Arizona State Senate Research Staff

ARIZONA STATE SENATE RESEARCH STAFF

TO: JOINT LEGISLATIVE AUDIT COMMITTEE LAURA BENITEZ LEGISLATIVE RESEARCH ANALYST DATE: January 7, 2020 COMMERCE COMMITTEE Telephone: (602) 926-3171 SUBJECT: Sunset Review of the Arizona Department of Gaming

Attached is the final report of the sunset review of the Arizona Department of Gaming, which was conducted by the Senate Commerce and House Commerce Committee of Reference. A performance audit of the Arizona Department of Gaming was conducted by the Office of the Auditor General (Report No. 18-105).

This report has been distributed to the following individuals and agencies:

Governor of the State of Arizona The Honorable Douglas A. Ducey

President of the Senate Speaker of the House of Representatives Senator Karen Fann Representative Russell Bowers

Senate Members House Members Senator Michelle Ugenti-Rita, Co-Chair Representative Jeff Weninger, Co-Chair Senator Sean Bowie Representative Leo Biasiucci Senator David C. Farnsworth Representative Kelli Butler Senator Sally Ann Gonzales Representative César Chávez Senator David Livingston Representative Mitzi Epstein Senator J.D. Mesnard Representative Travis W. Grantham Senator Tony Navarrete Representative Anthony T. Kern Senator Tyler Pace Representative Robert Meza Representative Bret Roberts

Arizona Department of Gaming Office of the Auditor General Arizona State Library, Archives and Public Records

Senate Resource Center Office of the Chief Clerk Senate Republican Staff House Republican Staff Senate Democratic Staff House Democratic Staff Senate Research Staff House Research Staff Senate Commerce and House Commerce Committee of Reference Final Report

Arizona Department of Gaming

Background

Pursuant to A.R.S. § 41-2953, the Joint Legislative Audit Committee assigned the sunset review of the Arizona Department of Gaming (ADG) to the Senate Commerce Committee of Reference and House Commerce Committee of Reference.

The ADG was established in 1995 to monitor tribal gaming activities in accordance with the Arizona tribal-state gaming compacts required by federal law and as authorized by statute. In 2015, the Legislature consolidated the Arizona Department of Racing into the ADG as the Division of Racing and transferred the Boxing & Mixed Martial Arts (Boxing & MMA) Division from the previous Department of Racing to the ADG (Laws 2015, Chapter 19). The ADG's regulatory authority now includes oversight of racing, pari-mutuel and simulcast wagering, and unarmed combat sports.

Federal law requires an Indian tribe and the state to negotiate for a tribal-state compact governing the conduct of class III gaming activities on tribal lands (25 U.S.C. 2710 (d)(3)(B)). The tribal-state gaming compacts between Arizona and the 22 federally-recognized Indian tribes in the state are substantially identical and outline the regulatory framework governing class III gaming. The ADG's duties prescribed by statute and tribal-state gaming compacts include: 1) monitoring gaming operations; 2) investigating suspected compact violations; 3) conducting compact compliance reviews of gaming operations, facilities and activities of facility operators; 4) certifying gaming employees who are not enrolled tribal members; 5) certifying management contractors, financiers, manufacturers and suppliers of gaming devices, providers of gaming services and management officials; 6) administering the transfer of unused gaming device allocations; 7) providing problem gambling prevention, treatment and education; and 8) administering and allocating Indian tribes' state contributions through the Arizona Benefits Fund as outlined (A.R.S. Title 5, Chapter 6).

The ADG Division of Racing works in conjunction with the Arizona Racing Commission to regulate horse racing and the ADG Boxing & MMA Division provides staff support to the Arizona Boxing & MMA Commission for the regulation of unarmed combat sports (A.R.S. §§ 5-101.01 and 5-224).

The ADG is statutorily set to terminate on July 1, 2020, unless legislation is enacted for its continuation (A.R.S. § 41-3020.16). The Arizona Racing Commission and the Arizona Boxing & MMA Commission are statutorily set to terminate on July 1, 2024, and July 1, 2026, respectively (A.R.S. §§ 41-3024.28 and 41-3026.22).

Committee of Reference Sunset Review Activity

Pursuant to A.R.S. § 41-2954, the Senate Commerce and House Commerce committees of reference met jointly on Tuesday, November 12, 2019, to review the Auditor General's Performance Audit and Sunset Review Report, consider the ADG's responses to the statutorily-outlined sunset factors and receive public testimony. Committee of Reference Recommendations

On November 12, 2019, the Senate Commerce and House Commerce Committee of Reference recommended that the ADG be continued for four years until July 1, 2024, and that the Arizona Boxing & MMA Commission sunset date be moved from July 1, 2026, to July 1, 2024, for the purposes of aligning the sunset dates of the ADG, the Arizona Racing Commission and the Arizona Boxing & MMA Commission.

Appendices

1. Meeting Notice 2. Minutes of the Senate Commerce and House Commerce Committee of Reference Attachment A: Arizona Department of Gaming – Office of the Auditor General Attachment B: ADG; Arizona Department of Gaming Sunset Review – ADG Attachment C: ADG Arizona Department of Gaming Tribal Contributions – ADG 3. Chairperson's letter requesting the ADG's response to additional sunset factors 4. ADG's response to additional sunset factors APPENDIX 1 REVISED REVISED REVISED

Interim agendas can be obtained via the Internet at http://www.azleg.gov/Interim-Committees

ARIZONA STATE LEGISLATURE

INTERIM MEETING NOTICE OPEN TO THE PUBLIC

SENATE COMMERCE AND HOUSE COMMERCE COMMITTEE OF REFERENCE FOR THE SUNSET REVIEW OF THE ARIZONA DEPARTMENT OF GAMING

Date: Tuesday, November 12, 2019

Time: 1:00 P.M.

Place: SHR 109

AGENDA

1. Call to Order 2. Roll Call 3. Introduction 4. Sunset Review of the Arizona Department of Gaming • Presentation by the Office of the Auditor General • Presentation by the Arizona Department of Gaming • Public Testimony • Discussion and Recommendations 5.6. Adjourn

Members:

Senator Michelle Ugenti-Rita, Co-Chair Representative Jeff Weninger, Co-Chair Senator Sean Bowie Representative Leo Biasiucci Senator David C. Farnsworth Representative Kelli Butler Senator Sally Ann Gonzales Representative César Chávez Senator David Livingston Representative Mitzi Epstein Senator J.D. Mesnard Representative Travis W. Grantham Senator Tony Navarrete Representative Anthony T. Kern Senator Tyler Pace Representative Robert Meza Representative Bret Roberts

11/06/19 hf

For questions regarding this agenda, please contact Senate Research Department. Persons with a disability may request a reasonable accommodation such as a sign language interpreter, by contacting the Senate Secretary’s Office: (602) 926-4231 (voice). Requests should be made as early as possible to allow time to arrange the accommodation. APPENDIX 2 ARIZONA STATE LEGISLATURE

SENATE COMMERCE AND HOUSE COMMERCE COMMITTEE OF REFERENCE FOR THE SUNSET REVIEW OF THE ARIZONA DEPARTMENT OF GAMING

Minutes of the Meeting November 12, 2019 1:00 p.m., Senate Hearing Room 109

Members Present: Senator Michelle Ugenti-Rita, Co-Chair Representative Jeff Weninger, Co-Chair Senator Sean Bowie Representative Kelli Butler Senator David C. Farnsworth Representative César Chávez Senator Sally Ann Gonzales Representative Mitzi Epstein Senator David Livingston Representative Anthony T. Kern Senator Tony Navarrete Representative Bret Roberts

Members Excused: Senator J.D. Mesnard Representative Leo Biasiucci Senator Tyler Pace Representative Travis W. Grantham Representative Robert Meza

Staff: Laura Benitez, Senate Research Staff Paul Benny, House Research Staff

Co-Chair Ugenti-Rita called the meeting to order at 1:12 p.m. and attendance was taken.

INTRODUCTION

Senator Ugenti-Rita stated that member introductions were unnecessary.

SUNSET REVIEW OF THE ARIZONA DEPARTMENT OF GAMING

Presentation by the Office of the Auditor General

Marc Owen, Auditor General's Office (OAG), distributed and explained a PowerPoint presentation entitled "Arizona Department of Gaming" (Attachment A). Mr. Owen gave an overview of the Department of Gaming and the results of the Auditor General's performance audit of the Department. Mr. Owen answered questions posed by the Committee. APPENDIX 2

Presentation by the Arizona Department of Gaming

Ted Vogt, Director, Department of Gaming for the State of Arizona, distributed and explained a PowerPoint presentation entitled "ADG; Arizona Department of Gaming Sunset Review" (Attachment B) and a handout entitled "ADG; Arizona Department of Gaming Tribal Contributions" (Attachment C). Mr. Vogt gave an overview of the history of tribal gaming in Arizona and the current compact between Arizona Tribes and the State of Arizona. Mr. Vogt explained the Department's response to the Auditor General's performance audit and answered questions posed by the Committee.

Laura Benitez, Senate Research Staff, answered questions posed by the Committee.

Jake Agron, Senate Research Staff Director, answered questions posed by the Committee.

Public Testimony

Senator Ugenti-Rita called for public testimony, however, no one came forward.

Discussion and Recommendations

Dale Chapman, Performance Audit Director, Auditor General's Office, clarified regulation and enforcement related to the Tribal Compact and answered questions posed by the Committee.

Senator Livingston stated that no one was signed into the Request to Speak system.

The Committee discussed the Department of Gaming.

Mr. Vogt answered additional questions posed by the Committee.

Representative Weninger moved that the Committee of Reference recommend that the Arizona Department of Gaming be continued for four years until July 1, 2024 and moved that the Committee recommend the Sunset date for the Boxing and Mixed Martial Arts Commission be moved from July 1, 2026 to July 1, 2024 for the purposes of aligning the Sunset dates of the Arizona Department of Gaming, Arizona Racing Commission and the Arizona Boxing and Mixed Martial Arts Commission. The motion CARRIED by voice vote.

There being no further business, the meeting was adjourned at 2:33 p.m.

Respectfully submitted,

Shelley Ponce Committee Secretary

(Audio recordings and attachments are on file in the Secretary of the Senate’s Office/Resource Center, Room 115. Audio archives are available at http://www.azleg.gov) Attachment A

Arizona Department of Gaming

Performance Audit and Sunset Review Report No. 18-105 Issued August 2018

Presenter: Marc Owen Date: November 12, 2019

Department responsibilities

 Tribal Gaming  Horse Racing Attachment A

Tribal Gaming

 Compact

 Authorizes the State to inspect gaming facilities

 Requires State certification for tribal gaming facility vendors and employees

Tribal Gaming

 Compact Compliance Reviews (CCR)  Public health, safety, and welfare  Security and surveillance  Gaming devices

Department followed CCR processes Attachment A

Tribal Contributions

Tribal gaming revenue reviewed

 Revenue reports are reviewed by Department on a monthly and quarterly basis

 Annual external audit from independent CPA

Department followed procedures for reviewing revenue reports and revenues matched monthly and quarterly reports Attachment A

Tribal Gaming

Compact requires vendors to be certified

Department appropriately certified vendors reviewed

Tribal Gaming

 Department appropriately issued initial employee certifications reviewed

 Expanded financial review not consistently performed when renewing “Sensitive Management Position” employee certifications

 Department may not have properly identified some SMP employees Attachment A

Tribal Gaming-Recommendations

 The Department should:  Properly identify all SMP employees to ensure they receive the required expanded financial background check during recertification  Incorporate changes in policies and procedures, and then train staff

 Implemented May 2019 1

Horse Racing Licensure

 Licensing requirements  Application  Licensing fees  Two sets of fingerprints

 Horse racing licensing process allows for 90-day temporary licenses Attachment A

Horse Racing Licensure

 Department did not receive criminal history information for some applicants because of unreadable fingerprints

 Department did not complete all background investigations in a timely manner  About 4 percent overdue  Department staff member unavailable

Horse Racing-Recommendations

 The Department should:  Perform name-based background checks when fingerprint-based background checks are unable to be performed.  Cross-train staff to ensure that there are additional staff trained to complete background investigations

 Implemented May 2019 1 Attachment A

Recommendation to the Legislature

Consider aligning the sunset dates of the Department, the Arizona Racing Commission, and the Arizona Boxing and Mixed Martial Arts Commission

Arizona Department of Gaming

Performance Audit and Sunset Review Report No. 18-105 Issued August 2018

Presenter: Marc Owen Date: November 12, 2019 Attachment B

Sunset Review

Ted Vogt Director

11-12-2019

Gaming Timeline

1988 Congress Enacts Indian Gaming Regulatory Act (“IGRA”)

1994 Sixteen Tribes sign Compacts and ten casinos are in operation by December 1994. 1995 Department of Gaming established

2002 State & Tribes conclude compact negotiations by January 2002

2003 State signs new Tribal-State Gaming Compacts in January 2003 2015 Department of Racing and the Boxing/MMA Commission End of current merge with Department of 2023 Compact term Gaming

1 Attachment B

Compacted Tribes with Casinos

Ak-Chin Indian Quechan Indian Community Tribe

Cocopah Indian Salt River Pima-Maricopa Tribe Indian Community

Colorado River San Carlos Indian Tribes Apache Tribe

Fort McDowell Tohono O’odham Nation Yavapai Nation

Fort Mojave Tonto Apache Indian Tribe Tribe

Gila River Indian White Mountain Community Apache Tribe

Navajo Yavapai-Apache Nation Nation

Pascua Yaqui Tribe Yavapai-Prescott of Arizona Indian Tribe

ADG Staffing

2 Attachment B

Problem Gambling

Tribal Contributions

Tribal Contributions to Key Arizona Benefits Fund Beneficiaries

3 Attachment B

Tribal Contributions (Cont.)

ADG Successes • ADG has had many successes in recent years, but some of the most impactful on the Arizona gaming industry have been the reduction of Employee and Vendor Certification times:

• ADG has also had a substantial impact in curbing illegal gambling in this State, which includes a major operation that seized $1 million in cash in 2019.

4 Attachment B

What’s Next?

Questions?

5 Attachment C

Established by the Arizona State Legislature in 1995, the Arizona Department of Gaming (“ADG”) is the state agency charged with regulating tribal gaming, horse racing, pari-mutuel/simulcast wagering, and unarmed combat sports. ADG also provides and supports prevention, education, and treatment programs for people and families affected by problem gambling through its Division of Problem Gambling and 24-hour confidential helpline, 1-800-NEXT-STEP.

Tribal Gaming Boxing & Mixed Martial Arts Gaming in Arizona is governed by the Arizona Tribal-State Gam- ing Compacts (the “Compacts”) between the State and all 22 federally recognized Arizona Tribes. The Compact with each of the Tribes is substantially identical, lasts for 10 years, and can be ADG Boxing & Mixed Martial Arts regulates and supervises un- renewed for another decade and an additional three-year term. armed combat sporting events conducted in the State of Arizo- Furthermore, the Compact is part of Arizona Law. Currently, 16 na to ensure the health and safety of participants and maintain Arizona Tribes operate 24 Class III casinos in the State. The oth- public confidence. In addition to enforcing applicable laws and er six Arizona Tribes do not have casinos but have slot machine rules, ADG works with the Arizona Boxing & MMA Commission rights that they may lease to other Tribes with casinos, known to license fighters, promoters, and event officials and supports as transfer agreements. open public meetings of the Commission. In Fiscal Year 2019, ADG hosted 15 open public meetings of the Arizona Boxing & Under the Compacts, Tribes that operate casinos contribute 1 MMA Commission. to 8 percent of their Class III Net Win1 on a quarterly basis to the State. A detailed graphic describing tribal contributions and ADG’s role in the process can be found on page 2.

1 Class III Net Win is the difference between gaming wins and losses before deducting casino operating costs. Contributions are determined on a sliding scale based on the amount of the Tribe’s year-to-date Class III Net Win. Division of Problem Gambling

DPG provides and supports education, prevention, and treatment for people and families affected by problem gambling. To Racing support socially responsible gaming in Arizona, DPG conducts community out-reach to increase awareness about problem gambling and offers tools and resources for those in need. This The Racing Division is tasked with the regulation and oversight includes exhibits and contacts at conferences and other events, of all live and simulcast horse racing, along with all pari-mutu- counseling services for contracted, specialized treatment pro- el horse and dog wagering conducted in the State of Arizona. viders, DGP’s 24/7 confidential helpline, 1-800-NEXT-STEP, and The Racing Division works in collaboration with the Arizona Rac- a voluntary casino self-exclusion program where patrons can ex- ing Commission, which issues permits, racing licenses, and ap- clude themselves from Arizona casinos. proves off-track betting site locations and live horse race meet dates. In Fiscal Year 2019, ADG hosted 12 open public meetings of the Arizona Racing Commission. Attachment C

Tribal Contributions Under the Compacts, Tribes that operate casinos contribute 1 to 8 percent of their Class III Net Win on a quarterly basis to education, healthcare, and other programs that benefit Arizonans. Administered by ADG, 88% of tribal contributions are distributed to the Arizona Benefits Fund (“ABF”), while the other 12% are distributed to the Cities, Towns & Counties of Arizona. From the 88% distributed to ABF, ADG receives the greater of 9% or $8 million dollars to fund ADG’s regulatory and administrative costs and 2% is distributed to ADG’s Division of Problem Gambling for the prevention, education and treatment of problem gambling in the State. The remaining monies in ABF are then distributed into the following four funds: 28% to Trauma and Emergency Services Fund, 56% to the Instructional Improvement Fund, 8% to the Tourism Fund, and 8% to the Wildlife Conservation Fund. Tribal Contributions are distributed on a quarterly basis to ADG from the Tribes, which has contributed over 1.3 billion dollars to ABF since 2004.

Tribal Contributions Cities, Towns (% of Net Win) 12% & Counties

88% ABF

ADG administers and distributes ABF

Greater of ADG Division of Problem 9% ADG 2% OR Gambling $8 Million

Trauma and 28% Emergency Tourism Fund Services Fund 8%

Instructional- Wildlife 56% Improvement 8% Conservation Fund Fund APPENDIX 3

June 13, 2019

Director Ted Vogt Arizona Department of Gaming 1110 W. Washington St., Suite 450 Phoenix, Arizona 85007

Dear Director Vogt:

The sunset review process prescribed in Title 41, Chapter 27, Arizona Revised Statutes, provides a system for the Legislature to evaluate the need to continue the existence of state agencies. During the sunset review process, an agency is reviewed by legislative committees of reference. On completion of the sunset review, the committees of reference recommend to continue, revise, consolidate or terminate the agency.

The Joint Legislative Audit Committee (JLAC) has assigned the sunset review of the Arizona Department of Gaming to committees of reference comprised of members of the Senate Commerce Committee and the House of Representatives Commerce Committee. JLAC has directed the Auditor General to conduct a performance audit of the Arizona Department of Gaming.

Pursuant to A.R.S. § 41-2954, the committee of reference is required to consider certain sunset factors in deciding whether to recommend continuance, modification or termination of an agency. In addition to the 12 sunset factors, which are addressed in the Auditor General performance audit, please provide your agency’s written response to the required factors as listed below:

1. An identification of the problem or the needs that the agency is intended to address.

2. A statement, to the extent practicable, in quantitative and qualitative terms, of the objectives of such agency and its anticipated accomplishments.

3. An identification of any other agencies having similar, conflicting or duplicate objectives, and an explanation of the manner in which the agency avoids duplication or conflict with other such agencies.

4. An assessment of the consequences of eliminating the agency or of consolidating it with another agency.

5. The extent to which the agency potentially creates unexpected negative consequences that might require additional review by the committee of reference, including increasing the price of goods, affecting the availability of services, limiting the abilities of individuals and businesses to operate efficiently and increasing the cost of government. APPENDIX 3

Your response should be received by September 1, so we may proceed with the sunset review and schedule the required public hearing. Please submit the requested information to:

Molly Graver Arizona State Senate 1700 West Washington Phoenix, Arizona 85007

Thank you for your time and cooperation. If you have any questions, please feel free to contact me at 602-926-4480 or Molly Graver, Senate Research Analyst, at 602-926-3171.

Sincerely,

Senator Michelle Ugenti-Rita

cc: Representative Jeff Weninger, House Commerce Committee, Chair Paul Benny, House Commerce Committee, Analyst APPENDIX 4

Arizona Department of Gaming 2019 Responses to Sunset Factors

1. An identification of the problem or the needs that the agency is intended to address.

The Department of Gaming

The Department of Gaming (the “Department”) pursuant to Proposition 202, the Indian Gaming Preservation and Self-Reliance Act of November 5, 2002, is charged with the responsibility for carrying out the State’s obligations under the Arizona Tribal-State Gaming Compacts (the “Compacts”). The Compacts provide for dual regulation of Class III Indian gaming by the Department on behalf of the State and the Tribal regulators on behalf of the respective Tribes. As a result, the Department’s interaction with Arizona Tribes are extensive.

The Tribal-State Compacts, Appendices and the Department’s enabling legislation outline the Department’s regulatory duties over Class III gaming activities. The main regulatory responsibility of the Department is to monitor and enforce compliance of Tribal gaming operations pursuant to all Compact requirements. This includes requirements governing the nature, extent, and conduct of gaming activities; public health, safety, and welfare; and other operational requirements. In practice, the Department’s personnel regularly conduct inspections of gaming operations, which includes the inspection and testing of gaming devices and related equipment, conducting investigations of alleged Compact violations by gaming employees, performing Compact compliance reviews to monitor each Tribe’s compliance with all provisions of the Compact, and completing compliance testing of the gaming operations for standard minimum internal controls unique to the gaming industry. The Department is also responsible for State certification of non-Tribal individuals and vendors involved in Class III Indian gaming to ensure that unsuitable individuals and companies are not involved in Arizona Class III gaming activities.

Presently, 16 Arizona Tribes operate 24 Class III casinos in the State. There are six Tribes with gaming compacts, however, do not have casinos but have slot machine rights that they may lease to Tribes with casinos (commonly known as “transfer agreements” or “pool agreements”).

The Division of Racing/Racing Commission

In 1982, the Legislature created the Arizona Department of Racing to regulate and supervise all pari- mutuel racing and wagering conducted in Arizona in order to protect racing participants and the wagering public. The Department of Racing was consolidated with the Department of Gaming on July 2, 2015 as the Racing Division (the “Division”) by Laws, 2015 Chapter 19. The Division is tasked with regulating all commercial, county fair horse racing, advanced deposit wagering providers, off-track betting parlors, and pari-mutuel wagering in the State. Similarly, the Division is responsible for the financial administration of all racing activities to ensure the proper fees and taxes are paid to the State.

The Arizona Racing Commission has existed since 1949 and performed the regulatory activities the APPENDIX 4 Arizona Department of Gaming Sunset Factors 8/30/2019

Division now performs prior to the creation of Department (now the Division). The Legislature’s intent in creating the Department (now the Division) was to strengthen industry regulation by placing the Department and its Director in charge of day-to-day oversight of racing in the State. The Division’s primary regulatory responsibilities are:

• Regulating and supervising all commercial horse racing and county fair horse racing meetings including providing staff to regulate race meetings; conducting investigations, issuing licenses, conducting human and equine drug testing, overseeing wagering, conducting hearings on licensee appeals, investigation referrals and collecting revenues for the State; • Ensuring all participants and permittees involved in commercial horse racing and county fair horse racing operate and perform in compliance with applicable Arizona statutes, rules and regulations; • Investigating all possible violations of racing laws and rules; • Performing background investigations for each license applicant; • Having Stewards present on permittee grounds each day to regulate Racing in all matters pertaining to enforcement and interpretation of rules; • Reviewing all rulings issued by Stewards and conducting Racing Director’s hearings on licensee appeals or Stewards’ referrals; • Contracting with independent laboratories to conduct analysis on horse urine and blood samples to detect medication, drugs, and/or prohibited substances; • Regulating all off track betting including issuing licenses and monitoring compliance for both operational and technical requirements; • Collecting revenues for the State and distributing awards to program participants; • Providing grants to non-profit organizations to promote the adoption of retired racehorses in Arizona; • Determine eligibility of Arizona bred horses and provide Quarterly Breeders Award Payments to Arizona horse breeders. The Boxing & MMA Commission

The Boxing & MMA Commission (“The Commission”) regulates all unarmed combat sporting events in Arizona to protect the public, its participants and ensure compliance with all applicable laws and regulations.

Laws 1919, Chapter 167 created the first sanctioned unarmed combat sporting events to Arizona in the form of regulated sparring boxing matches. The State legislature established the Arizona Athletic Commission (known today as the Arizona Boxing & MMA Commission) to further regulate all practiced professional unarmed combat sports in 1958.

In 1992, the Department of Racing (now the Racing Division) and the Commission entered into an intergovernmental agreement to provide office space, communication services and administrative and APPENDIX 4 Arizona Department of Gaming Sunset Factors 8/30/2019

clerical support. Subsequently, Laws 1992, Chapter 337 transferred all responsibility from the Commission to the Division to collect licensing fees, taxes on gross receipts, cash and surety bonds and assumed general responsibility for all financial and accounting functions; the Commission retained jurisdiction over contests, licensing and rule making.

In 2015, the State legislature consolidated the Commission and the Division within the Department of Gaming. The Division continues to administrate the financial functions of the Commission, which, in turn, is now under the scope of the Department. The Commission and the Division do not share administrative funds the with Department pursuant to A.R.S. § 5-601.02(H)(2). The Commission’s primary responsibilities are:

• Regulates and supervises all sanctioned unarmed combat sporting events in Arizona including conducting investigations, issuing licenses, drug testing, and collecting revenues for the State; • Ensuring all licensees involved in unarmed combat events operate and perform in compliance with applicable Arizona statutes, rules and regulations; • Performing background checks for each applicable licensee; • Contracting with independent laboratories to conduct analysis on relevant licensee urine and blood samples to detect prohibited substances; • Collecting revenues for the State.

2. A statement, to the extent practicable, in quantitative and qualitative terms, of the objectives of such agency and its anticipated accomplishments. In July of 2019, the Department created a 5-year strategic plan1 that outlines both quantitative and qualitative objectives of the Department and its anticipated accomplishments. Included in the 5-year strategic plan is a mission and vision statement for the Department, which qualitatively describe the main objectives for the Department. These are:

Mission Statement: To ethically and effectively regulate gaming, horse racing, and unarmed combat sports, while ensuring that they are conducted in a socially responsible manner.

Vision Statement: World-Class Gaming Regulation for a Stronger Arizona.

1 See Appendix 1 APPENDIX 4 Arizona Department of Gaming Sunset Factors 8/30/2019

The Department believes the Arizona Department of Revenue (“ADOR”) has a duplicate objective relating to the regulation of recreational bingo games. Currently, ADOR is designated as the “licensing authority” for bingo games pursuant to A.R.S. § 5-402. This results in Bingo operators being regulated by ADOR for licensing and tax collection, city government for local enforcement and the Department in cases relating to illegal gambling pursuant to A.R.S. § 5-602(J) and A.R.S. § 13-3306. The transfer of licensing authority, administration and enforcement authority for games of bingo from ADOR to the Department has many benefits to the State.

First, the transfer would increase efficiency within State government by creating a single point of administration for oversight and tax collection for bingo games. Second, the regulatory burden on taxpayers would be reduced, as bingo operators would be solely regulated by the Department. Third, the Department already regulates the highly complex and technologically-intensive tribal gaming industry. This makes the Department the most qualified agency to regulate the bingo industry, especially after the passage of Laws 2017, Chapter 240, which allows bingo operators to offer technological aids to bingo games. Lastly, by transferring bingo oversight to the Department, ADOR can better redeploy its resources towards its primary mission to “Serve Taxpayers.”

Apart from the regulation of bingo games, the Department regulates Tribal casinos in partnership with local Tribal Gaming Offices (“TGO”), which is the first line of regulation at their respective Tribal casino(s). The 16 TGO’s are independent of Tribal casino operations, the primary regulators of their respective Tribal casino(s), and are responsible for on-site regulation of all gaming activities. TGO’s regulative authority includes the right to investigate alleged violations of the Compact, the Tribe’s gaming ordinance, and other applicable laws. TGO’s also have the authority to institute appropriate legal action for enforcement and to confiscate or shut down any gaming devices, equipment, or gaming supplies failing to conform to any required standards pursuant to Section 6(a) of the Compact.

TGO’s and the Department collaborate on a consistent basis to ensure the integrity of gaming is maintained to the highest possible standard. While TGO’s are the primary regulators at their respective Tribal casinos, they are required to report to the Department any unusual occurrences, suspected violations or violations, of the Compact, Appendices, along with the investigative report of any completed investigation pursuant to Section 6(g) of the Compact. Section 6(g) also requires that TGO’s and the Department enter into a memorandum of understanding calling for the sharing of investigatory files. Lastly, Section 6(h) of the Compact requires TGO’s and the Department to meet, at a minimum, two (2) times every twelve (12) month period.

The Department also has the authority to monitor the Tribe’s Gaming Operation to ensure compliance with the Compact. Pursuant to Section 7 of the Compact, such monitoring includes:

• Free and unrestricted access for Department agents access to all public areas of a gaming Facility during operating hours without prior notice;

APPENDIX 4 Arizona Department of Gaming Sunset Factors 8/30/2019

• Access for Department agents to non-public areas of any Gaming Facility if given advance notice and provide proper identification; • The Department’s access to Tribal Gaming Records; • Full cooperation with the Tribal Gaming Office in all matters relating to the enforcement of the provisions of the Compact; • An annual Compact compliance review; and • The ability to fine, or otherwise sanction, persons that have been certified by the Department who are not enrolled Tribal members that violate the Compact.

4. An assessment of the consequences of eliminating the agency or of consolidating it with other agency.

The Department of Gaming The elimination of the Department would cause all regulated tribal gaming operations in this State to cease. Enacted in 1988, the Indian Gaming Regulatory Act (“IGRA”) provides a “statutory basis for the regulation of gaming by an Indian Tribe adequate to shield it from organized crime and other corrupting influences.” Under IGRA, states are able conduct certain types of gaming as long as a Tribal-State Gaming Compact exists between respective parties. Pursuant to A.R.S. § 5-601.02 and the Arizona Tribal- State Gaming Compact, a State Gaming Agency is required for legal tribal gaming to take place. Subsequently, other consequences would result from the removal of the Department.

First, the Department administers the Arizona benefits fund pursuant to A.R.S § 5-601.02(H)(1), and the elimination of the Department would result in the Arizona benefits fund losing its only statutorily permitted administrator. The Arizona benefits fund, which not only funds the Department, helps fund the instructional improvement fund, the trauma and emergency services fund, the Arizona wildlife conservation fund and the tourism fund, pursuant to A.R.S. § 5-601.02(H)(3). Since fiscal year (“FY”) 2004, the Arizona benefits fund has contributed over 1.3 billion dollars of revenue to the State of Arizona.

Second, illegal gambling would flourish upon the elimination of the Department. While the regulation of tribal gaming constitutes a major part of the Department, so does investigations into illegal gambling by Department special agents. The Department’s Intelligence Unit has conducted countless off-reservation investigations that have concluded in shuttering illegal gambling operations. The Unit routinely interacts with the State Attorney General’s Office and/or the Maricopa County Attorney’s Office for the successful prosecution of owners/operators of these illicit activities. Additionally, the Unit has assisted in identifying and deterring other illegal activities such as theft, embezzlement, money laundering, loan sharking and organized crime influences in the industry.

Without the regulation of the Department, both the public interest and the integrity of Indian Gaming would less protected. Gambling has infamously been known to go hand-in-hand with organized crime and other corruption, and due to the cash-intensive nature of the gaming industry it is imperative that the

APPENDIX 4 Arizona Department of Gaming Sunset Factors 8/30/2019

Department, as a truly independent and unbiased regulatory body, continues to regulate Class III gaming. Other states, such as Nevada and New Jersey, recognize that casinos cannot effectively regulate themselves and that oversite by an independent regulatory body is crucial. A lack of State regulation would create more potential for illegal activities, corruption, and organized crime in not only the gaming industry, but also the State as a whole. As a result, public confidence in the integrity of the industry could be affected. In turn, this could negatively affect patronage at the Tribal casinos and ultimately the prosperity of the Tribal communities.

The Department is also responsible for administrating the Division of Problem Gambling (“DPG”). DPG is the State’s only resource focused on providing treatment for, and prevention of, problem gambling. For example, in FY2019, DPG subsidized nearly 1.3 million dollars in treatment costs for over 600 people suffering from impact problem gambling.

DPG also started the Problem Gambling Prevention Grant Program for FY2020, which will give up to $250,000 annually to qualified non-profit organizations that provide outreach and education to both youth and older adults. This grant program introduces problem gambling prevention resources to non- profits by building offering prevention curriculum into current behavioral health prevention materials and practices.

Lastly, DPG administers a statewide self-exclusion program for individuals wishing to exclude themselves from all gaming locations in the State. From the programs’ inception in 2003 through FY2019, 8,800 people have placed themselves on the self-exclusion list, with 574 individuals placing themselves on the self-exclusion list in FY2019 alone.

Division of Racing

The termination of regulation in the horse racing industry would have a wide variety of negative effects ranging from the health, safety, and welfare of participants to the wagering public as a whole because of the lack of oversight over licensees, permittees, and racing meetings. The lack of regulation would result in an absence of compliance with state laws and rules, negatively affecting the public and the industry as a whole.

The Division is responsible with the financial oversight of all pari-mutuel wagering in the State. In FY2018, the total pari-mutuel handle was $148,874,815, of which $110,161,913 was returned to the wagering public. Without Division oversight, this area could lead to financial harm to the wagering public. The Division ensures efficient and consistent regulation over the horse racing industry and compliance with all statutes and rules. Without successful regulation, physical harm to licensees including jockeys, grooms, and trainers could occur, along with threatening the safety and welfare of racehorses.

In sum, the elimination of State regulation would result in the lack of protection of the public interest and integrity of the commercial horse racing industry as a whole. This is why it is crucial that the Division, an independent, unbiased regulatory body, continues to regulate racing and pari-mutuel wagering in this State.

APPENDIX 4 Arizona Department of Gaming Sunset Factors 8/30/2019

The Boxing & MMA Commission

The elimination of the sole regulators of Arizona’s unarmed combat industry would undoubtedly have negative effects on the health, safety, and welfare of its participants and the general public. Without the oversight of licensees and the unarmed combat events they participate in, fighters could participate in dangerous mismatches, the transmission of blood borne pathogens, and even death, while unscrupulous promotors or officials could erode the integrity of the industry. This would most likely lead to the demise of the unarmed combat industry in Arizona, losing major promoters, who consistently hold events in Arizona and have a substantial positive economic impact to the State.

The Department of Gaming does not believe that there are unexpected negative consequences requiring additional review. The Department of Gaming is funded through tribal gaming contributions, and as a result creates no additional burden to the state general fund or the taxpayer.

Additionally, the Department’s Vendor Certification Unit (“VCU”) and Employee Certification Unit (“ECU”) have recorded multiple process improvements over the previous years that have helped streamline the certification process. The ECU, since October of 2016, has reduced new employee certification from 40 days to 13 days and reduced renewal employee certification from 160 days to 20 days. Similarly, the VCU has helped reduced application processing times by creating a standard letter that notifies vendors with an incomplete application of the missing information, an occurrence that happens nearly 90% of the time. These standardized letters have resulted in faster response times by vendors with the missing information needed to complete applications. The efforts by both of these units has not only reduced the cost of government, but is also contributing to a “Government at the speed of Business” by expediting the ability of individuals and vendors to provide their services in Arizona’s gaming industry.

Division of Racing/Racing Commission

The Division does not believe there are any other negative consequences requiring additional review. In recent years, the Division has decreased its staffing to lessen the impact on Arizona’s commercial permittees. Previously set at .75%, the regulatory wagering assessment (“RWA”) was reduced by Laws 2017, Chapter 312, to .5%. The change to a RWA of .5% has provided consistency and a decreased financial burden on permittee’s across the State.

Furthermore, the Division has streamlined many of their licensee and permittee application processes. By implementing online payment and application portals, the Division is now able to offer licensee

APPENDIX 4 Arizona Department of Gaming Sunset Factors 8/30/2019

applications and payment completely online. In addition, the Division now has meetings with any permittee applicants to ensure that applications are correctly completed. Prior to this, permittee applicants would have to resubmit applications on a consistent basis, due to missing information on applications. These measures taken by the Division have allowed individuals and businesses to operate more expeditiously in the State by increasing the availability of services to members of the industry.

The Boxing & MMA Commission

The Commission believes that there may be negative consequences relating to A.R.S. § 5-225(C), which requires the Commission to use rules for mixed martial arts that are consistent with the mixed martial arts rules adopted by the New Jersey state athletic control board, who regulate boxing & MMA. In recent years, the New Jersey state athletic control board have proposed changing their rules, which would create substantial differences with national standards that are in place today. Rather than being forced to adopt rules from another jurisdiction, the Commission would like to change current statute in order to conform to current national standards.

Apart from the aforementioned concerns, the Commission does not believe that there are any other negatives consequences requiring additional review. Recently, the Commission implemented time saving and cost reduction processes under the Arizona Management System. For example, the Commission moved from producing costly hard copies of licensee identification cards to the more efficient and cost- friendly electronic cards. This process improvement saves the Commission over $600 dollars per year, along with greatly reducing the times to produce the now electronic cards.

Lastly, the Commission has stimulated a greater interest in Boxing & MMA events by reinstituting the State sanctioned Arizona Boxing & MMA title belts. The Commission intends to encourage promoters to begin hosting title belt competition in the various weight divisions to generate more events to assist the Division in their efforts to become self-sustaining.

APPENDIX 4 Arizona Department of Gaming Sunset Factors 8/30/2019