminal court 18 process. For the most part, most of our prosecutions 19 are done administratively. Simply because, as I said 20 earlier in my statement, a lot of district attorneys, 21 with the workload they currently have, are really 22 reluctant to take those types of case. So when we 23 proceed administratively it goes before the 24 Administrative Law Judge. The fines are generally --- 25 they can range from up to $1,000 but they general

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1 range $400 to $500. And usually for a first violation 2 there'll be no suspension. 3 So there is very little disincentive for 4 the bar owner to not put machines back in because he's 5 probably making much more than that on a weekly basis. 6 And we've actually had stories from some of the bar 7 owners who've told us that vendors have agreed they'll 8 pay their fine for them. Because the vendors are 9 making so much that, you know --- as I said, they're 10 part of this entire business operation, so to speak.

11 CHAIRMAN: 12 And my final question, and I don’t know 13 if you can answer this, but if you think ---. If this 14 bill passes, do you think that a lot of the bar 15 owners, tavern owners would still take a chance on 16 having illegal machines in their facility? Because we 17 heard some questions last hearing about that and I 18 just was wondering if you have an opinion on that. 19 MAJOR LUTZ: 20 I think that’s a good question. We 21 reached out to a couple other states that have 22 legalized this to see what they’ve experienced. And 23 we do believe that early on there would probably be 24 kind of a wait to see attitude by some bar owners to 25 kind of see how the program goes. I think some of

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1 them are going to jump right into it. There may be a 2 few who decide that they kind of know what they have 3 and they'd kind of like to see how this thing rolls 4 out. 5 But that said House Bill 1317 does 6 provide some very heavy penalties for bar owners that 7 currently don’t exist in the law. So there's a 8 tremendous disincentive under 1317 for them to retain 9 illegal machines. And also, as I think has been said, 10 I think Secretary of Revenue mentioned the fact that 11 once they realize on the business model that the 12 machines that are regulated tend to pay out, there's 13 most consistency with them. I think they received 14 from a business model that that’s a more realistic way 15 to do business. 16 And finally, the truth is they don’t 17 really have us breathing over their back if they have 18 legal machines in their establishment.

19 CHAIRMAN: 20 I guess my final --- final question, 21 because I think this has to be asked because the 22 Governor brings it up and I think it's important to 23 get your opinion. The issue of organized crime is 24 always brought up with regards to this issue and I was 25 wondering if you could just comment on that and what

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1 the Governor has said in the past about that. 2 MAJOR LUTZ: 3 Okay. I think we greatly reduced the 4 organized crime involvement in this business but in 5 all honesty we haven’t eliminated it. There are still 6 some vendors out there that have ties to organized 7 crime. We've made great strides, but that said, and 8 I'm talking traditional organized crime, when I answer 9 that question. Keep in mind that in some cases some 10 of the larger vendors that are installing illegal 11 machines are operating their own criminal enterprise. 12 They may not have a tie to organization as we 13 characterize it but nonetheless they're making in some 14 cases millions of dollars in untaxed revenue. And 15 they're operating their business off this untaxed 16 revenue. They often have family members involved in 17 the business and we've arrested them and we have 18 charged --- we've used the corrupt organization 19 statute in working some of our vendor cases. But 20 again, even those at times when we prosecuted them 21 criminally, there's either little or no jail sentence, 22 maybe a fine. And the fine is usually set at the 23 point where again there's very little disincentive for 24 these individuals not to go back in the business at 25 some point.

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1 CHAIRMAN: 2 Okay. Thank you. Another member has 3 some questions. Representative Barbin. 4 REPRESENTATIVE BARBIN: 5 I'd just like to follow-up on your 6 question, Chairman. Do you have an opinion --- I 7 looked in some of the testimony that’s going to come 8 out that four out of the five states that are similar 9 to --- that have this type of video licensing have 10 indicated that the amount of people that are involved 11 in four of those five states are at a much 12 substantially higher percentage than Oregon, which has 13 a participation rate by the vendors of about 40 14 percent. And what I'm wondering is, is it likely 15 under, you know, your opinion that if we had a system 16 that allowed more people to participate in the 17 process, would there likely be less violations under 18 the Act by the illegal vending machine proprietors?

19 MAJOR LUTZ: 20 Again, I think that’s another excellent 21 question. From my perspective, life becomes a whole 22 lot simpler if there's one vendor. I mean you can 23 probably understand that. It becomes very regulated. 24 I don’t have those concerns as to whether multiple 25 vendors are out there and some of them way be vendors

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1 who may be operating something illegally or might have 2 --- might be one of those vendors potentially with 3 ties to organized crime. And by picking one vendor it 4 does simplify my life but that’s --- that’s strictly 5 from a law enforcement prospective. 6 CHAIRMAN: 7 Thank you, Major Lutz, for your 8 testimony. And Captain Butler and Captain Gephardt, 9 thank you for your attendance and we do appreciate and 10 look forward to working with you. We are going to 11 take a short break, about 15 minutes. So it's 11:20 12 so how about 11:35 we reconvene the meeting. 13 SHORT BREAK TAKEN

14 CHAIRMAN: 15 There is a group of people and I'm going 16 to read their names and their associations and then 17 they're going to determine their order and how they're 18 going to speak and all that so ---. The Panel 19 includes: from the Pennsylvania Tavern Association, 20 their Executive Director, Amy Christie. Mr. Tom 21 Scott, owner of McGrath's Pub located in Harrisburg, 22 PA. Sherman Smith, the owner of Smith Amusements from 23 the Pennsylvania Amusement and Music Machine 24 Association. Steve Fritz, General Manager, Staff 25 Music and Amusements in Hanover and Mr. John Milliron,

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1 who is the Legislative Counsel for the Pennsylvania 2 Tavern Association in the Pennsylvania Amusement and 3 Music Machine Association. Welcome to you all and you 4 may start, whoever you decide in what order. 5 MR. SCOTT: 6 I think I'm going to start. Thanks for 7 the opportunity to speak today. My name is Tom Scott 8 and my wife and I have a restaurant/bar called 9 McGrath's Pub in downtown Harrisburg. We've been in 10 the restaurant business for quite some time, 30 years 11 total. The past few years have been particularly 12 difficult due to the stricter DUI laws and the smoking 13 ban and also from the competition from clubs and 14 casinos that offer gambling and now the recession. 15 When I first started, the Governor proposed to 16 legalize video gaming in Pennsylvania bars and clubs 17 and that the proceeds will go help to fund kids' 18 college education. I thought it was a winner in both 19 cases. I hope for us to have several video poker 20 machines that would help pay the mortgage, the utility 21 bills, plus if the program was successful throughout 22 the state, my two kids, Joe and Nicole, could benefit 23 by having their tuitions lowered, they both go to 24 college. 25 After reading the House Bill of 1317, I'm

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1 very disappointed. If I read the legislation 2 correctly and the Secretary of Revenue's cost 3 projections, each of these machines would net 4 approximately $30,000 annually. My tavern, 25 percent 5 would equal approximately $7,500. The license fees of 6 $500 annually to the State, which the Secretary of 7 Revenue could raise at any time, would lower it to 8 $7,000. The City would most likely impose a license 9 fee like other cities in the neighborhood of $1,000. 10 So far that would leave the restaurant 11 approximately $52.50 and my property and causality 12 insurance would increase substantially as it has in 13 other states to cover the loss of monies in the 14 machine if theft or burglary occurs. Let’s say that 15 goes up $250 a year. The revenue from the other 16 amusement machines that I have already in my 17 establishment, we have a Megatouch, a Golden Tee, Buck 18 Hunter and a dart machine, would decrease by 30 19 percent because the customers’ discretionary income 20 goes into the poker machine, that is another $50 per 21 month or $600 per year. I'm now down to $4,000 net. 22 I'm required to maintain my own kiddy for prizes, 23 which means that I have to have thousands of dollars 24 available at all times. That’s not easy when you have 25 a small business and cash flow is not always as good

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1 as you want. 2 If I would want to have two video 3 machines I would have to remove at least two tables, 4 which means I'm losing seating for lunch and/or dinner 5 for eight people and that is another loss of income. 6 And of course since every penny is accountable because 7 of the central computer, which is a very good idea by 8 the way, I will owe the State and Federal taxes, which 9 will take another $1,200 to $1,500. I'm down to 10 around $2,500 per year and I just don’t know if it's 11 worth the aggravation. 12 Please consider the changes that the 13 Pennsylvania Tavern Association is suggesting to the 14 House Bill 1317. If they are approved at least 15 there's a better chance I will participate then 16 everybody can benefit. Thank you.

17 MS. CHRISTIE: 18 Good morning. I would like to thank you, 19 Chairman Santoni and the Oversight Gaming Committee 20 members, for allowing the Pennsylvania Tavern 21 Association to voice our thoughts and concerns on 22 House Bill 1317 in front of you today. My name is Amy 23 Christie and I'm the Executive Director of the 24 Association. The Pennsylvania Tavern Association has 25 longed to be able to host gaming in our establishments

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1 for many years. Private clubs have been gaming since 2 1988. The off track wagering sights have been running 3 in the Commonwealth since the early '90s, and most 4 recently the casinos were open to Pennsylvania. 5 We would like to express our sincere 6 appreciation of Chairman Santoni for recognizing the 7 small tax paying businesses that have been in 8 operation since prohibition ended in the early 1930s 9 and our need to be able to fairly compete with our 10 industry counterparts. 11 We would also like to express our 12 gratitude for the opportunity to not only be able to 13 have our small businesses be able to offer our patrons 14 gaming, but to have our stake in the industry to go to 15 such a worthy and noble cause, which is a Tuition 16 Relief Act. In a time of economic crisis, the strides 17 the Chairman has taken in conjunction with the 18 Governor will not only help ensure that our 19 Commonwealth youth be able to receive a higher 20 education, the Tuition Relief Act will also ensure 21 that our Commonwealth will be able to retain educated 22 persons, which will result in better job 23 opportunities, more expendable incomes and more 24 consumer spending in the Commonwealth. 25 The Pennsylvania Tavern Association is

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1 proud to be a part of this venture. We have spent 2 many years studying this issue and would like to work 3 with this committee to ensure that the actions we take 4 with this program are a success for all of us, but 5 especially for the countless numbers of the 6 Commonwealth children that will be the direct 7 beneficiaries of your upcoming decisions regarding 8 this bill. The people of the Commonwealth are also 9 very supportive of this venture, according to the 10 recent pole showing a whopping 68 percent approval for 11 video gaming machine revenue to aid the Tuition Relief 12 Act. 13 House Bill 1317, known as a Tuition 14 Relief Act in its current form, is a very well 15 intended piece of legislation. Unfortunately, we 16 believe that the current language of the bill will 17 prohibit the Tuition Relief Act from becoming a viable 18 resource for the youth of Pennsylvania. 19 According to the Governor's announcements 20 about this program, the Commonwealth will need $500 21 million annually. Fifty (50) percent of revenue 22 generated from video gaming to subsidize higher 23 education for at least 100,000 eligible college 24 students. After researching House Bill 1317 and 25 researching other states that collect revenue from

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1 video gaming and licensed establishments, we have 2 learned that this bill is modeled after Oregon, which 3 has the smallest percentage of licenses that are 4 willing to participate in the program. 5 After discussing the program extensively 6 with Bill Perry, whose the Vice President of 7 Government Affairs for the Oregon Restaurant 8 Association and also the negotiator between licensees 9 and the Oregon Lottery Commission, the department in 10 charge of running the program, the PTA is able to 11 point to several aspects of House Bill 1317 that would 12 severely hinder the Tuition Relief Act of 13 Pennsylvania. 14 The following flaws in the Oregon model 15 will need to be corrected in House Bill 1317 in order 16 for the program to run successfully in the 17 Commonwealth. The first set is regarding the 18 implementation of the program. The amount of dollars 19 the Oregon program brought in as a net machine income 20 for 2008 was $895 million. This amount is before 21 machine repairs, maintenance, or the administration 22 costs to implement and run the program. At this point 23 the State of Oregon is spending 46 percent of this 24 number to actually run the program and that is not 25 including the largest expense of buying or leasing the

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1 machines, which costs an average of $18,000 each. 2 House Bill 1317 states that only 25 3 percent of net machine income will be needed to run 4 this program in Pennsylvania. Implementation of the 5 program delayed placements of the machines in licensed 6 establishments for approximately nine months per 7 machine in Oregon. House Bill 1317 states that there 8 will be dollars available for Tuition Relief for Fall 9 2009. House Bill 1317 also gives full rein of the 10 program to Department of Revenue. The bill states 11 that a licensee must apply to be in the program and 12 that the Secretary of Revenue may refuse to issue a 13 license for the machines. The Secretary would be the 14 person to determine items of a licensed establishment 15 such as if the establishment is in good standing with 16 the PLCB. But that term good standing is not defined 17 in the bill. Also, undefined in the bill but left to 18 the complete discretion of Department Secretary is 19 financial fitness, responsibility and security of the 20 applicant in the applicant's business. 21 Other items that would probably prohibit 22 most private clubs and some licensees from even 23 participating is a clause that states applications 24 will be denied by the Secretary if the applicant has 25 been convicted of illegal gambling. Which in

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1 Pennsylvania included NASCAR and NFL pools. Another 2 item in the bill that lays wholly in the hands of the 3 Department of Secretary is the statement that the 4 Secretary shall consider the volume of expected number 5 of plays on a video lottery terminal at the licensed 6 establishment. There is absolutely no basis or 7 definition in the bill that would allow anyone but the 8 Department of Revenue to know exactly how that 9 determination is made. Our members would be the best 10 to determine if their establishments would be able to 11 carry one to five machines based on their clientele 12 and the costs that they would have to incur to be able 13 to host the machines at all. 14 Encouraging participation in the program, 15 in the bill, there's that less --- well, in Oregon 16 there's less than 40 percent of all licensees 17 participate in the program due to the added costs of 18 participating in the program and to their small 19 business, which includes a cost of installing and 20 paying monthly bills for a phone line per each 21 machine, installing security systems, the dramatic 22 increase in health and liability insurance and 23 Workers' Compensation. 24 Another deterrent for licensees to 25 participate is a shrinking percentage they receive for

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1 hosting the machines in their establishments. The 2 licenses in Oregon began the program receiving 33 3 percent and due to the State needing more funds to 4 maintain the program, the percentage has fallen 23 5 percent. Factoring in the five percent the licensee 6 spends out of the reimbursement in order to 7 participate in the program, they're collecting 18 8 percent for placing the machines in their 9 establishments. 10 Right now House Bill 1317 calls for 11 licensees to receive 25 percent, which would 12 realistically be only 20 percent following this model. 13 A glaring problem in the language is that the owner of 14 a licensed establishment agrees under this bill to 15 have sufficient funds available at the licensed 16 establishment to pay out anticipated prizes. 17 This would be a hardship for many 18 licensees as we are in an economic crisis while 19 suffering from a recently passed smoking ban. If a 20 licensee has three of these machines and each machine 21 pays out the stated top prize of $600 two times in one 22 weekend, the licensee would have to have $3,600 23 on-hand in their licensed establishments. 24 To complicate matters, the bill makes no 25 mention of when the licensee would be reimbursed by

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1 the Department of Revenue or how often. Respectfully, 2 I am unaware of any small businesses that would be 3 able to agree to this kind of business deal. 4 On top of the previously discussed cause 5 that a licensee would pay to participate in the 6 program would be the fees for a licensee to host these 7 machines described in House Bill 1317. The bill 8 states the nonrefundable applicant fee of $500 and a 9 nonrefundable annual license renewable fee of $100. 10 In addition to these fees will be an annual fee to the 11 licensee of $500 per machine or other amount as 12 determined by the Secretary. Again, there is no 13 definition or basis stated in the bill that would 14 determine the increase or amount of increase of the 15 annual fee to the licensee that is already $500 16 annually per machine. 17 As I pointed out earlier, the licensees 18 hosting those machines are allotted 25 percent of the 19 revenue generated. They are also required to pay 20 annual fees and nonrefundable application and license 21 fees. They will also not be protected from their 22 local municipalities from taxing the 25 percent even 23 further. The cost to hold entertainment permits are 24 already at $1,000 yearly throughout the State in 25 Pittsburgh and whatnot for pool tables, jukeboxes and

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1 the like. 2 As I stated in the beginning of this 3 testimony, the Pennsylvania Tavern Association is 4 grateful to the Chairman to be finally considered to 5 be able to offer gaming to our patrons, the same as 6 our industry counterparts, and to be included in such 7 a worthy program as Tuition Relief. We strongly 8 believe that the items that we have pointed out in 9 this testimony should be legislated in statute in 10 order to encourage participation in the program and to 11 also implement the program swiftly without unnecessary 12 interruption. 13 On a personal note, my family loves the 14 idea of this program being implemented in 15 Pennsylvania. My own brother was able to attend 16 pre-med in a state that offered him a full scholarship 17 based on revenue that included video gaming. He went 18 on to complete medical school. He is now an 19 anesthesiologist and has remained in the state that 20 helped him achieve his academic goals. 21 The above items in House Bill 1317 must 22 be addressed in order for the program to maximize its 23 potential revenue and to truly aid the future 24 generation of Pennsylvania citizens. We strongly 25 believe that the items that we have pointed out in

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1 this testimony should be legislated in statute in 2 order to encourage participation rather than be left 3 to a State Department's prerogative and to ensure the 4 program runs lucratively and swiftly. 5 The payback to the State will be higher 6 paying jobs, better opportunities, more economic 7 growth and more spending in Pennsylvania that will in 8 the end protect the Commonwealth economy for all of 9 its residents. Thanks for your time and we'll be glad 10 to answer your questions and work with you in the 11 coming weeks to grow this wonderful cause into a 12 Pennsylvania success. And I would like to add that we 13 have had a friendly conversation with the 14 Administration regarding some of our issues. Thank 15 you.

16 MR. MILLIRON: 17 Good afternoon, Chairman Santoni and 18 members of the House Gaming Oversight Committee. My 19 name is John Milliron and I'm the legislative Counsel 20 to both the Pennsylvania Tavern Association and the 21 Pennsylvania Amusement and Music Machine Association. 22 This is only the second time in 28 years of lobbying 23 that I have testified in front of a legislative 24 committee. I have always felt that the clients and 25 the constituents are the best people to testify. But

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1 I'm here today because of my deep involvement and 2 commitment to the issue before you today. 3 I started working on video poker 4 legislation back in the mid late '80s with a dear 5 friend, Representative Freddy Trello. Freddy since 6 passed away. Freddy and I were elected together in 7 the same class, 1974. A bill legalizing pokers of 8 Freddy's passed both the House and Senate in 1990 but 9 Governor Casey vetoed it after sine die. A similar 10 bill then passed the House in the late '90s and 11 another one in early 2000 but both died in the Senate. 12 Representatives Paul Costa and Frank Dermody have 13 introduced bills recently in the last four to five 14 years that would also legalize video gaming in 15 Pennsylvania's taverns and clubs. 16 Every one of these past bills has been a 17 joint effort of all parties: taverns, clubs, vendors, 18 distributors, and of course, the legislature and the 19 Commonwealth. Both the Tavern Associate and PAMMA 20 fully supported all of these bills because everybody 21 was included in the drafting. You’ve just heard how 22 the current proposal, House Bill 1317, would impact 23 the typical tavern. I think most of you have been 24 down to Tommy's. 25 I'll now try to explain how the bill

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1 would impact the typical amusement machine vendor. 2 All of the earlier versions of these bills were vendor 3 based. That is a private company would own, install, 4 repair and maintain the games. They'd collect the 5 funds from the machines, they'd be responsible for 6 providing the taverns and clubs with the sufficient 7 funds to payout anticipated prizes, they would deposit 8 the money and many cases daily, every other day, into 9 the State account. The account would --- the State 10 would then sweep it daily. Huge amounts of interest 11 is involved here when you're looking at hundreds of 12 millions of dollars sitting in machines. So this was 13 done in these past bills because the vendor base is 14 the most efficient for gaming and the State and the 15 least harmful to the non-gaming coin operated 16 amusement machine industry. 17 Currently, five states have video gaming 18 in their bars and clubs: South Dakota, Montana, 19 Louisiana, West Virginia and Oregon. The first four 20 are vendor based. Only Oregon is not. That is run by 21 the State through a sole source contract with the 22 manufacturer. The first four states have between 78 23 and 85 percent of their eligible licensees 24 participating. In Oregon it's only 36 percent. Now 25 that’s since 1972. Seventeen (17) years later, barely

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1 a third participate. 2 When you look at revenues, in the first 3 full year, South Dakota generated $107 million, West 4 Virginia $172 million and Oregon, twice the size of 5 West Virginia, barely generated the same amount, $178 6 million. South Dakota had 60 percent of the total 7 income of Oregon and they're only one fifth the size. 8 These statistics are important for you to 9 know and understand because if video gaming does pass 10 the legislature, you want it to be successful so 11 parents can send their children to college. It would 12 be a cruel hoax on all of the parents to think that 13 this bill would solve their problems with college 14 tuition. 15 As for the vendors, I'm going to give you 16 a little bit more narrow view, this is whether they 17 will survive as an industry based on your decision. 18 People have a limited amount of discretionary 19 amusement dollars. Not just in a recession, which is 20 terrible right now, but even in good times they've got 21 a limited amount of money to spend. In many of 22 today's bars and club, the patrons spend some of these 23 dollars in the jukebox, the pool table, on the dart 24 machines, trivia games or on pinball. When poker 25 machines are legalized --- now, this based on all five

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1 states, when poker machines are legalized the income 2 drops in half from these other machines, drops in 3 half. Video gaming siphons approximately 50 percent 4 of the dollars that are normally spent in other coin 5 operated amusement machines. Now, when you own the 6 poker machine, if you're the vendor, you can absorb 7 that drop in revenue. If you don’t own them, you go 8 out of business. 9 There are not any form statistics from 10 Oregon from back in 1992 when video was legalized. 11 But I could tell you these numbers: there were 100 12 members of the Oregon Amusement Machine Association in 13 1992 and in 1995 there were only 40. And those didn’t 14 just quit, they went out of business. That’s a 60 15 percent failure rate. 16 In Pennsylvania we estimate there are 17 between 350 and 400 coin operated amusement machine 18 companies, and that as many as 240 of them would be 19 forced out of business by the State if this was a sole 20 source contract. And it would put close to 2,000 21 people on the unemployment list. 22 You've heard media reports --- and Mr. 23 Chairman, I can't thank you enough for the question 24 you asked Major Lutz who by the way has been very fair 25 with us when we've talked and had discussions. I was

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1 really glad that you asked him the question because 2 the media keeps reporting that the Governor wants 3 Pennsylvania to pattern its gaming after Oregon 4 because the amusement companies are controlled by the 5 mob. Nothing can be further from the truth. Are 6 there bad guys in this business? You're damn right 7 there are. But there are bad guys in every trade, 8 every profession, every industry and you don’t put 9 everybody in the business out because of the 10 transgressions of a handful. 11 But don’t take my word for it. I hope 12 you do, but don’t take my word for it. I want you to 13 hear from two very typical amusement company vendors 14 in Pennsylvania. One's quite small, one's quite 15 large. You make the decision after hearing the 16 testimony whether you think these types of companies 17 should run Pennsylvania's gaming or whether the state 18 should come up with a sole source from out of state. 19 The first gentleman is Sherman Smith, the owner of 20 Sherm Amusements --- Smith Amusements.

21 MR. SMITH: 22 Thank you very much. My history started 23 in 1953 when my father first got into business. He 24 was a jeweler by trade in Harrisburg, Pennsylvania. 25 CHAIRMAN:

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1 I think the people in the back are having 2 trouble hearing so if you could come up closer. 3 MR. SMITH: 4 Okay. In 1953, my father started the 5 business. He was a jeweler by trade and worked 6 part-time at an amusement company repairing pinball 7 machines and jukeboxes. A very good friend, who was a 8 distributor at the time, had convinced him to try and 9 get into the business himself, which he did. In 1954, 10 he started Smith Amusements and started with just a 11 few machines and worked a lot of hours. And as the 12 business grew and the business put a lot of time and 13 effort into it, you know, his jewelry business had to 14 be set aside and he gave up the jewelry business. 15 He soon hired another employee --- I'm 16 sorry. By the late '60s, the business had gotten well 17 known for his service to the industry. He had ---.

18 CHAIRMAN: 19 They're still having trouble hearing. I 20 think part of it is the noise that we're getting from 21 the top. But just --- if you could just speak into a 22 little closer. They're not very sensitive so I 23 apologize about that.

24 MR. SMITH: 25 Okay. I'm sorry too. It's myself also.

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1 In 1969, he bought a property in Camp Hill because his 2 business property in Harrisburg was too small to run 3 the operation. And he hired a new employee and a 4 number ---. I'm sorry. I'm not good at this stuff. 5 CHAIRMAN: 6 Relax. You're fine. You're fine. 7 MR. SMITH: 8 In the summer of 1972, I graduated from 9 high school and I started to work for him right away. 10 I put --- each year the business started to get better 11 and better. In 1979 my brother also came in line with 12 us and started working for the company. In 1983 ---.

13 CHAIRMAN: 14 Take your time. Take a break. 15 MR. MILLIRON: 16 In 1983, Sherman Smith, Sr. passed away 17 but the dream didn’t. His two sons, Sherman and Doug, 18 and then two more employees have kept this small 19 business of 55 years going. Even with a tough --- 20 extremely tough economic times facing them today, 21 Smith Amusements still keeps his dad's word of the 22 best service in Harrisburg. Over the years Smith 23 Amusements has helped many organizations with 24 donations and other types of help. And hopefully 25 he'll be able to do this in the future.

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1 Sherman has served on the Board of 2 Directors of the State Association, PAMMA, for about 3 12 years now. He was chosen and honored by his peers 4 just this past January by being elected president of 5 PAMMA. I'll say this because of Sherman. You know, 6 please allow honest, hardworking vendors like Smith 7 Amusements to play a part in the legalization of video 8 gaming in Pennsylvania.

9 MR. SMITH: 10 I'm sorry. 11 CHAIRMAN: 12 That’s okay. You're fine. 13 MR. FRITZ: 14 Hello, my name is Steve Fritz, General 15 Manager of Staff Music and Amusements in Hanover, 16 Pennsylvania. Clyde "Ike" Laughman and Alan Morrison 17 started Staff Amusements in 1962 with just a handful 18 of jukeboxes. Slowly, over the years, Staff expanded 19 to more locations adding pool games, pong tables, 20 Space Invaders --- and Space Invaders. Ben Hufnagle 21 grew the company over the years into a solid company 22 based on customer service and up to date equipment. 23 I started with the company in June of 24 1988 after eight years with another vendor. My 25 original job was to move games, service games, collect

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1 or whatever was needed. In 1994, Ike and Ben asked me 2 to start an Electronic Dart League. I'm like you have 3 to be crazy, we don’t even have any electronic darts 4 around. Well, we want you to start a league. So, 5 okay, I took up the challenge. I spent months at 6 taverns and clubs teaching people how to play darts. 7 My wife was not real happy with me at that time. I'd 8 work all day and go to bars at night and teach people 9 how to play darts and ask them to join our leagues. 10 But, you know, in that time when you need money and 11 you're a young family, you do what you have to do to, 12 you know, hopefully be successful. During my time as 13 a league coordinator, Ben was in his ‘50s and they 14 were looking for somewhere to learn from Ben and Ike 15 and to assume the management role for staff when Ben 16 was ready to retire. I gladly accepted and enrolled 17 in AMOA's Executive Development Program. 18 Over the next couple of years Ben and I 19 worked even more closely together with him teaching me 20 the finer points of purchasing, customer service and 21 managing amusement routes. Shortly after graduating 22 from the AMOA program, Ben became ill with pancreatic 23 cancer. March 5th, 1988, I took over the day to day 24 operations of Staff Music and Amusements. Ben passed 25 away that spring from his cancer. I will be forever

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1 grateful to him for all the knowledge he shared with 2 me. Ike had numerous other business interests at that 3 time, Wege Pretzel Company, Servac Vending, it was a 4 full line vending company and an Office Coffee 5 Company. 6 As we slowly grew, the original Staff 7 route --- we purchased a Silent Partner Route 8 Management System, installed on our route in October 9 of 2003. Ike eventually sold the other businesses and 10 we concentrated on the amusement route. Ike purchased 11 Monroc Brant Vending in York in October of 2004 and we 12 quickly added touch tunes, digital jukeboxes, some new 13 countertop machines and integrated the silent partner 14 software. 15 In April of 2005 Ike purchased Gsell 16 Vending in Fayetteville, Pennsylvania and we quickly 17 added touch tunes, digital jukes, countertops and the 18 silent partner software again. In October of 2006 he 19 didn’t think I had enough to do yet so he purchased 20 Todd Amusements in Hagerstown, Maryland. With this 21 purchase, we were able to grow our route extensively 22 into Maryland and again, quickly replaced old digital 23 boxes with the new touch tunes, countertops and Valley 24 pool tables, installed our Silent Partner Route 25 Management Program.

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1 My role in the route acquisitions was to 2 join Ike and meet with all the locations, evaluate 3 their needs and establish a trusting relationship with 4 the locations. I recommended new or different 5 equipment. We made sure service calls were taken of 6 in a timely manner. All games were checked to be sure 7 they were working correctly, you know, they were 8 clean, the light bulbs were working and the meters 9 were working, which is crucial to our operation 10 because we track meter reads on every game. 11 We explained to the locations how we 12 collect using the Silent Partner Route Management 13 Software with the PDA's and wireless printers which 14 show every location, meter readings for each game, the 15 total and any deductions involved. 16 Our new employees we acquired from the 17 route acquisitions also had to be trained on the 18 Silent Partner with each acquisition. I integrated 19 the new route collections, our new customers, and with 20 our existing routes to make staff more efficient. We 21 have always embraced the newest technology, whether it 22 be internet jukeboxes, online videogames and the 23 contests you can play online. 24 Staff has been a long time member of 25 PAMMA. Ben served for many years on the Board of

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1 Directors. In January of 2003, I was nominated to 2 take a seat on the Board and have served as one of the 3 directors since. I've also met --- I've met many 4 operators to network with, share ideas and have forged 5 solid friendships that will last for years. I have 6 been chairman of our dart committee for three years. 7 Our dart tournaments we hold in Carlisle every fall 8 have been very, very successful and our participants 9 have increased each year. This dart tournament is a 10 fundraiser for our state association. 11 Staff Music and Amusements now has more 12 than 350 accounts in Maryland, West Virginia and 13 Pennsylvania. And my job is to do --- still is to do 14 whatever is needed. Thank you.

15 MR. MILLIRON: 16 Thank you, Mr. Chairman. 17 CHAIRMAN: 18 You got to go to bars and tell your wife 19 you were working, I'm really jealous of that. 20 MR. MILLIRON: 21 Major Lutz knows it's the only other 22 person that can say that is a Liquor Enforcement 23 Officer whose got to go out every night undercover.

24 CHAIRMAN: 25 I try it but it doesn’t work. Questions?

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1 Representative Vulakovich has questions. 2 REPRESENTATIVE VULAKOVICH: 3 First, I want to comment that the 4 testimonies that we just heard from this group here, I 5 was really impressed. And, you know, we come up with 6 decisions sometimes in Harrisburg we have a vision and 7 we have to put a plan with that vision. But you have 8 to --- what I learned ---. I was a policeman for 27 9 years, two sides and sometimes more to a story. And I 10 remember an old lieutenant told me one time he said, 11 you know, sometimes people are going to come with 12 ideas or issues and you're going to think they're 13 crazy. He said but you owe it to listen to them. You 14 owe them that respect. And all players in a decision 15 like this should be brought to the table in a piece of 16 legislation such as this. 17 We have people --- every issue is 18 relative. You know, we have --- if we're going to put 19 a piece of legislation out, we want to make sure we 20 don’t pit, for example, small business now against 21 division to help provide college education to our 22 students. It's a noble cause, but we also got to 23 remember we're talking about helping these children 24 get an education and being able to find a job some 25 place. And that job may be to be an entrepreneur, to

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1 start a small business. So it kind of --- it's like 2 an oxymoron to think that we're going to hurt certain 3 businesses out there by the actions we take. We know 4 nothing is perfect but we should all strive to try to 5 get it right. And I think that’s what everybody up 6 here wants to do, that’s why we're holding these 7 hearings now. 8 That being said, the violations that have 9 occurred over the years because of this limbo area 10 with the machines, with the paying out, that actually 11 indeed makes the machine itself not illegal if it 12 doesn’t have the kickoff switch and everything else. 13 But what actually makes it illegal is the fact that 14 people are paying out on the machines, and we know 15 that happens just about everywhere. And there have 16 been many violations. 17 My question is, the violations that have 18 occurred, about what percentage would you think of the 19 bars, clubs and restaurants have had some type of 20 violation in the past against them in one form or 21 another?

22 MR. MILLIRON: 23 To tie in with the question, we had a 24 meeting yesterday with the Governor, some of the 25 Governor's staff, it was at their request. And one of

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1 the first things that we asked them --- and Major Lutz 2 was there. We asked them if they would do a computer 3 run of all the violations gaming related in the last 4 five years because there was a --- you know, 16,000 5 licensees, I just don’t know. But we will, I'm sure 6 because of the PSP, will have that information for you 7 hopefully by the next hearing. 8 But, you know, there are gaming 9 violations. For instance, we had --- I had a client 10 that’s a bowling center up in Wilkes-Barre. I'm sure 11 you're all aware, even if some legitimate organization 12 has a small games of chance license, they cannot come 13 into a licensed establishment and sell those tickets 14 because there's no gambling allowed. 15 I had a bowling center that was cited for 16 holding a small games of chance drawing in his bowling 17 center which happened at the bar. That violation is 18 just going to show up as a gambling violation. So 19 we're looking to get those statistics but in and of 20 itself it's not going to explain all the past history.

21 REPRESENTATIVE VULAKOVICH: 22 Now you see where I'm going with this 23 because of the legislation with violations in there, 24 we could be --- there could be a lot of these 25 businesses now who are not going to be able to comply

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1 with this bill as it is right now. 2 MR. MILLIRON: 3 And that’s exactly why it was brought up 4 at the meeting yesterday, Representative. 5 REPRESENTATIVE VULAKOVICH: 6 And I know the one thing that needs a lot 7 of thought needs to be given to is the --- I'm sorry, 8 is it Tom?

9 MR. SCOTT: 10 Yes. 11 REPRESENTATIVE VULAKOVICH: 12 Your testimony was the fact that you 13 actually broke the numbers down and made it a little 14 more realistic to us. You know, it's like a big 15 puzzle. You know, a picture and you got little 16 puzzle. And part of that picture was the amount of 17 money that will actually be lost. 18 Now, all that being said, one way or 19 another something needs to be done with the machines 20 in the bars, in the restaurants, in the clubs. And of 21 course it's tried to be addressed for years. And as a 22 former police officer, I want to see that addressed. 23 I always wanted it when I was an officer. I never 24 could understand; why don’t we do this the right way? 25 And certainly now if could do it the

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1 right way and then focus on this admirable vision to 2 help provide an education for our children, well 3 that’s where we can --- that’s where we to put our 4 stress and do the thing the right way. And so the 5 testimonies and then from yourself, you two gentleman 6 that have these businesses, I know there's going to be 7 businesses from far away that are going to try to come 8 to Pennsylvania and want to sell their machines here 9 and things like that. You know, I would like to see 10 us try to be as loyal as we can to the people who have 11 invested so much of their time and their past family 12 traditions in this state and all they say is we want 13 to take a break. We want to be at the table to be 14 heard. And so that’s what we need to work for. 15 So that being said, I'll turn this over 16 to someone else. Okay. Thank you.

17 MR. MILLIRON: 18 Thank you. 19 CHAIRMAN: 20 Thank you, Representative. Just I have a 21 couple of questions that I was jotting down as the 22 testimony was being presented. I don’t know --- John, 23 you can answer this or somebody. The issue that we 24 hear a lot about is the issue of control, controlling 25 the system. Mr. Lutz and sort of his wish would be to

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1 deal with one vendor, would make life a lot easier for 2 him is the way he said it. 3 Could you respond to that? Maybe you can 4 reach --- you can discuss what other states are doing 5 in the control that they have and how that would 6 affect us. Just the issue of control has been 7 something that we've talked about. 8 MR. MILLIRON: 9 It's our opinion, and this is after again 10 being worked --- with me working with both the taverns 11 and the vendors for 25 years. That a vendor based 12 system that would involve almost 100 percent of the 13 vendors is same way, shape or form is going to be the 14 best self-regulating entity there is. 15 And the reason for that is very simple. 16 I don’t want to sound like, you know, Wall Street, let 17 us police our own --- I'm not talking about that at 18 all. But there is no way a legitimate vendor is going 19 to make the kind of investment that he or she is 20 making and allowing the person down the street to have 21 illegal machines. 22 The penalties are massive in this bill, 23 and I'm not saying we agree with them. But the point 24 is the penalties for illegal machines --- they declare 25 them by the way, Representative, anything that has any

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1 probability of chance becomes automatically a gambling 2 device per se. So no more ---. The Major doesn’t 3 have to worry about having his people do undercover 4 work. If the machine is there and has any element of 5 chance, it's per se gambling. No more long undercover 6 work on it. 7 But what I'm getting at is the vendors 8 theirselves are going to have such huge investments. 9 One of these literally --- pokers, that everybody 10 wants to call them, they cost $3,000, $4,000. There's 11 nothing to them inside. Theses machines cost between 12 $12,000 and $15,000. These are not inexpensive games. 13 And now, again, they're all hardwired to the computer, 14 to the central computer. A modem costs another $2,000 15 for them just like your home computer. 16 But the point is there is no way that 17 somebody who's going to have that kind of investment, 18 it's our opinion, is going to jeopardize it by putting 19 illegal games out or unlicensed games and at the same 20 time ---. And there's a lot of vendors here but I'll 21 say this about them. They're not going to let 22 somebody else get over on them. I'm telling you, they 23 will turn each other in as quick as can be. So I 24 think the self-policing will be significant. 25 The one flaw, though, that we see, and I

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1 don’t know how to address it and maybe again Randy 2 could, every penalty and all the violations here are 3 aimed at liquor licensees. Contrary to what the Major 4 thinks about Southwest Pennsylvania, there are as many 5 illegal poker machines in the pizza parlors as there 6 are in the bars. Okay? You go to a laundry mat, you 7 could put your coins in the washing machine or in the 8 poker when you're waiting. There's no penalties in 9 here for those. That’s where you're going to have the 10 problem and the Bureau of Liquor Enforcement has no 11 jurisdiction there. 12 So I think the liquor licensed 13 establishment and those licensed vendors, who God 14 knows have to go through strict, strict background 15 checks or they don’t get a license, but that entity 16 will self-police. We still need the Major's people, 17 absolutely. But it's the non-liquor licensed entity I 18 think is where you're going to have the problem with 19 illegal games.

20 CHAIRMAN: 21 I just want to talk about percentages and 22 the money generated. And Mr. Scott talked about that 23 way back in the beginning, machines would net 24 approximately $30,000 per machine. I was just 25 wondering what you --- any of you can answer this,

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1 what you would need to make a profit, to be 2 supportive? Is $30,000 what --- is that the amount 3 that you're estimating? 4 MR. MILLIRON: 5 No, that was Secretary's testimony. 6 CHAIRMAN: 7 Do you have any numbers with regards to 8 that, what you think would be generated by these 9 machines? And maybe also with that, you know, the 10 percentages that are in the legislation, could you 11 speak to that and maybe to what you would like to see 12 changed in that if ---?

13 MR. MILLIRON: 14 Well, the percentages in and of itself 15 aren’t the problem. It's all the strings attached to 16 it as far as the tavern's concerned. Every single 17 bill that I've ever seen, and that includes in other 18 states, prohibit local governments from taxing and 19 licensing it. 20 First of all, that’s infringing on your 21 tax space, on your --- you know, on your income, 22 meaning the State's income. If there's a sales tax on 23 something, the locals can't tax it. And you're taxing 24 this machine as it is. If in fact the legislature 25 feels --- and I happen to agree with Representative

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1 Harhai. I think there has to be something in there 2 for local governments including counties where they’ve 3 got all the prison systems and local municipalities. 4 But that’s certainly not my --- that will be your 5 problem to decide. 6 But by taking it out of the 25 percent, a 7 local amusement tax, Act 511 allows ten percent. So 8 ten percent of the 25 percent, you know, 7,500 rather, 9 as Tom said. So you take ten percent of that --- 10 that’s 750 right there. You take a $1,000 license 11 fee, a grand right there. So the discretion that the 12 Secretary of Revenue has to increase fees and 13 percentages at any time, that’s scary. So I don’t 14 think it's the percentages. Would we like more? 15 Absolutely. But the point is it's what entailed with 16 the cost that comes out of that 25 percent. 17 You know, just on percentages on a more 18 general way. The estimates --- and I'm just using 19 Secretary Stetler's, okay, and I don’t like to argue 20 with our former colleague. But he's using Oregon, 21 okay. This whole process has been based on Oregon. 22 Oregon has the worst participation. I said that, 35 23 percent. The Department of Revenue's estimates are 24 that 8,000 bars will participate. That’s 50 percent. 25 One of two things are going to happen. You're either

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1 way over on your estimate if it follows Oregon, or 2 you're way under where you should be and that is the 3 vendor based. 4 With every other state doing between 78 5 and 85 percent of penetration, meaning the bars and 6 the vendors have a great love/hate relationship. It's 7 like a marriage. They work well together, they fight 8 but they have an excellent rapport on how many 9 machines and how to keep them serviced. The President 10 of the Tavern Association said yesterday about his 11 distributor, if that person's not in that --- we asked 12 the Secretary of Revenue how fast would you guarantee 13 service, and he said within 24/48 hours. He said I'd 14 fire you. When I want my machine down on a Saturday 15 night and it's making money like hell I want, you 16 know, one hour or two hour repairs. I don’t want that 17 down for the weekend. 18 What I'm getting at is, you were talking 19 as you were with Gannon College, Representative, and 20 you're talking about Villanova. One of our vendors is 21 year, a Villanova grad, I want you to meet. I mean, 22 whether we're expanding this to Pitt, Penn State, 23 Temple, whatever. If you take just the Secretary of 24 Revenue's estimate that 50 percent, which I think is 25 high for a sole-source system, it's just no where like

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1 that. If you do a vendor based system which is proven 2 to give you a minimum of 80 percent participation, 3 your numbers will have more than enough to fund at the 4 $550 million that the Deputy Secretary of Ed wants 5 because they're not messing with that money. 6 But the additional 30 percent 7 participation will give enough --- when I say enough, 8 there's never enough, but it will create an additional 9 $300 million that could be available for Pitt, Penn 10 State, Temple, Lincoln and however you would want to 11 divide that up, whether that's for the privates, 12 through PHEAA. But by their own estimate, 50 percent 13 will participate, and that’s extremely high for a sole 14 source but extremely low for a vendor based. So you 15 want to generate more money legally, go to the one 16 that’s proven. Four out of the five run 80 percent 17 participation. And literally what the bars are saying 18 here is true. They want to participate, they want to 19 do well, but not with all the grief and hassles that 20 are involved. And those numbers again from Oregon 21 aren’t years later. That’s 1992, that’s 17 years 22 latter and they still don’t want any part of it.

23 CHAIRMAN: 24 Could you explain as simply as you can to 25 me the --- I know you can do this John, the payout

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1 that would be under the bill where the Tavern 2 Association has to have x amount of dollars? And why 3 your proposal with a vendor based system would be 4 better? 5 MR. MILLIRON: 6 First of all, the numbers --- the people 7 from the Governor's office yesterday promised they'd 8 give us their numbers because I --- I'm certainly not 9 an economist. I didn’t go to Wharton, I didn’t go to 10 Penn, I went to Duquesne, so another private school. 11 I don’t understand their numbers. 12 The State of Oregon --- and let me make 13 this real clear because I think there may ---. I 14 don’t want to accuse anybody of playing games. Every 15 single state in the country --- now there's only five 16 that have video pokers in bars and clubs, but, you 17 know, there are racetracks and casinos, you know, 18 Delaware, Pennsylvania, now Rhode Island, New York. 19 Every one of those states, except Oregon, every one of 20 those states base every single percentage on what's 21 known as NMI, Net Machine Income. And that is simple, 22 I even understand it. Net Machine Income is every 23 dollar that went in minus every dollar that was paid 24 out, what's left, okay? 25 That number in Oregon --- every dollar in

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1 minus every dollar out, that Net Machine Income, the 2 cost to the State is approximately ---. When it 3 started out, it was over 50 percent. But right now 4 last year in 2008 the cost to the State was 36 5 percent, okay? Thirty-six (36). There is no way the 6 State can run their operation with a sole source at 25 7 percent. It doesn’t happen. 8 Now, what I think and what I heard in the 9 conversation yesterday is they're talking about 10 bringing in a vendor and there's only three in the 11 whole country. There's G-Tech, Scientific Games and 12 IGT. And I'll just pick on IGT. I happen to think 13 and I hope they --- and not hope, but if I'm proven 14 wrong, I will apologize. But when one of their staff 15 people yesterday said at our 25 percent for operation, 16 we're going to have extra money to put in the general 17 fund and give to the lottery. Well, I'd tell you it 18 would be the first program in history that was run 19 cheaper by the State than by a private enterprise. 20 I think what they're talking about is 21 what Oregon does. Oregon's Constitution says that 22 when they allowed their lottery, they had to do a 23 Constitutional amendment, not like ours where we were 24 able to do by statute. Oregon's Constitution 25 amendment stated that no more than 15 percent of the

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1 revenue could be spent on administration. And that’s 2 because they wanted the money to go to the good 3 programs. Well, guess what? When they saw that their 4 cost was running, by every other system used in the 5 entire country including Pennsylvania for their 6 racetracks, when they saw that their cost was running 7 initially in the ‘50s then into ‘40s, they are the 8 only state in the country that calculates percentage 9 on money-in only. And it's eight percent. But that’s 10 a deceptive number. You can't count total percentage 11 of total gross. You've got to use it. What's the 12 percentage of what's left, Mr. Chairman, not what goes 13 in. 14 So there will not be --- the State cannot 15 run, with money for the lottery and everything else, 16 this program on 25 percent and have money left over. 17 It just won't happen. Plus having 50 percent for 18 colleges and universities through the --- I mean for 19 students through the Tuition program. 20 There's aren't my numbers. The other 21 four states, and they go from small to medium size, 22 they have pretty much a 50/50 split. The State gets 23 50 percent and the location gets 25 percent and the 24 vendor gets 25 percent. Most of the costs come out of 25 the vendor's share, most, not total. There's a

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1 percent or two that goes for the lease of the 2 computer. But in every other state, the taverns make 3 a nice living, the vendors make a nice living and the 4 State is coming up with loads of money. That system 5 in Pennsylvania, vendor based, by our estimates --- 6 and I have an appointment a week from Tuesday with 7 Chairman Evans' office to go over these numbers. 8 If we estimate at 80 percent 9 participation which, again, is factual and can be 10 relied on, I think there's more than enough money at 11 50 percent for the State to not only fund the proposal 12 tuition program, but for an additional $250 to $300 13 million that could fund private universities and the 14 State related universities. And I honestly think we 15 have the numbers to back that up. Again, only because 16 we're basing them on all the other states. These 17 aren't numbers that I sat down and came up with. 18 So the percentage deals with how much you 19 think's going to be there. They're saying there's a 20 tiny bit there and we're going to be able to run it 21 for next to nothing. I think you have to put the 22 whole thing in perspective. If it's a bigger number, 23 then the percentages are much more palatable.

24 CHAIRMAN: 25 Just two more questions. One is just

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1 clarification on Amy's testimony. On page, I think 2 it's page two, you talk about other items in the bill 3 that would probably prohibit most private clubs and 4 some licensees from even participating. Is the cause 5 that state's applications will be denied by the 6 Secretary if applicant has been convicted of illegal 7 gambling, which in Pennsylvania included NASCAR and 8 NFL pools. 9 I'm not sure what you're asking us to do 10 there. Turn a blind eye to that, or what are you 11 saying? I know that NASCAR and NFL pools are 12 prevalent, but if there is a conviction of an illegal 13 gambling from a licensee --- maybe you can answer my 14 question.

15 MS. CHRISTIE: 16 Well, there's two kinds. 17 MR. MILLIRON: 18 Yeah. We feel there's criminal 19 violations and civil. 20 CHAIRMAN: 21 Okay. 22 MR. MILLIRON: 23 If you're talking criminal, that’s 24 another story. But a 50/50 is an illegal gamble. But 25 it's not a criminal violation. So the bill says any

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1 illegal gambling. It doesn’t define it. We're saying 2 we've got to have a better defined term. 3 CHAIRMAN: 4 Okay. I understand. And my final 5 question is we talked states that have the video 6 lottery, video poker, whatever you want to call it. 7 How many of those states have another lottery system 8 like we do and/or casinos and what effect has the 9 implementation of these video lottery systems had on 10 the casinos and/or the lotteries?

11 MR. MILLIRON: 12 We've been trying to get some statistics. 13 We don't have them on racetracks because in most cases 14 --- well, let me backtrack. In the five states that 15 have video pokers in the bars, racetracks came after 16 that. In West Virginia there was the racetrack then 17 the video poker in the bars, but there's not enough 18 information. It's too recent. In Oregon it was the 19 video poker then the racetrack. In Louisiana, you 20 know --- I'm not sure about Louisiana, Montana. I 21 don’t think there's any racetracks in Montana. 22 But what I can tell you about South 23 Dakota and Oregon and Louisiana, in the first two 24 years --- now, I'm going back to their original, okay, 25 1992, 1996, 1997. In those states for two years after

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1 video gaming went into effect, there was an 2 approximate four --- two to four percent drop in 3 instant scratch off tickets. The gaming psyche, how 4 it was explained to us, that competes for the dollar 5 in a poker is the instant winner. I want to put a 6 dollar in, I want to win. It's not the person that’s 7 going to put five dollars in to play the number on 8 Saturday or the Big Five or that. So you're talking a 9 different gambling. 10 So the statistics from those three states 11 was that ticket sales went down two or four percent in 12 the first two years. The third year stabilized and 13 after that went back up. Now, will that happen here, 14 I don’t know. But that’s --- they saw no decline in 15 the number of games that they did in scratch off 16 tickets.

17 CHAIRMAN: 18 I think that concludes your testimony and 19 our questions. I do appreciate your input and look 20 forward to working with you as we move forward on the 21 legislation. 22 Okay. Our final testifier today is Mr. 23 Stephen Drachler. He is the Executive Director of 24 United Methodist Witness in Pennsylvania. Mr. 25 Drachler, welcome, and when you're ready you may

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1 begin. 2 MR. DRACHLER: 3 Thank you, Mr. Chairman. And good 4 afternoon, members of the Committee, and I appreciate 5 your patience and your forbearance through this long 6 proceeding today. My name is Stephen Drachler. I am 7 Executive Director of United Methodist Witness 8 Pennsylvania. 9 United Methodist Witness is the social 10 justice advocacy arm of the United Methodist Church in 11 Pennsylvania. We are part of a coalition, Stop Video 12 Poker PA, that is organized to oppose this 13 legislation. Our coalition is comprised of faith and 14 civic groups. Our website, www.stopvideopokerpa.org, 15 offers citizens an opportunity to voice their concerns 16 to Governor Rendell and their legislators. 17 Mr. Chairman, I want to thank you for 18 making time for me to speak today to offer a 19 perspective from some of those who do not believe that 20 expanding gambling is good social or fiscal policy. I 21 encouraged you to make time in your future hearings to 22 hear from more groups who question the wisdom of this 23 legislation. I also urge you to uphold a hearing in 24 Philadelphia, the area that potentially --- is 25 potentially most effected by this legislation and to

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1 hear from the people who live there. 2 United Methodist Witness represents 3 nearly 2,400 United Methodist congregations in 4 Pennsylvania. That means there is a United Methodist 5 Church in nearly every community across the State and 6 there is about a half million United Methodists in the 7 State. 8 The church's position on video poker in 9 restaurants and bars is very clear. The church 10 believes that gambling is a menace to society. Deadly 11 to the best interests of moral, social, economic and 12 spiritual life and that it tears down government. 13 Gambling encourages the belief that work is 14 unimportant, that money can solve all our problems and 15 that greed is the norm for achievement. It serves as 16 a regressive tax on those with lower incomes. 17 In summary, gambling is bad economics, 18 bad public policy and does not improve the quality of 19 life. Gambling is not a win/win exchange but requires 20 many losers to benefit the few winners. Now, we know 21 this position is not popular in some circles, Mr. 22 Chairman. And we know we are up against many powerful 23 and influential interests who want to place video 24 lottery --- video poker machines in thousands of 25 restaurants and taverns across the State. And you've

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1 just spent significant timing hearing from those folks 2 today. 3 In fact, sometimes we feel like we are 4 somewhat like David in his battle with Goliath. 5 Goliath towers over us and the odds, pun intended, are 6 against us. But like David, we're up for the battle 7 and like David we are seeking strength and guidance 8 from God as we prepare for this confrontation. 9 Theologically speaking, we believe it 10 vital to take a stand against injustice. We believe 11 God calls us --- God implores us to speak the truth. 12 A truth fashioned in love and concern for our 13 neighbors, our love and concern for those who will be 14 hurt by any expansion in gambling in our state. This 15 kind of expression is in our DNA as United Methodists 16 going back more than 240 years. 17 We were very disappointed, Mr. Chairman, 18 earlier this week to see that Governor Rendell has 19 resorted to using a video conference with high school 20 students to drum up support for this proposal. 21 Frankly, we believe he should have known better. What 22 lesson is he teaching here? What sort of example is 23 he offering to our young people? If he believes he is 24 teaching civic activism, we believe he picked the 25 wrong issue because the Governor's doing what we

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1 believe House Bill 1317 does. Offering a false choice 2 to high school students and their parents. 3 We strongly disagree that this is about 4 scholarships so more of Pennsylvania's young people 5 can attend college. Students and their parents are 6 being used as pawns in this false choice. And this 7 false choice is not news. It is a pattern that has 8 evolved over the past few decades in Pennsylvania and 9 across our nation. And it's not a partisan thing 10 either. Both major political parties had fallen prey 11 to the lure of the quick buck, and the quick tax on 12 those quick bucks. 13 Government sees a need for money and 14 instead of working to find a socially and morally 15 acceptable solution, government takes what it believes 16 is the easy way out by adding more gambling. First 17 horseracing, then the daily lottery, then the 18 lunchtime lottery, and larger and larger numbers for 19 larger and larger jackpots. Then Powerball and its 20 mega-millions, and then just a few years ago, the big 21 one, slot casinos. And now before all the slot 22 casinos are even open for business, and as gaming 23 regulators in Pennsylvania are up to their necks in 24 problems, we have this proposal to turn restaurants 25 and bars into mini-casinos. And casino table games

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1 are obviously next on someone's legislative horizon. 2 It is a never-ending cycle of more and 3 more money spent on gambling. Money which does not 4 repair homes, feed children, or pay for the medical 5 bills of families. Just what are we becoming? What 6 message are we sending to our children and our 7 grandchildren? What legacy are we leaving them? 8 You're telling them that the answer to our problems 9 are in the numbers. From the slots terminals, from 10 the video poker terminal, which is really no different 11 then a slots terminal. Play a quarter to win your 12 dream and solve your problems. Play a quarter and 13 solve your problems. 14 That, members of the Committee, is the 15 false choice and is a side of this issue that some 16 proponents simply do not want to hear or want the rest 17 of Pennsylvania to hear. We are sure there are 18 alternative solutions, solutions that would take hard 19 work and political courage to implement. We find that 20 whenever the issue of false choices is raised, the 21 subject gets changed awfully fast. We believe it 22 because the answer is clear. Gambling is not the 23 answer to Pennsylvania's fiscal problems. 24 Let's consider the human toll from video 25 poker for a few moments. Experts in the field of

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1 video poker, and there's no doubt we are talking about 2 video poker here, say this is one of the most 3 dangerous and addictive forms of gambling. Doctor 4 Robert Hunter, the psychologist who operates the 5 problem gambling center in Las Vegas, says video poker 6 is the crack cocaine of gambling. Why? The video 7 games move so quickly. And the lure of winning is so 8 strong, that the players are easily trapped by the 9 hypnotic effect of the machines. 10 Gamblers Anonymous says video poker 11 drives gambling addicts to rock bottom ten times 12 faster than addiction to other forms of gambling such 13 as horseracing. Doctor Earl Grinols, distinguished 14 professor of economics at Baylor University has been 15 studying the impact of gambling for many years. He 16 says the social cost of each gambling addict are 17 enormous. One study that he did puts that cost at 18 about $10,000 per person, per addict, on an average 19 year in cost for law enforcement, unemployment, health 20 problems and lost productivity at work. 21 Just a few weeks ago Doctor Grinols asked 22 an audience in Fort Wayne, Indiana, a city considering 23 a casino, how many people pawn their possessions for 24 their recreation. And Nevada, he says, shows what can 25 happen to a society where gambling becomes king.

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1 Nevada leads the nation in suicide rate, divorce, 2 women killed by men and gambling addiction. 3 I urge you, Mr. Chairman, to invite 4 Doctor Hunter and Doctor Grinols to attend --- to 5 testify at one of your hearings. I urge you to hear 6 from some of the victims of gambling addiction right 7 here in Pennsylvania. You could do that in 8 Philadelphia. We believe this legislation sends the 9 wrong message, that gambling is a socially accepted 10 norm. They socially accepted and reasonable way to 11 find financial happiness. It's unfortunate that 12 Governor Rendell, by encouraging young people, high 13 school students who are not old enough to vote to 14 lobby for this bill doesn’t mind the changes it will 15 bring to society. 16 Pennsylvania's government and our elected 17 leaders is now addicted to gambling and its false 18 promises and false choices. The siren song of easy 19 money has lured them into the trap. Members of the 20 Committee, we believe that House Bill 1317 is where 21 you can and you must step away from the trap. It is 22 not too late. We urge you to say no to more gambling 23 in Pennsylvania. I thank you very much for the 24 privilege of appearing here today. We look forward to 25 responding to your questions. Thank you.

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1 CHAIRMAN: 2 Thank you, Mr. Drachler, for your 3 testimony and I do appreciate your passion on this 4 issue. Of course I respectively disagree. Just a 5 comment and then just maybe some quick questions. You 6 brought up the question of having a hearing in 7 Philadelphia, and I've been requested by that also by 8 a member of our Committee, by Representative Clymer. 9 We are having four hearings on this 10 issue. We're traveling --- we're here in the western 11 part of the State. We're heading to Berks County next 12 week. We're having two hearings in Harrisburg. And 13 other members have asked to have hearings in their 14 Districts, and if I had the time, I would like to do a 15 lot more. But I've been in the legislature for 17 16 years and I've never been on a committee that had four 17 hearings on anything. So I think the fact that --- I 18 understand Philadelphia's issues, but we have really I 19 think bended over backwards to listen to all sides, to 20 take testimony from everybody that has a concern about 21 this issue. And we're only --- this is halfway 22 through. So I just wanted to make that note. I know 23 that there's been a request, but we just don’t have 24 the time and I think that ---. I think in some cases 25 the request for more hearings is a delaying tactic.

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1 MR. DRACHLER: 2 Thank you. 3 CHAIRMAN: 4 Just a couple questions on the groups 5 that you represent. You said you represent a 6 coalition of faith and civic groups. Now, is it just 7 the Methodist Church? 8 MR. DRACHLER: 9 Part of our coalition is the Pennsylvania 10 Counsel of Churches, the Pennsylvania Family Institute 11 and the league of Women Voters.

12 CHAIRMAN: 13 Okay. But there are other religions and 14 faiths that have opposition to that? 15 MR. DRACHLER: 16 Also the Casino Free Pennsylvania and 17 Casino Free Philadelphia. 18 CHAIRMAN: 19 Okay. I understand you talk about the 20 social ills of gambling, and I'm not going to deny 21 that there are some. But there are also positives. 22 In this economy that we have today when we can't find 23 a job and people are losing their jobs, the gaming 24 industry --- the facility just created a thousand jobs 25 I believe. Washington County is not too far from here

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1 to the south. The casino facility that’s opening up 2 out in Pittsburgh very shortly in the middle of the 3 summer is going to create another 1,000 jobs. An 4 economic development that has grown from that, how 5 would you respond to the other side of your concern 6 that ---? And we need jobs, we need economic 7 development and this is providing it. How would you 8 respond to that?

9 MR. DRACHLER: 10 Well, thank you. I'm not an economist 11 and not an expert on a lot of economic development. 12 But I do know from some of my reading that the jobs 13 that have been created from the slot casinos and from 14 some of the other portions of the gambling industry 15 are not providing the level of compensation that 16 people had initially hoped they would. And I wish I 17 had brought those reports with me, but I've read 18 articles on that. I think that’s an issue that is 19 important, but I think too that certainly Pennsylvania 20 can attract other forms of job-creating businesses to 21 the State that don’t rely upon thousands and thousands 22 of people losing just so a few can win. 23 CHAIRMAN: 24 I appreciate that. Again, I want to 25 reiterate, we're not just focusing on the casino as

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1 the only creator of jobs. I think as a state --- it's 2 not in the purview of our Committee. But we're trying 3 to create an atmosphere for not just casino jobs but 4 all jobs. 5 MR. DRACHLER: 6 Sure. But in terms of the jobs that have 7 been created recently, they’ve been related to the 8 casinos that have been built.

9 CHAIRMAN: 10 You talked about the --- and this has 11 been brought up by members in the past about lottery 12 video --- video poker being the crack cocaine of 13 addiction. And you mentioned some --- Doctor Grinols, 14 I think, is going to be testifying in one of our 15 future hearings, just for your information. 16 MR. DRACHLER: 17 Wonderful. Thank you. 18 CHAIRMAN: 19 Last hearing a Jim Pappas of Compulsive 20 Gambler Association of Pennsylvania said --- and 21 they're opposed to any kind of --- they've come out 22 ‘til we deal with some of the issues related to 23 compulsive gambling with any kind of additional 24 gambling involvement. Said that there are no studies 25 out there that show that the introduction of video

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1 lottery terminals or video poker increases the 2 percentage of people that have compulsive gambling 3 addictions. Are you aware of any studies that he 4 doesn’t know about? 5 MR. DRACHLER: 6 I will try to provide you with some of 7 the information that I have seen. And going back to 8 Doctor Hunter's research and I can provide that to 9 you. I'll do that next week, Mr. Chairman.

10 CHAIRMAN: 11 I appreciate that very much. 12 MR. DRACHLER: 13 Okay. Yeah. 14 CHAIRMAN: 15 If there are no other questions, I do 16 want to thank you for your testimony and all the other 17 testifiers. We are, as I mentioned, half way through 18 the hearing process. We have a hearing next week in 19 Berks County. I don’t have as far a drive as I did 20 today, so it will be closer for me. And the final 21 hearing will be May the 24th in Harrisburg. So we 22 welcome --- we're trying to do everything we can to 23 make this bill better. That’s why we're having the 24 hearings. We welcome everyone's input and we'll 25 continue to work toward a piece of legislation that

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1 can pass the general assembly and be signed by the 2 Governor. And we do appreciate your time. Hearing 3 nothing else, this meeting is now adjourned. 4 * * * * * * * * 5 HEARING CONCLUDED AT 1:00 P.M. 6 * * * * * * * *

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1 COMMONWEALTH OF PENNSYLVANIA ) 2 COUNTY OF ALLEGHENY ) 3 4 CERTIFICATE 5 I, Valerie Gregory, a Notary Public in and 6 for the Commonwealth of Pennsylvania, do hereby 7 certify: 8 That the witness whose testimony appears in 9 the foregoing deposition, was duly sworn by me on said 10 date and that the transcribed deposition of said 11 witness is a true record of the testimony given by 12 said witness; 13 That the proceeding is herein recorded fully 14 and accurately; 15 That I am neither attorney nor counsel for, 16 nor related to any of the parties to the action in 17 which these depositions were taken, and further that I 18 am not a relative of any attorney or counsel employed 19 by the parties hereto, or financially interested in 20 this action. 21 22 23

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