HOUSE OF REPRESENTATIVES COMMONWEALTH OF PENNSYLVANIA

* * * * Budget Hearing Gaming Control Board * * * * House Appropriations Committee Main Capitol Building Majority Caucus Room 140 Harrisburg, Pennsylvania Thursday, February 23, 2012 - 9:00 a.m. --oOo—

BEFORE:

Honorable William Adolph, Jr., Majority Chairman Honorable Scott Petri Honorable Mauree Gingrich Honorable Gordon Denlinger, Subcommittee Chair on Fiscal Policy Honorable Brian Ellis, Subcommittee Chair on Criminal Justice Honorable Thomas Killion, Subcommittee Chair on Economic Impact and Infrastructure Honorable David Millard, Subcommittee Chair on Health and Welfare Honorable John Bear Honorable Martin Causer Honorable Jim Christiana Honorable Gary Day Honorable Glen Grell Honorable T. Mark Mustio Honorable Bernie O'Neill Honorable Michael Peifer Honorable Scott Perry Honorable Tina Pickett Honorable Jeffrey Pyle Honorable Thomas Quigley Honorable Curtis Sonney Honorable Joseph Markosek, Minority Chairman Honorable Michael O'Brien Honorable Paul Costa BEFORE: (CONT'D) Honorable Steve Samuelson, Minority Subcommittee Chair on Education Honorable Ronald Waters, Minority Subcommittee Chair on Criminal Justice Honorable Michelle Brownlee Honorable H. Scott Conklin Honorable Deberah Kula Honorable Tim Mahoney Honorable John Sabatina, Jr.

IN ATTENDANCE:

Honorable John Evans Honorable Mark Gillen Honorable Curt Schroder Honorable Robert Godshall Honorable Ron Marsico Honorable Carl Metzgar Honorable RoseMarie Swanger Honorable Nick Kotik Honorable Vanessa Lowery Brown

ALSO PRESENT: Dr. Edward Nolan, Majority Executive Director Miriam Fox, Minority Executive Director C O N T E N T S

SPEAKERS PAGE

Gaming Control Board William Ryan, Chairman 6 Kevin O'Toole, Executive Director.... 6

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79 6-9, 20-11 CHAIRMAN ADOLPH: Good morning, everyone. I would like to call to order the

House Appropriations budget hearing.

The first item on today's agenda is the budget hearing for the Gaming Control

Board.

Before we get started, I would like everyone here to introduce themselves. And my name is Bill Adolph. I am the Republican

Chair of the Appropriations Committee. I am from Delaware County.

DOCTOR NOLAN: Ed Nolan, Executive

Director, Appropriations Committee.

REPRESENTATIVE MUSTIO: Mark

Mustio, Allegheny County, 44th Legislative

District.

REPRESENTATIVE PETRI: Scott Petri,

State Representative, Bucks County.

REPRESENTATIVE KILLION: Tom

Killion, Chester and Delaware counties.

REPRESENTATIVE SONNEY: Curt

Sonney, Erie County.

REPRESENTATIVE DAY: Gary Day,

Lehigh and Berks counties.

REPRESENTATIVE BEAR: John Bear, Lancaster County.

MS. FOX: Miriam Fox, Executive

Director, House Appropriations Committee.

REPRESENTATIVE CONKLIN: Scott

Conklin, Centre County.

REPRESENTATIVE GRELL: We are hiding over here. Glen Grell, Cumberland

County.

REPRESENTATIVE GINGRICH: And I am hiding with him. I am Maureen Gingrich,

Lebanon County.

REPRESENTATIVE PICKETT: Tina

Pickett, Bradford, Sullivan, Susquehanna counties.

REPRESENTATIVE CAUSER: Martin

Causer, McKean, Potter and Cameron counties.

CHAIRMAN MARKOSEK: Hi, I am State

Representative Joseph Markosek, Allegheny,

Westmoreland counties. The aforementioned

Miriam Fox is our Executive Director. She is to my immediate right.

And we will have the members introduce themselves. Mike.

REPRESENTATIVE O'BRIEN: Good morning. You guys probably don't know me, but I am Mike O'Brien from Philadelphia.

REPRESENTATIVE COSTA: Good morning, everybody. Paul Costa, Allegheny

County.

REPRESENTATIVE MAHONEY: Tim

Mahoney from Fayette County.

REPRESENTATIVE SABATINA: John

Sabatina, Philadelphia County.

REPRESENTATIVE CONKLIN: I just wanted to do it twice. Scott Conklin, Centre

County.

REPRESENTATIVE KULA:

Representative Deb Kula, Fayette and

Westmoreland counties.

REPRESENTATIVE BROWNLEE: Michelle

Brownlee, Philadelphia County.

CHAIRMIAN ADOLPH: And thank you.

It's my pleasure to introduce to the committee

Mr. Bill Ryan the Chairman of the Gaming

Control Board and Mr. Kevin O'Toole the

Executive Director.

Good morning, gentlemen.

MR. RYAN: Good morning.

MR. O'TOOLE: Good morning.

CHAIRMAN ADOLPH: If you would like to introduce the Control Board behind you, go right ahead, Mr. Ryan.

MR. RYAN: I will, sir. There are two of my colleagues here present today, Gary

Sojka and Keith McCall, sitting behind Kevin and me.

CHAIRMIAN ADOLPH: Thank you.

MR. RYAN: They are going to leave the heavy lifting to us, apparently.

CHAIRMAN ADOLPH: And if you would like some opening brief comments, you can go right ahead, and then we will get into questioning.

MR. RYAN: Thank you very much, Mr.

Chairman. They will be brief.

First and foremost, the board's budget does not require any money from the

General Fund. Our budget as well as the gaming related budgets of the Attorney

General, the Department of Revenue and the PA

State Police are all funded by the gaming industry and not the taxpayers of the

Commonwealth.

That being said, the board is cognizant of the need to regulate strictly but efficiently, and our Fiscal Year 2012-2013 budget request reflects that philosophy.

The board has requested, and

Governor Corbett has recommended, a

$38.098 million appropriation for Fiscal Year

2012-2013. Upon subtracting the statutorily mandated $2 million for local law enforcement grants, the board's administrative budget request stands at $36.098 million which represents an increase of 1.7 percent, or

$597,000, over our Fiscal Year of 2011-2012 administrative appropriation.

We have been able to keep our requested increase low despite the fact that our pension, health and worker's compensation benefit costs are increasing. They are up

51.9 percent, 6.5 percent and 5.3 percent, respectively.

And we will need the funds to add

12 onsite regulators at the two new Category 3 casinos. Valley Forge will open on March 31st of this year, and we project that Nemacolin will open in February of 2013. We have been able to do this by becoming more efficient, which is evidenced in the reduction of our operating budget by approximately

$1.2 million, or 16.5 percent, due to lower background investigation costs, reduced professional services expenditures, and reduced lease and telecommunication costs.

I should add here, Mr. Chairman, that also in the request this year will be enough money to meet the statement by the

Governor concerning increases for state employees, which as I understand are 1.1 percent in July -- Or excuse me. One percent on July of this year and then two-and-a-quarter percent on April 1st, 2013.

The costs would cover management and non management, but it should be noted here that about 78 percent of our employees are Union and those costs are therefore mandated by the Union contract that has already been negotiated between the administration and the employees.

My commitment to you is to continue to review our expenses throughout the year and where possible continue to reduce our costs while still maintaining the necessary funding level required to strictly regulate the gaming industry.

Chairman Adolph, Chairman Markosek, thank you for allowing a brief opening statement. Kevin and I will be happy to at least attempt to answer your questions.

CHAIRMIAN ADOLPH: Thank you. I would like to get this on the record, because

I have known the Chairman of the Gaming

Control Board for quite a few years, and I just want to talk a little bit about this man's background.

He is a former District Attorney from Delaware County, twice elected by the people. He also worked in the PA Attorney

General's Office. I am very proud that we have as the Gaming Control Board Chairman,

Bill Ryan, who is a law and order guy.

And he is going to be able to -- If anybody is going to be able to keep this industry in line, it is going to be Bill Ryan.

And I think his selection should be noted, and

I think you are going to see this industry be very successful, and it is going to benefit the people of PA under his leadership.

So with that being said, the first question is going to be by Representative

Scott Petri.

REPRESENTATIVE PETRI: Thank you,

Mr. Chairman. I know you wouldn't be able to see me behind this podium, so I am going to just stand up here.

I want to make sure that the facts that we have are correct. It's my understanding that their loan, that the

$36.1 million loan from the Gaming Control

Board, to start things up, has now been repaid to the General Fund but is still owed to the

Control Board; is that correct?

MR. RYAN: It's my understanding that that loan is outstanding, Representative.

And under, I believe, the statute that loan does not have to be repaid until all 14 casinos are up and running.

REPRESENTATIVE PETRI: And then I understand that, and you may need some legislative help in that regard.

But has the board talked about whether we will ever get to that point with regard to all 14 being up and running, and if we are not, whether there should be a time period set where that loan would be repaid?

And does the board have a position about whether an interest should be charged at some point in time?

MR. RYAN: I have only been on the board since September, Representative. We haven't discussed it, that I can recall.

We expect to have 14 casinos sooner or later. We will. It's my understanding, however, that the board alone is not in a position to do anything about this. If there is going to be any change, it would probably have to come from the legislature.

REPRESENTATIVE PETRI: And I would just share with you, just as one representative: It would be my interest to set a benchmark sooner rather than later, in the future, with an opportunity for parties to begin to assess what their responsibilities will be.

But this money needs to be repaid.

And my position is that, you know, while we may get to 14, we also may not. And so, you know, I'll be interested in the board's thoughts in that regard. I understand there is also another loan with regard to the Property Tax Relief

Fund, reserve fund, which was established in order to get things going. What's the status of that loan?

MR. RYAN: That loan is in the amount of about $63 million, Representative.

That loan was to enable the Gaming Board to continue operations during, again I wasn't around, but I believe it was Fiscal Years

2007-2008, 2008-2009 and 2009-2010.

That loan, because of legislative action, has already been begun to be repaid by the casinos. The board issued an order just last -- late last year setting out the plan for repayment by the casinos. A schedule for each casino was set, and each casino was basically told to begin repaying January 1st,

2012, and all of the ten casinos have complied.

They may pay quarterly or they may pay all at once a particular year's amount based on the loan, and it's my understanding that the intention of the legislature is to pay that down in ten years. And in addition, as new casinos come online, they will also be asked to bear some of the burden, which will lighten the burden, somewhat, for the ten who signed the

-- or were part of the original agreement or order that the board issued at the end of

2011.

REPRESENTATIVE PETRI: And for those of us that are not on the Gaming House

Committee, how was that established between the different licensees? Was it based upon number of months of operation or some other factor?

MR. RYAN: I can get you the details, Representative.

It was a complicated process.

There was obviously a little bit of controversy, a lot -- Some questions: Those who had been open longer; those not open as long. And although I did not take part in any of the discussions about how it -- the loan amounts were to be determined, the board did the best they could to split the baby in half.

I'm not going to be able to tell you right now how it was done, but we can certainly get you the information you would want to tell you just how the process was actually, in the end, worked out.

REPRESENTATIVE PETRI: But it was all agreed to. I'm not interested in opening up old issues. If it was agreed to, it's agreed to.

I guess my only interest in this is, is it -- Am I correct in understanding that these loans are being repaid without interest?

MR. RYAN: I understand that they are.

REPRESENTATIVE PETRI: Without interest?

MR. RYAN: Yes.

Is that correct?

MR. O'TOOLE: Yes.

REPRESENTATIVE PETRI: Okay. What led to the determination to allow casinos not to have to pay some sort of market rate of interest?

MR. RYAN: I don't know. I'm offering a guess, as one member who wasn't there, that they had already been paying in anyway. And part of the reason for the loan was that the people who were paying in, having opened early, weren't going to have all of their money used. That's my guess.

But in any event, I'm sure that intelligent people decided that interest was, on balance, not the way to go.

REPRESENTATIVE PETRI: Just an observation, Mr. Chairman, real quickly about the industry.

Sitting here, you can be for gaming or against gaming. I just can't imagine what our budgetary problems would be if we didn't have this source of revenue, both in the

Property Tax Relief Fund, the extra

$200 million that went in for seniors for their property tax relief, and then obviously into the General Fund for the various sources.

I just can't even imagine how we would be able to cross those bridges without it. And thank you for being vigilant in the enforcement end.

Thank you.

CHAIRMAN ADOLPH: And thank you,

Representative.

I would like to acknowledge the presence of some Republican Appropriations members: Representative Gordon Denlinger,

Representative David Millard, Representative

Brian Ellis.

Also with us is the Chairman of the

Game and Fisheries, Representative John Evans.

And we are very delighted to see the Chairman of the Gaming Oversight Committee with us,

Curt Schroder from Chester County.

Chairman Markosek.

CHAIRMIAN MARKOSEK: Thank you,

Chairman. Also having arrived is

Representative Ron Waters from Philadelphia and Delaware counties, and Representative

Steve Samuelson from Lehigh Valley.

CHAIRMAN ADOLPH: The next question will be by Representative Scott Conklin.

REPRESENTATIVE CONKLIN: Thank you,

Mr. Chairman.

Just a quick, personal question.

Any relation to Matt Ryan?

MR. RYAN: No, Representative.

Although, I always wished that were so.

Everybody assumed I was. And he was a great friend and a great person, and I always wished I had been related to him.

REPRESENTATIVE CONKLIN: If I was you, I would just say yes and let everyone else try for it.

I just have a question. Could you explain a little bit about the PA Horse

Development Fund? Explain to us what it does, why it was created, and how it's -- and has it been an asset to the race horse industry itself?

MR. RYAN: The Horse Development

Fund was designed to get 12 percent of the slot revenues. And so far, $990 million has benefited the horse racing industry through the PA Race Horse Development Fund. Sixty-six percent of that money is targeted for increased purses; 4 percent for health and pension benefits; 10 percent for breeding programs; 3 percent for PA specific races, for the purses for those races; and then a number of years ago, as you know, first 34 and then

17 percent of that was diverted to the General

Fund.

It appears to have certainly helped the industry in many ways. As I understand it, there are 23,000 people employed in horse racing in PA. Many now have health and benefit protection who didn't before.

Purses offered in PA races, if you look at 2006, which was really before gaming, and the year 2010, which is the last year we have complete statistics for, the purses were up in 2010 by 250 percent over 2006; that same comparison, year to year, the live handle was up 32 percent; and same period comparison, the number of live horse races was up 43 percent.

So I'm not an expert in horse racing, it would appear to me that the subsidy that has been provided to the development fund by gaming has had an increased impact in the quality of horse racing, the size of the purses, which as we all know is going to further attract better participants.

There have been, I am sure -- And I don't have the figures. Somebody at

Agriculture could probably get them for you.

There have been providers of goods and services who have benefited from this growth and this increase. So all in all, it would appear that because of gaming, horse racing in PA is in better shape than it was before.

REPRESENTATIVE CONKLIN: I agree.

Just a quick follow-up question. I don't know if you can answer it or not.

I am reading the way it was enacted, and in this year's budget, we are going to transfer some 72 million of it over for -- I believe the College of Agriculture, I believe the university. Is that -- Do we have to do legislation with that?

Does that have to be something, part of the budget process to allow that transfer to take place? Or is that just something that may be transferred without any type of -- without any type of legislative help?

MR. RYAN: I would think you would take legislative action to do it.

REPRESENTATIVE CONKLIN: Okay.

Thank you.

MR. RYAN: Because as I understand it, and again I'm relatively new to the process, but the legislation set out the percentages. I would think that any change of that magnitude would have to be done legislatively.

REPRESENTATIVE CONKLIN: Thank you,

Chairman.

Thank you, Mr. Chairman.

CHAIRMIAN ADOLPH: Thank you.

Representative Mustio.

REPRESENTATIVE MUSTIO: Thank you,

Mr. Chairman.

And thank you for being here today.

I am going to follow up on

Representative Conklin's questions as it related to the Horse Development Fund.

When the Governor made his budget address in our Republican Caucus, there were some questions raised regarding the fund and the importance to the horse racing industry and some concerns there. And one of the questions that was raised--and you have touched on it, I just wanted to make sure I heard it correctly--was whether or not the money being wagered at the tracks, horse racing tracks, has increased. And did I hear correctly that the handle has increased by 32 percent?

MR. RYAN: That's the information we had, yes, sir.

REPRESENTATIVE MUSTIO: Okay.

MR. RYAN: And again, that was in calendar year 2010 as opposed to 2006 before gaming really was an impact.

REPRESENTATIVE MUSTIO: All right.

And there is no new tax revenue for the

Commonwealth on monies that's been wagered on the horse races?

MR. RYAN: I don't believe so, but

I'm not an expert. I wouldn't tell you to take my answer to the bank, but I don't think so.

REPRESENTATIVE MUSTIO: The breakdown in percentages that you gave for the

-- the development fund monies go, 4 percent to benefits, do we know if those are benefits just for PA employees at the tracks? Or is any of that money being used to go out of state to pay benefits for companies that own these tracks out of state?

MR. RYAN: I understand that is a question being posed by a number of people, sir. We do not -- We at the Gaming Board do not have any authority or any jurisdiction over that. It would be the Agriculture

Department that would, I think, have oversight over that. And as I understand it, they have retained a -- an accounting firm to do some audits for them.

That may answer your question. I'm not sure what the answer to the question is.

I have heard that -- I have heard that it may be only PA, maybe not.

REPRESENTATIVE MUSTIO: One of the benefits that we heard early on was that those people in, they call it, the back of the track were going to have these health insurance protections. And I think that's important to make sure that the benefits stay here or they are able to be enhanced by more monies staying here. So I assume your answer would be the same as it relates to the breeding, whether or not that money stays in the state as well?

That's more money that -¬

MR. RYAN: Again, that's not something that we have the authority to delve into, so I would refer you to Agriculture and perhaps to the Horsemen's associations.

REPRESENTATIVE MUSTIO: Thank you. And just to confirm, then, it would be your opinion that the slots being available at the tracks have certainly enhanced the horse racing program industry in PA?

MR. RYAN: I don't think you can say otherwise, given the, again, the statistics which I just gave you. There clearly is more money available, more purses.

More purses mean more interest. More interest, I think, tends to build on itself.

The question everybody has, I guess, is where does it all go down the road?

But right now I think it -- You couldn't argue that gaming has not been a benefit to horse racing here in the State of

PA.

REPRESENTATIVE MUSTIO: And one last question, Mr. Chairman.

Would it be -- Then the appropriate part is, who would you recommend the question be asked if the horse race -- PA Horse

Development funds decrease, or continue to decrease, or were to be spent on other line items in the future? Who would be best to answer the question whether or not it would have a negative impact on the horse race industry?

MR. RYAN: It would seem to me, as little as I know, the Secretary of Agriculture and those people who run the Horsemen's associations. They seem to be the ones most directly affected.

REPRESENTATIVE MUSTIO: Thank you.

CHAIRMAN ADOLPH: Thank you,

Representative.

And the next question will be by

Representative Tim Mahoney.

REPRESENTATIVE MAHONEY: Thank you,

Mr. Chairman.

Good morning.

Representative Kula and I are from an area that has high unemployment, and we are concerned about the -- if there are any more hurdles, or lawsuits, that will impede the

Nemacolin Woodlands Casino. Because we understand there are four to six hundred new jobs that we desperately need in Fayette

County.

MR. RYAN: Representative, I can tell you that, as you well know, the board--before I went onto the board--approved the application for a Category 3 for Nemacolin

Woodlands.

Mason Dixon, another applicant disappointed, filed an appeal. The appeal went to the Supreme Court, and I believe the

Supreme Court is hearing argument March 7th on that matter so that's where it stands.

REPRESENTATIVE MAHONEY: So after that, you don't foresee any other hurdles coming in the way of the license?

MR. RYAN: Well, I would assume if the decision of the board is sustained by the

Supreme Court, that should be the end of the line and we and Nemacolin should be able to progress accordingly.

REPRESENTATIVE MAHONEY: All right.

Thank up very much.

CHAIRMIAN ADOLPH: Thank you.

Representative Tina Pickett.

REPRESENTATIVE PICKETT: Thank you,

Mr. Chairman.

Good morning, Mr. Ryan.

MR. RYAN: Good morning.

REPRESENTATIVE PICKETT: Mr. Ryan, in 2011 the ten casinos that generated about

$2.4 billion at the gross terminal revenue, how does that compare to what we originally estimated for the casinos?

MR. RYAN: Ma'am, I really don't know. Again, I wasn't around. And I could not give you an estimate based on my knowledge right now.

I know that there were a number of estimates thrown out back in 2005 and 2006, and I believe even the board hired Price

Waterhouse to provide estimates. Every applicant for all of these licenses had their estimates, and it's my understanding from talking to people on the board and in the agency that those estimates were all over the place.

I certainly would make every attempt to go back, and with Kevin's help, put something together to try to show a comparison. But that is not an area, in the short time I have been on the board, where I have had the time to focus.

REPRESENTATIVE PICKETT: Okay.

Thank you. I think if my numbers are correct, the board recently said that the industry grew

22 percent compared -- in 2011 compared to

2010. And of course, initially, there was a direct line drawn in the minds of my constituents between gaming dollars and their property tax relief.

We have the same amount of dollars in this year's budget, $595 million for property tax relief allocations. Now, if the industry should continue to grow, my constituents will say to me, why doesn't my property tax relief dollar grow on my property tax bill? Can you explain to me how that works?

MR. RYAN: As best as I can.

Because remember, the Gaming Board regulates the industry. The Gaming Board does not make the determinations about the property tax relief. That's done by, as I understand it, the Revenue Department and of course the

Budget Department.

The -- What I do understand is that the rebates at the beginning may have been a little bit aggressive because they were helped, to some extent, by the $550 million that were paid into the fund by the casinos who had to pay $50 million just to get the license. Well, obviously, that's a one-time payment. After that, everybody is dependent upon the slot revenues.

What I can tell you, based on the estimates by our budget people: If you look at 2011-2012 slots, we expect to increase 2.9 percent, next year 5.6 percent, because we do expect a bump because of Valley Forge and hopefully Nemacolin; 2013-2014, 3.2 percent;

2014-2015, 3.7; 2015-2016, 2.9; 2016-2017,

2.5.

Looking at table games for the present fiscal year, an increase of 29.2 percent. Next year, however, we are going to have a decline. Because as you know, the state take on that drops from 14 to 12 percent, once the table games casinos have been in operation two years; and for nine of the ten, that will occur in July of this year; for the 10th, it will occur in September.

So the projected revenue from table games will drop 5.9 percent in 2012-2013; increase 3.4 in 2013-2014, 1.7 in 2014-2015, and then 2.5 in each of the next two fiscal years.

So that's the best I can do for you now. Where that leads the fund, I think, depends on how the figures are looked at by the Revenue Department, the Governor's Office.

But I do know that the projections for the total property tax relief disbursements, 2010-2011 total seven seventy-two, five hundred. That is

772,500,000. And the current fiscal year,

776.2. And for the next fiscal year, the projection is 778.9.

So I think we are looking at a, at least, stable amount of revenue. I think we are looking at stability. It -- I guess it's not the cornucopia that a lot of people hope for when they see $200. Although, as I understand it, some people who live in some municipalities do considerably better than that. But at least it's not going to worsen,

I don't think, in the immediate future.

That's about the best I can do for you now.

REPRESENTATIVE PICKETT: Thank you. 1 think that while the industry seems to be doing well against all projections, there's a bit of disappointment in the homeowner's mind about whether they did actually receive. But thank you for your information on that.

Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: And thank you,

Representative.

The next question will be by

Representative Mike O'Brien.

REPRESENTATIVE O'BRIEN: Thank you,

Mr. Chairman.

Good morning, all. Good to see you.

MR. RYAN: Good morning.

REPRESENTATIVE O'BRIEN: Let's take a moment and go down the path of bringing the industry fully online; the plans of development made, to paying the account.

So at this point in time with the awarding of the Category 3s, everything is scheduled to be online except for the one

Category 1 in Lawrence County and the Category

2 in Philadelphia?

MR. RYAN: That's correct, and then the one that the board can award in 2017.

REPRESENTATIVE O'BRIEN: Okay.

Now, after a series of fits and starts, the board, in its wisdom, revoked the Foxwoods license so that license no longer exists, correct?

MR. RYAN: Well, it is in litigation. It has been revoked by the board.

Foxwoods has asked the Supreme Court. The

Commonwealth Court upheld the decision of the board and the Foxwoods owners or applicants decided to ask the Supreme Court of the state to take the case. The Supreme Court has not yet decided if it will. So that if they take it, obviously it goes on; if they don't, then we get to move on.

REPRESENTATIVE O'BRIEN: For the purpose of our discussion, let's stipulate that the Court upholds the decision of the board.

MR. RYAN: Okay.

REPRESENTATIVE O'BRIEN: Okay? So

I think -- Chairman Schroder has joined us today, so I'll let him talk, if he chooses, about legislative remedy. But the question now becomes, if you guys were created to make money, what do we do with this license for it to make money?

Some industry analysts have suggested that the Philadelphia market is saturated with the Parx to the north, the

Chester to the south, King of Prussia coming online to the west. And Treasurer McCord has issued a report talking about possible areas of the state that may be more lucrative than the Philadelphia market. Could you talk about that for a moment?

MR. RYAN: Well, I'm hesitant to talk about it. I understand the report. I read through the report. I know what you are referring to, Representative.

On the board, our job is to do what the General Assembly and the Governor, through the passage of legislation, tell us to do.

Right now as it stands, if Foxwoods in the end does not prevail, we go back to square one with a Category 2 in Philadelphia

County. We would then, nothing else happening, go through the same process we have gone through with every other license application and proceed forward.

If the General Assembly decides that something else should be done with that license, that's up to the General Assembly.

We will wait. We are certainly not going to if we sense that there is movement. And to do something, we are not going to do anything to get in the way.

But we on the board see it as the duty of the General Assembly and the Governor to determine where do these go. And it's our job to determine: Okay. They have decided where we'll be located. Or if it will be located statewide, so now we will do what we are supposed to do.

REPRESENTATIVE O'BRIEN: Fair enough. So at this point, you are just keeping your account of it. But I would hope that you are doing due diligence in anticipation of something other.

MR. RYAN: Well, we -- We're aware of it. We will -- To the board, I don't think it matters to us what happens. We will be prepared, no matter where the license location is, to deal with that. I think long before I got here,

Kevin and the other members of the board have had experience dealing with having new applicants for a new license. That won't be a problem.

The only problem is going to be deciding what's going to happen. Is it going to stay or is it going to go? And that's up to you, ladies and gentlemen, and the

Governor.

REPRESENTATIVE O'BRIEN: Let's turn our attention to Lawrence County for a second.

Certainly, they -- It seems that that has become just a total black hole. And I hear nothing about this. Do you?

MR. RYAN: Well, what I can tell you, Representative, is that the present group, AHT, American Harness Tracks, Inc., has purchased the -- I don't know. I believe it's a harness track license that Centaur had and then went bankrupt. They purchased it in bankruptcy.

They have had that license transferred to them with the condition that they apply for and obtain a Category 1 gaming license from the board. Rumor is that they are going to do that at sometime in the next month, two months, whatever. That's where that stands now.

REPRESENTATIVE O'BRIEN: When they were awarded their license, a date was set that they had to have machines up for play, correct?

MR. RYAN: Which license was that?

REPRESENTATIVE O'BRIEN: The

Lawrence County license.

MR. RYAN: They have not been awarded a gaming license. They have a license to race. That's all they have. That's contingent, as I understand it, upon them getting a casino license.

They have not applied. We have done nothing. We don't have an application.

We have nothing to work on. So, no, they don't have a gaming license.

REPRESENTATIVE O'BRIEN: So there is a Category 1 available?

MR. RYAN: Well, yes, there is.

REPRESENTATIVE O'BRIEN: So then, what is the board doing to market that license?

MR. RYAN: We are doing nothing now because -¬

REPRESENTATIVE O'BRIEN: Why?

MR. RYAN: -- we don't see it as our job to do that. There is a racetrack out there. The license has to go to a racetrack.

That's a racetrack. And a racetrack can file, and we have to wait a reasonable period of time to see if they are going to file.

REPRESENTATIVE O'BRIEN: All right.

Final question. You are holding the license, the Category 1 license, correct?

MR. RYAN: (Nods affirmatively.)

REPRESENTATIVE O'BRIEN: You have the ability to award that, correct?

MR. RYAN: Yes.

REPRESENTATIVE O'BRIEN: You are holding an asset of the state, correct?

MR. RYAN: Yes.

REPRESENTATIVE O'BRIEN: We need the money. Why aren't we getting this thing moving?

MR. O'TOOLE: Representative, we are holding a license, but it can only be awarded to an entity who has received a harness license.

There is only one entity in the

Commonwealth that is currently holding a harness racing license and that's American

Harness Tracks, Inc. So we don't have the option of looking around for other entities.

You have to get the harness racing license first to become eligible for us to award you a gaming license.

REPRESENTATIVE O'BRIEN: If we have millions and millions of dollars sitting on the table, maybe on our side we need to seek a legislative recommendation for that.

And I thank you for your time.

Thank you, Mr. Chairman.

CHAIRMIAN ADOLPH: Thank you.

I would like to acknowledge a few members that have joined us, Representative

Jim Christiana and Representative Scott Perry.

The next question will be by

Representative Gary Day.

REPRESENTATIVE DAY: Thank you, Mr.

Chairman.

Thank you for your testimony today. I have two questions. One is about personnel and head count. In some of the research we have here and that you have provided, there is a personnel cost of over $30 million on the front page of your budget request documentation that you put in.

I also have a head count of 327 employees currently -- positions currently filled. Easy math. It kind of divides that down to 92,000 per individual. Even if you take 20 or 30 percent out for benefits, I guess we would have to take out 30 percent.

The average salary -- Or I should say average personnel cost minus benefits would be around sixty or seventy thousand dollars.

Could you explain? With 327 employees, that would require quite a few of them to be much higher than that, I would assume. So instead of assuming, I would rather you'd just explain that simple math.

MR. RYAN: Kevin.

MR. O'TOOLE: Sure. Certainly,

Representative. Our current average salary is

58,900. And over the past two to three years, we have looked very closely at our payroll structure.

And initially, in order to get qualified people on board and to get the agency up and running and regulating the casinos, we hired qualified people and gave them pretty good salaries.

And over time, we knew we needed to make adjustments. So in the last two to three years, we have brought the upper echelon of our salary structure down and we have brought the lower level of our salary structure up a little bit to bring our structure more in line.

So in comparing our average salary with other agencies in the Commonwealth, we are like the 18th out of about 40 agencies.

So there is a significant number of other agencies who have a higher average salary.

But we are not finished with that process. As people retire and resign, we look at every position and make an independent determination. Can we hire somebody who is qualified at a -- at a more modest salary level?

MR. RYAN: And if I could elaborate on that, sir? We will, as Kevin says, continue to look closely at our structure.

When I got to the agency just a couple of months ago and looked at salaries, I saw the -- what I thought was a disparity.

And I know that they, before I got there, had a consulting group come in and give them some advice. Clearly, there is more work for us to do.

And I can assure you and I can assure the General Assembly that the board is concerned about making sure we get parity and fairness and also efficiency and a reasonable salary structure as quickly as we can.

REPRESENTATIVE DAY: I appreciate your comments about, you know, setting up an organization and building an organization that has the responsibilities, the parity to the people of PA. So I would assume that over the last -- from last year to this year, has it reduced that average salary? From your comment, sir.

MR. O'TOOLE: Representative, from

Fiscal Year 2010-2011 to Fiscal Year

2011-2012, it has stayed level. It did go down from previous years. But in the last two years, it has leveled.

REPRESENTATIVE DAY: My next question is about working with notification or identification to the public, the users at casinos. Can you just briefly explain what are some of the things that you are doing to really let the public know specifically about the percentages of, you know, possibility of success?

I don't know what the official term is. But how do we get out to people to let people know, when you are playing these games, the chances of your success are minimal?

MR. O'TOOLE: Well, Representative, the legislature, in passing the act, established the minimum threshold for the payout percentage, and they established that at 85 percent.

When New Jersey opened up in the late seventies, they sent New Jersey an 82 percent. So 85 percent is a reasonable level.

It means for every dollar you put into a slot machine, you are going to get back at least 85 cents. We also established, as encouraged by the Gaming Act, to create our own gaming lab. So all game software has to go through our lab. And every manufacturer looks to put new product out on the floor and that product will have varying payout ranges. And we test all of those ranges. If the range doesn't at least begin at 85 percent, it's rejected.

But most of those ranges go anywhere from 88 percent up to 96 percent.

And the payback percentage is tracked, and it's out there on our web site. And at the current time, it's slightly over 90 percent.

So most gamblers understand that in the short term, they might get lucky. And that's what they enjoy, the possibility of having a good day.

It's certainly highly recommended that all gamblers, whether they are slot players or table game players, set a limit for themselves, and say: I am going to go into the casino. I have got a hundred dollars. If

I lose it? Fine, I'm going to leave. If I win a little bit? You know, that's terrific.

REPRESENTATIVE DAY: And just a specific question I have had constituents ask me. Traditionally table games--Roulette, things like that--that are non-mechanical -¬ or non machine, non-slot machine type of things, they have traditionally had particular percentage payout. Or I don't know what the legal term is or the industry term.

MR. O'TOOLE: They have a house advantage built into each game.

REPRESENTATIVE DAY: But the question that I come across -- And I don't know the answer to. Maybe briefly, you can answer it. Or later, or send it to me later.

The machines that play Blackjack or Roulette, are they the same percentages? Or is it more like a slot machine, the 85 percent? How does that work?

MR. O'TOOLE: It's more like the slot machine, Representative.

REPRESENTATIVE DAY: Okay. The last question I have is, Act 72 of 2004 provided for two resort licenses. And if I would assume that the courts upheld the board's issuance of the Nemacolin license, this would mean that Valley Forge and Nemacolin are the two licenses that are available.

Act 1 of 2010 added the availability of a third resort license. And if all of the Category 3s were up and running by 2016 or 2017 -¬

MR. RYAN: I believe it's 2017, yeah.

REPRESENTATIVE DAY: -- would

Gettysburg be able to apply for this license in 2017?

MR. RYAN: I don't see why any applicant couldn't apply for it.

REPRESENTATIVE DAY: Pardon me?

MR. RYAN: Any applicant could apply for it in 2017.

REPRESENTATIVE DAY: Okay. There is quite a bit of concern from the Civil War

Roundtable in my district, and I just needed to know specifics on that. I don't know the answer.

MR. RYAN: I can't think of any prohibition on any applicant.

REPRESENTATIVE DAY: Pardon me?

MR. RYAN: Right now, there is no prohibition on any applicant.

REPRESENTATIVE DAY: Okay. Thank you for your answers. I appreciate that.

And thank you, Mr. Chairman.

CHAIRMIAN ADOLPH: Thank you,

Representative.

The next question will be by

Representative Ron Waters.

REPRESENTATIVE WATERS: Thank you,

Mr. Chairman. And thank you to the

Commissioners for being here.

I don't know who to address this, so. I want to ask --

CHAIRMIAN ADOLPH: Speak up, Ron.

REPRESENTATIVE WATERS: You can't hear me? All right.

Thank you. I said thank you to

Chairman Ryan for being here.

With the distance that we have in legislation about how far apart the tables have to be, have you had a chance to look at that? To see if maybe that that would be adjusted at the right time, that that would make things better in terms of revenue for gaming? MR. RYAN: I'm sorry, sir. I don't think I understand. I didn't hear the question.

REPRESENTATIVE WATERS: Well, I listened to my colleagues earlier talk about places in Philadelphia being saturated. The distance that you have to have, it's looks to me -- I'm not on the committee anymore, in particular. Are they 10 miles apart that the license had to be?

MR. RYAN: Is it 15? Fifteen miles apart?

REPRESENTATIVE WATERS: Fifteen, yes. Have you had a chance to look at that and see if maybe there could be some -- a little room there, where we could maybe make a change? That maybe the license could operate in another area if we eliminated that in the distances?

MR. RYAN: I don't know that that would be our bailiwick to do that. Again, I think we regulate. The ladies and gentlemen of the General Assembly and the Governor decide what changes they wish to make.

REPRESENTATIVE WATERS: Okay. MR. RYAN: And I don't think the board would have any input or opinion as to -¬

REPRESENTATIVE WATERS: Okay.

MR. RYAN: -- that type of legislation.

REPRESENTATIVE WATERS: Okay. Back to another issue that I want to talk about.

Could you give me a breakdown of the diversity that you have in the casinos that operate?

MR. RYAN: I can tell you,

Representative, that diversity -- And you, by that, sir, mean diversity in employment; is that correct?

REPRESENTATIVE WATERS: Diversity in employment, yes, sir.

MR. RYAN: Yeah. According to the figures we have -- And we have no reason to not think they are accurate, first of all.

Eighty-eight percent of the casino employees, who now number about 15,316, 88 percent of them are PA residents; 53.3 percent of them are males; 46.7 percent of them are females; and 26 percent of them are minorities.

REPRESENTATIVE WATERS: And how many out of the 15,000 plus, you said, how many of those positions are full-time positions?

MR. RYAN: Pardon me?

REPRESENTATIVE WATERS: How many of those positions are full-time positions?

MR. RYAN: They are full-time equivalent positions.

REPRESENTATIVE WATERS: All of those are?

MR. RYAN: Yes.

REPRESENTATIVE WATERS: Do you have any part-time employees?

MR. RYAN: I'm not sure. There may be. But I believe that that number we have is full-time equivalent positions.

REPRESENTATIVE WATERS: And by full time, how many work hours is that in a week?

MR. RYAN: I'm sorry?

REPRESENTATIVE WATERS: What is the amount of hours in a week that determine a person is a full-time employee?

MR. O'TOOLE: In some categories,

Representative, it does vary. Especially for table game dealers. There are -- Certainly, most properties have a contingent of table game dealers who work less than 32 hours, and on average, but they are on-call for more hours. I believe the cutoff is around 32 hours.

REPRESENTATIVE WATERS: So 32 hours would be considered full time by your standards?

MR. O'TOOLE: I believe that is the standard.

REPRESENTATIVE WATERS: Okay. In your diversity, can you -- I know in certain areas, for instance with minority participation, based on where the casino is located, it's harder to pull from the minority community because they have less minorities in the area.

I know at Mohegan Sun, for instance, they had done a pretty good job based on the minority population outside of the casino and on the minority population to gaming employment.

But in -- For instance, down in

Chester, the Chester Casino, I know that there was a problem out there. We are trying to get minority participation, even though the casino was located in a very high-minority area. And could you please tell me about the progress, or the lack thereof, in that area?

MR. O'TOOLE: Certainly,

Representative. Our Office of Diversity does monitor the statistics. And the Chester property has provided their statistics for

Fiscal Year 2011-2012, and they are currently up to a 44-percent minority employment base.

And while we are on that topic, I think it's also important to note that

SugarHouse also has a better than average minority base. They have a 41 percent currently.

REPRESENTATIVE WATERS: Okay. And the participants that are their employees, in speaking about how many, can you break out the people that are in managerial or decision-making positions out of the minority population?

MR. O'TOOLE: Yes, Representative.

Our Office of Diversity tracks those figures.

And currently, there is slightly -- almost

2100 persons employed out of the 15,000 that are considered executive/management positions, 35 percent of those are held by females and 19 percent are held by minorities.

REPRESENTATIVE WATERS: Okay. So right now, at least it appears in your reporting that casinos are pretty much living up to what was required in terms of the minority participation?

MR. O'TOOLE: Well -¬

REPRESENTATIVE WATERS: When I say minority, I mean, across the board, men and women. Well, not men. Women and people of color in terms of employment.

MR. O'TOOLE: Well, we encourage them every trip that we make to the casinos.

We encourage them to continue to promote females and minorities in the executive class.

And they have to provide quarterly reports to us. So if we see a dip in the wrong direction, we can pick up the phone and we can call the right person. Most, if not all of the casinos, have a diversity officer within their Human Resource Department.

So these are -- They are things that we are trying to accomplish, you know, without any specific percentage that we consider to be, okay, you have made a certain percentage. That's not what we are doing. We are trying to continually encourage and monitor all of the operators to have good diversity mix within their employment rolls.

REPRESENTATIVE WATERS: And my last question, Mr. Chairman.

What is the outreach that you are doing in the public to help improve public awareness about any opportunities that exist within the casinos?

MR. O'TOOLE: Our Chief Diversity

Officer Mozelle Daniels is extremely active.

She attends functions that are sponsored by the General Assembly. She attends functions that are sponsored in various geographic areas. She deals directly with the human resource departments and the diversity officers.

And every time a casino comes before the board either for an initial license or a table game certification or a renewal license, that's a topic that they are questioned on. And, you know, they are told that, you know, it's important. It's important to the board that they meet the expectations in this area.

REPRESENTATIVE WATERS: Thank you.

Thank you for your answers.

Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: Thank you,

Representative.

As is customary of this committee, when we have a chairman of a standing House committee that deals with the budget hearing that we are going through today, we allow that chairman some questions. And Chairman

Schroder.

REPRESENTATIVE SCHRODER: Thank you, Chairman Adolph.

Good morning, Chairman Ryan.

And I'll be brief. There were a number of questions asked by various members about revenue projections into the future and, you know, the impact of different things on those revenue projections coming into the state or Property Tax Relief Fund.

In some of the figures that you cited and put out, did they take into account possible increased competition? And by that, I mean, you know, there is an attempt at resurgence in Atlantic

City, for example. I believe there are still other casinos coming online in surrounding states--Ohio, West Virginia,

Maryland--perhaps. So did these figures take a possible additional competition into account?

And how do you see, you know, we'll call it, the threat of additional competition impacting some of these revenue figures as we move forward?

MR. RYAN: It's my understanding,

Representative, that those factors, as they stand now in the recent -- in the not distant future are taken into consideration as best can be. Because we all know we are talking about estimates here, and nobody is going to tell you that those estimates, if all of the casinos and all of the other states go online exactly as they are supposed to, will hold up.

But to answer the question about competition, the competition from Ohio, I believe Ohio will open a casino in Cleveland and another one in Toledo in April or May. That could be a source of competition for PA casinos in the west.

Maryland has two slot machine casinos and is building another one in Arundel

County. They are possible areas of competition. Although distance, at least the distance from the casinos we have in PA right now, probably would indicate that competition wouldn't be great.

Atlantic City, with its attempt at regeneration, Atlantic City is always going to be a threat because of its size. But I think we on the board and Kevin are of the view that

PA's growth in gaming was, to a certain extent, at Atlantic City's expense. And that is because a lot of people in PA, a lot of people across the border in Jersey are a lot closer to PA casinos than they are to Atlantic

City. And the rejuvenation of Atlantic City,

I don't think changes that.

Revel, I believe, opens in April or

May. That will be of interest to gamblers, including some people who may find it a novelty. But the way we look at it, still you have the gamblers we get who are what I would call a comfortable drive from where they go.

And Atlantic City, while it may be attractive once in a while or is a novelty, I don't know that Atlantic City will be as big a threat to

PA as it will be to other casinos in Atlantic

City that are older and don't offer as much.

Having said that, there is no doubt that the casinos in PA are going to have to face the reality of Atlantic City and these other states and get ready to compete.

In the short time I have been with the board, I am impressed by the quality of the people who run these operations. They exist day to day in a hyper-competitive environment. And I think they are up to it.

They make the changes that they have to.

But the whole idea of competition, you can never be sure until it plays out. And oftentimes, it can depend on how good is the existing company responding and that's something nobody can do anything about except that company.

REPRESENTATIVE SCHRODER: No, I would agree. That there might be a need to, you know, step it up as far as different, you know, amenities or features or attractions, or who knows.

MR. RYAN: Right.

REPRESENTATIVE SCHRODER: That, you know, they might need to bring in.

MR. RYAN: And if I may,

Representative? What we see is: In Sands, for example, they are building a shopping mall. They have built a hotel. Event centers are being built in some of the casinos so they can attract larger crowds for concerts and other entertainment. So they know they have to continue to improve what they have.

REPRESENTATIVE SCHRODER: Another aspect of possible competition, something different that I have concerns about, and I want to know if the board has looked at this, has an opinion on this or maybe even has the ability to study the potential impact, and that is this: It's my understanding that as of today, PA now has, I believe it's 13 so-called sweepstakes cafes. They have also been called Internet slots cafes.

And based upon what I know about them, and I did visit one, you know, in an attempt to see what these actually were, the experience of the -- for the patron of such a facility is really no significant difference than sitting down and playing a slot machine in a casino. The only difference being you don't pull a lever or push the buttons, you tap the computer screen. But the play, you know, to all outward appearances, is the same.

The concern being that as more and more of these move into PA, there could very well be a possible impact on casino revenue - particularly slots revenue, which as we all know goes into our Property Tax Relief Fund.

And I believe that that's something that all of us universally are very concerned about, you know, now that this is into existence.

We have passed legislation here in the House. You know, it's in the Senate. And it hasn't -- You know, it hasn't been run yet.

You know, we hope that it will. That would eliminate this threat to our property tax reduction revenue.

Has the board looked at this new phenomena coming into PA? Have you studied it? Do you have concerns? I guess more importantly, do you have the ability to conduct a study and make projections on exactly what the revenue impact would be to slots revenue coming into the state? You know, should these start to the proliferate in PA.

MR. RYAN: Representative, we have discussed it among ourselves. We have done nothing formal.

My own view is that, you know, our legislative mandate is clear and that's to regulate legalized gambling, not to investigate illegal gambling.

Certainly, I suppose we could undertake some sort of a study about it. But to me, this is -- If it's illegal gambling, and it sounds from everything I have heard that it is, this is the bailiwick of law enforcement to get involved and to bring the criminal law to bear.

And certainly, it would be appropriate for the General Assembly to also pass legislation making it clear that any existing laws outlawing gaming that don't apply should be passed to make sure if it's a loophole, the loophole is closed.

REPRESENTATIVE SCHRODER: Yeah, the

Internet slots operators, you know, argue that they fall under the existing Sweepstakes Law in the Commonwealth. They claim that, you know, what they are doing is under the legality of that.

I sometimes wonder if it's not a distinction without a difference. Because certainly, from all outward appearances, you know, at least the experience of the patron, it's slot play without, you know, any meaningful difference in experience at least to the patron.

So, you know, there is great concern on the part of the General Assembly and anything that -- And I am not suggesting that the board has the authority to regulate that right now. I do tend to agree that the legislation needs to be passed to either eliminate that. You know, allow you to regulate it or enforce it somehow. And hopefully, that's what, you know, we will accomplish before the end of the session.

MR. RYAN: Thank you. REPRESENTATIVE SCHRODER: Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: Thank you,

Chairman Schroder. And thank you for your input.

The next question will be by

Representative Deb Kula.

REPRESENTATIVE KULA: Thank you,

Mr. Chairman.

Good morning.

MR. RYAN: Good morning.

REPRESENTATIVE KULA: In your opening statement, I believe you mentioned that there were lower background investigation costs. I mean, is that kind of because of you have a complement of employees now and you are not doing as many background checks? Or what is the reason for those lower costs?

MR. O'TOOLE: Well, that's part of it, Representative. But moreover, we have examined -- Or we sent out an RFP for a new company to assist in searches that are done online, the federal tax verifications and things of that nature. So we are trying to lower our costs in that regard, too. And we have also consciously put our BIE on -- on an effort to consolidate out-of-state travel. You know, we want to make sure that there are four or five applicants that can be interviewed and with the appropriate searches at the courthouses if we take a trip to Nevada. Because a lot of -¬ a lot of qualifiers and key employees do come from the Nevada gaming industry, so we are doing a variety of different things to keep those expenses down.

REPRESENTATIVE KULA: So as time goes on, we live and learn, right, and move on to better ways of doing things. And along those lines, what is the status of efforts to remove the Bureau of Investigations and

Enforcement out of the Gaming Control Board?

MR. RYAN: Right now, there does not seem to be much movement. I know there has been legislation introduced in the House, and it may have been passed in the House to move it to the Office of Attorney General.

There has, to my knowledge, been no movement in the state Senate.

REPRESENTATIVE KULA: And do you have an opinion on that move?

MR. RYAN: Myself?

REPRESENTATIVE KULA: Um-hum.

MR. RYAN: Yeah, I do.

REPRESENTATIVE KULA: Would you like to give us that opinion?

MR. RYAN: Well, my view is that -¬

And I have stated this view before. My view is that the board sits in much of its work as a quasi-judicial body. The Bureau of

Investigations and Enforcement is an investigative body. And with my experience and background in law enforcement, it seems to me to make sense to separate the investigator from the judge because you can have the kind of crossing over from one area to another that can cloud what both try to do and you can end up with an unjust result.

We have judges. We have prosecutors. That's the way the system, I think, is best designed. And the prosecutors are not responsible to the judges. To me, as a matter of good law and public policy, that makes sense.

And in addition, as a practical matter, it makes sense because there are -¬ there is, I should say, almost a Chinese wall between us on the board and the Bureau of

Investigations and Enforcement. We can't just go to them and say, okay, what's going on here, because that breaches the law.

And we, as the board, have the obligation to make sure the agency functions, and everybody who works for the board should be responsible to the board. But we have the anomaly of a large contingent of employees who, looked at practically, aren't really responsible to the board. To me, that is -¬ can always be dangerous. It certainly isn't good management. And it's for those reasons that I think separation is the better way to go.

Having said that, in the time I have been here, have we made it work? Yes.

Am I comfortable knowing that I can't easily go into a certain area and just start talking?

No. If BIE or with the Attorney General and the Attorney General wanted to know about something an investigator was doing, he would just ask and he would get all of the information he'd want. And any agent who said, well, I can't tell you that would be disciplined.

And that's what good management means. The people at the top know what the people working for them are doing so that they can always be responsible for that. We lack that. And it's not good, in my view.

REPRESENTATIVE KULA: Well, how does it work now? I mean, what -- I guess I'm not fully seeing. I mean, they are there for investigation and enforcement, the State

Police, correct?

MR. RYAN: No, they are not the

State Police. These are civil investigators.

REPRESENTATIVE KULA: Okay.

MR. RYAN: They do their investigations. They present to the board.

But any issues that could come up with respect to conduct or what's going on, it's not easy for the board to get involved in them. We will do that in ways that Kevin as Executive

Director can. What I'm saying, ma'am, is that is a very touchy situation.

REPRESENTATIVE KULA: Um-hum. MR. RYAN: And it's not a smooth operation where those who work for supervisors routinely consult and everybody shares information so the people who are supervisors know what's going on. We don't have that.

And again, it has worked. I will say that. And I assume it will continue to work.

REPRESENTATIVE KULA: Thank you for your answer.

CHAIRMAN ADOLPH: Thank you,

Representative.

Representative Curt Sonney.

REPRESENTATIVE SONNEY: Thank you,

Mr. Chairman.

I would just like to kind of change directions a little bit. And I'm curious as to how many violations were brought against the gaming industry throughout the last year.

MR. O'TOOLE: Representative -¬

REPRESENTATIVE SONNEY:

Specifically those that generated a fine.

MR. O'TOOLE: I don't have the specific number. Do you, Bill?

MR. RYAN: We can get that. MR. O'TOOLE: We can get that number.

REPRESENTATIVE SONNEY: The same with the dollar amount. Could you provide us with a dollar amount that was generated from the fines?

MR. O'TOOLE: Yes. We can supply that to you, yes.

REPRESENTATIVE SONNEY: And finally, was -- Is your budget request reflecting any of that generated revenue within the budget, within your request? In other words, have you taken that into consideration?

MR. O'TOOLE: No, the fines do not come to the agency directly.

MR. RYAN: No.

REPRESENTATIVE SONNEY: Then where do they go?

MR. O'TOOLE: They go to the

General Fund.

MR. RYAN: The fines go to the

General Fund. The fines and penalties all go to the General Fund.

REPRESENTATIVE SONNEY: Thank you. And I appreciate that information.

MR. RYAN: We'll get it to you.

REPRESENTATIVE SONNEY: Thank you,

Mr. Chairman.

CHAIRMIAN ADOLPH: Thank you.

Representative Paul Costa.

REPRESENTATIVE COSTA: Thank you,

Mr. Chairman.

Chairman Ryan, thank you for being here this morning.

I would like to talk a little bit about the property tax relief because we hear from friends and constituents and even some family members complaining that they don't see property tax relief. And I just want to be clear. This year's total is expected to be

$778 million, $778.9 million?

MR. RYAN: According to the

Governor's budget projection, yes.

REPRESENTATIVE COSTA: And last year, it was 776 million.

MR. RYAN: Right.

REPRESENTATIVE COSTA: So we are actually making an investment.

While we were sitting here, I have been e-mailing back and forth to my school district which is Woodland Hills. Woodland

Hills, last year, received $2.2 million, which came out to be -- There's 12,000 eligible homes to qualify for the tax relief, which comes out to $182. So there is money that is going back; unfortunately, a lot of times our constituents don't see it, though.

I could also check with my wife.

Our taxes last year were close to $2,000.

That's almost a 10-percent reduction in our property tax.

I think when we started all of this, I think people heard property tax elimination; and when in reality, it was property tax reduction.

So I wanted to get that on the record, that you guys are actually having an impact. I don't know if you want to comment on that.

MR. RYAN: We wish, Representative.

REPRESENTATIVE COSTA: I'm sorry?

MR. RYAN: We wish it was elimination.

REPRESENTATIVE COSTA: Well, maybe one day. We'll keep working towards that goal.

But one of the other questions I have is: The property tax accounts for almost

$800 million. Where does the rest of your money come in?

MR. RYAN: Just a minute. If you're talking about slots revenue, the property fund gets about 34 percent; then local expenditures, that is to the county, counties and the municipalities that host, they get 4 percent; Economic Development and

Tourism Fund gets 5 percent; and the Race

Horse Development Fund gets 12 percent. That brings you up, pretty much, to 55.

REPRESENTATIVE COSTA: No, but you didn't mention the fire departments either.

MR. RYAN: That -¬

REPRESENTATIVE COSTA: What percentage do they get? Doesn't that come out of the slot money?

MR. RYAN: Yes, it does.

REPRESENTATIVE COSTA: I guess my point is: There's money that's being spent all over the Commonwealth, not just on property tax. But again, when you are giving to the fire departments, that helps local municipalities and local communities. And also, I know you're dealing with monies going to services, human services, to help with gaming addictions and things like that.

But we are only talking about slots money, that doesn't mention about the table games?

MR. RYAN: The table games goes to the General Fund.

REPRESENTATIVE COSTA: Okay.

MR. RYAN: And again, remember, the

Gaming Board does not have anything to do with where the money goes.

REPRESENTATIVE COSTA: Right, we do that.

MR. RYAN: We regulate the casinos.

The Revenue Department gets the money and

Revenue budget and other agencies determine where it goes according to the law.

REPRESENTATIVE COSTA: But even the fact that we are getting gaming money from table games that goes to the General Fund also helps reduce people's taxes. Well, can you quantify that for me in that area?

MR. RYAN: In some way, yes.

REPRESENTATIVE COSTA: Okay. Well, thank you very much. I appreciate your answers.

CHAIRMAN ADOLPH: And thank you,

Representative.

I would like to acknowledge the presence of Appropriation's member

Representative Tom Quigley, and also with us is Representative Carl Metzgar of Somerset

County.

And, Mr. Chairman, before -- There are a few more members who have questions on the first round, and then there are some members who have some comments on the second round of questioning.

I would like to take a few minutes to try to talk about the taxes generated by the casinos themselves, over and above the slots revenue and the table games that tax.

And if you don't have this information handy today, I would appreciate if you would get to this committee on the number of dollars generated through the PIT. The 15,300 employees that are employed by this industry, I would like to see a breakdown of the PIT as well as the sales tax that is generated inside these casinos. Obviously, the folks that go to these casinos are doing more than just playing the slot machines.

They are purchasing meals and purchasing items as well.

And last but not least, I would be very interested to see if these corporations, what their corporate net income tax payments are. Okay?

MR. RYAN: We can certainly get that, Mr. Chairman.

CHAIRMAN ADOLPH: I would appreciate that. Because a lot of the emphasis is on the slot revenue and the table game revenue, which is a separate tax and a dedicated tax all together.

But I would like to see the other taxes that these -- this industry is generating. And the reason why I want that is because if we are having two more casinos opening up, hopefully within the next several months, I would like to add this into our projections as far as revenue generating for these categories. Okay?

MR. RYAN: Thank you.

CHAIRMIAN ADOLPH: All right. The next question will be by Representative Steve

Samuelson.

REPRESENTATIVE SAMUELSON: Thank you, Mr. Chairman.

My question for Mr. Ryan will be about the 15,300 jobs and whether that includes ancillary businesses connected to the casinos.

But first, I wanted to return to that topic of property tax relief that was raised by Representative Pickett and

Representative Costa. And I noticed in the

Governor's budget, there is a page which basically tells the tale. On Page H64, it has a chart which talks about the Property Tax

Relief Fund.

Now, I do realize that the table games revenue go to the General Fund. That's by the law they passed in 2010, the table games revenues go to the General Fund.

We had an amendment in the House of Representatives, offered by Representative

Frank Burns of Johnstown, that would -- And it passed the House. That would have said--it has not become law yet, but it did pass the

House--that the table games revenues would also be included in the Property Tax Relief

Fund starting in July 2012. So that's something the House has voted, but we need further action in the Senate and from the

Governor to accomplish that.

In the mean time, though, based on the slots revenue, once again Page H64 of the budget, the amount being transferred from the

Gaming Fund to the Property Tax Relief Fund is actually going up $42.9 million in this coming year. Now, the Governor's budget says 2.7 million of that will be given out specifically to the Property Tax/Rent Rebate Program but the other $40 million is not spoken for. In fact, from this page, it looks like it's just staying in the fund balance.

Now, I realize that it's not the

Gaming Control Board that makes this call.

It's the Governor's Budget Secretary who is doing the certification and decides how much property tax relief the citizens of PA will get.

And I also realize that the Budget

Secretary is going to be before us in two weeks and so I think this is a question that we are going to be asking him. Because as I am doing the math here, that $40 million of additional gaming revenue that's going into the Property Tax Relief Fund that is not spoken for, that would be enough to raise the property tax relief 6.5 percent for the average homeowner in PA.

Six-and-a-half percent, that's -- I think most homeowners would say, go ahead and do that. In terms of numbers, the average property tax relief across PA is about $200.

Well, that would change into $213. And I think if you asked the homeowners, would you rather get $200 or 213? And they would say:

Well, give us the increase. Do not keep it in a fund in Harrisburg.

So I think the Governor's Budget

Secretary has this in his power to do. And the additional funds that are coming from the gaming, from the Gaming Control Board to the Property Tax Relief Fund, that can be done this year. And I hope it is. And that's a question we will ask him in two weeks.

My question for you is about the employment. We have talked about the figure of 15,300 statewide. I am from Bethlehem.

And at the Sands, we have had the casino for three years. Last year, the hotel opened adjacent to the casino. Two months ago, three months ago, we have had the mall now open.

The Events Center is coming in June. In fact, today on the radio, they were giving away

Beach Boys tickets for the Events Center which is soon to open.

So I am wondering, when you use a statistic like that, 15,300, does that count the employment just within the casino building? Or what about an attached mall, an attached hotel and attached event center that's all owned by the Sands and obviously the other entities around the state?

MR. RYAN: That's just the casino employment.

REPRESENTATIVE SAMUELSON: Do you keep just inside the casino itself? MR. RYAN: Yeah, those people hired by the casino who would not have been there had the casino not been built and who work for the casino.

REPRESENTATIVE SAMUELSON: Okay.

Do you keep track of -- If the casino also has ancillary businesses like the hotel and mall, do you keep track of what the total employment is in the casinos all across the state?

MR. RYAN: Kevin.

MR. O'TOOLE: No, we don't keep track of it. But I am sure that that information is available.

Certainly in your district, Sands is ahead of the curve on those non-gaming amenities. So they certainly would have an employment base probably more significant than most of the other properties at the moment.

REPRESENTATIVE SAMUELSON: Okay.

MR. O'TOOLE: But we could reach out and get those employment stats for you.

REPRESENTATIVE SAMUELSON: As we go forward, that might be a very -- a good statistic to keep. Not just the casino building itself, but other connected businesses that are owned by the casino so we can get a total employment figure. Thank you.

CHAIRMAN MARKOSEK: If I can just interrupt? Representative Vanessa Brown from

Philadelphia has arrived. Thank you.

CHAIRMIAN ADOLPH: Thank you. I believe that's the last question from the first round of questioning, and we will now go to Representative Mark Mustio on the second round.

REPRESENTATIVE MUSTIO: Thank you,

Mr. Chairman. Just a comment and a follow-up on Representative Waters' comments on diversity.

Last session, Representative Jake

Wheatley had introduced several bills. And actually had a committee established, that it was appointments from both caucuses on it, to address minorities and women in businesses that do business with the State of PA - particularly focused on the stimulus funding.

And your diversity officer had testified in front of the committee and made every other department and agency look like they really weren't doing anything compared to what she was doing and your agency was doing.

So I thought it was appropriate to follow up on the questions that he had, that you knew that the House had last session looked at this issue across the state and had hearings all across the state and that your diversity officer was very proactive.

And it seemed to us, on the committee, very effective, in what you are doing as far as trying to attract employment in those areas. So from a budget standpoint,

I would encourage you to continue to fund.

And hopefully that wasn't one of the salary areas that was reduced.

MR. RYAN: Mozelle is effective.

And we appreciate your comments, sir.

REPRESENTATIVE MUSTIO: Thank you,

Mr. Chairman.

CHAIRMAN ADOLPH: Thank you,

Representative.

Are there any other members? Yes,

Representative Michael O'Brien from

Philadelphia County.

REPRESENTATIVE O'BRIEN: Thank you,

Mr. Chairman. I would like to follow up on the line of questioning that Representative

Samuelson started.

Now, if my understanding is correct, when an applicant came forward, they submitted a plan of development; is that correct?

MR. RYAN: I'm not sure I understand. A plan of development for?

MR. O'TOOLE: Part of the application process is to include architectural renderings and pictures of what the facility is expected to look like, yes.

REPRESENTATIVE O'BRIEN: And originally the board awarded licenses taking into consideration what this plan of development was, correct?

MR. O'TOOLE: Yes.

REPRESENTATIVE O'BRIEN: I.e., a full entertainment venue, not just a slot hall, correct?

MR. O'TOOLE: There are no requirements in the Gaming Act that a casino applicant in PA have an entertainment venue, a certain number of food beverage outlets, convention or meeting space. Certainly, if an applicant proposes those things, it could make their project look better for economic development. But there is no requirement for those non-gaming areas.

The casinos are now getting more proactive in building or at least planning for the future, and the future includes entertainment venues -¬

REPRESENTATIVE O'BRIEN: So you are telling me that the application with the plan of development attached, which is my understanding that if a casino wants to deviate from that plan of development, they have to go back and get board approval, but you are telling me that that plan of development, once the license was approved, meant nothing?

MR. O'TOOLE: No, not at all. The plan of development -¬

REPRESENTATIVE O'BRIEN: So are there mile posts along the way that the board has supervision on?

For instance, if someone says that they are starting off with just a gaming hall, just -- no amenities, just a gaming hall, but then they are going to have a parking garage and they are going to do that by such and such a date, and then they are going to expand the gaming facility and add restaurants, and then they are going to add a hotel--and these are the facts that their license was approved on--are you telling me the board takes no oversight of that now?

MR. O'TOOLE: No, I am not saying that at all. We certainly take oversight on that.

And all applications at the time they are submitted would have some information about parking, where a customer is going to park in order to patronize this facility. We wouldn't look at just the four corners of the building without making sure that there is adequate parking.

And without a requirement in the act, the operators understand they have to have some food and beverage outlets. So they would include in their renderings, we are going to have this restaurant, this buffet and this deli. But none of them are under a statutory requirement to have meeting or convention space or a lounge for entertainment. But if -- You know, they are proactively looking at expanding their non-gaming amenities at the present time.

REPRESENTATIVE O'BRIEN: Let's take

Sands in Representative Samuelson's district, above Parx in Bucks County. They submitted a plan of development, and they went after that gang busters. They certainly have created world-class entertainment venues.

But let's take my district with

SugarHouse. They submitted a plan of development, and in the plan of development, it eventually calls for hotel space and other amenities. Are you now telling me that there is no requirement for them to adhere to that plan of development?

MR. O'TOOLE: No, there is a requirement to adhere to the plans for development.

When SugarHouse received their license -- Or at some point in time, they filed a petition for approval to have an interim facility. That was fully vetted at a public meeting in front of the board. The applicant put on their arguments for their petition. And at the conclusion of that hearing, the board approved an interim facility with the expectation and the understanding and the commitment that it would grow.

And SugarHouse is presently in the process of obtaining all of the requisite local and municipal permits for an expansion plan. That expansion plan has not formally been submitted to the board yet, but we expect it sometime this summer.

And I believe the date of operation for any expanded facility is in 2014 at

SugarHouse.

REPRESENTATIVE O'BRIEN: Mindful of timing, it's not good for them to keep the

Chief Justice waiting. Let me finish with, very simply: And you take oversight on all of these plans of development? Yes or no.

MR. O'TOOLE: Yes, we do.

REPRESENTATIVE O'BRIEN: Thank you very much.

Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: Thank you, Representative.

The next question is from

Representative Ron Waters.

REPRESENTATIVE WATERS: Thank you.

Thank you, again.

My question is brief this time. It deals with the smoking areas in the casinos and the -- When I had a chance, when I was on the Gaming Oversight Committee, I had a chance to visit several of the casinos that they were opening. The attendance was pretty good in most of them, but the attendance was greater in the smoking area than it was in the non-smoking areas.

I'm not a smoker. And for me, when

I go into the casino, I had to walk through the smoking area to get to the non-smoking area. And as I said, the attendance in the smoking area was greater so the smoking was heavier in that area, of course, too.

And then the ventilation became a question to me about how this will affect people as they travel through, who might have some health problems that are the same or other health problems. What is happening with making sure that the ventilation is well in those areas by the Gaming Board?

And what changes could be made, if any, about making sure that there is another entrance or another way people could get into the casino where they didn't have to go travel through some of that area if they are not smokers?

MR. RYAN: Go ahead, Kevin.

MR. O'TOOLE: Okay.

Representative, in all frankness, our responsibility, our role in the Clean Indoor

Air Act under the Gaming Act is very, very limited and restricted.

Our role is simply to make a determination that the casino has accurately reflected on their gaming floor plan that no more than 50 percent of their gaming area is smoking. And beyond that, we don't have the authority to dictate to them, you know, what portion should or should not be smoking.

We try and encourage them to put all of the smoking areas in half of the casino and the other half non smoking. If you have a line of demarcation between smoking and non smoking, you are going to minimize the particulates in the air from the smoking area going over to the non-smoking area.

We strongly encourage that, but the casinos occasionally, you know, have more circles instead of just a straight line. We are going to -- We'll continue to encourage them to improve in that area. But in terms of an enforcement role, we don't have that authority.

REPRESENTATIVE WATERS: But do you, at all, get involved with going to check out to make sure that there's enough ventilation in the areas to make sure that the smoke travels away from or out of the facility?

MR. O'TOOLE: Well, again, we do monitor that. We check whether they have ventilation systems.

I know personally when table games started up, the majority of the casinos bought very good table game equipment.

And there is actually an air filtration system at each table game that helps protect the dealer, the employee of the casino. That there is this air filtration that comes out of these little jets right around the dealer. That if he is dealing at a smoking table, the smoke will not directly filter over to his, you know, to his mouth or his eyes or his ears. So, you know, we encouraged that technology on the table game side.

REPRESENTATIVE WATERS: So are you saying that you need more authority to be able to regulate for environmental purposes the -¬ how affective the ventilation is for customers, too?

MR. RYAN: Well, perhaps that would be better directed to the Department of Health than to the Gaming Board. Since I think that agency is the principal one here in PA, people look to for that type of issue, I think it would probably make more sense to deal with the Department of Health. That's my own view.

REPRESENTATIVE WATERS: That's your view.

MR. RYAN: (Nods affirmatively.)

REPRESENTATIVE WATERS: Okay. All right. Well, then I will accept your view, and direct my questions to see if I can get an answer or not. Thank you.

Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: Thank you,

Representative.

I would like to thank the Chairman and the Executive Director for testifying today. I found your answers to be very straightforward, informational.

And I want to congratulate you on a very successful year. This is a highly controversial industry, highly regulated. And hopefully with the two new casinos, more jobs in PA, and more jobs means tax revenue for the

Commonwealth of PA.

I also would like to offer this to you. If you have any questions or need any legislation, I'm sure Chairman Schroder and his committee would gladly take that on.

And that I know this is an ever-changing industry that you are regulating and we understand that. And things have to get changed from time to time and this General

Assembly is willing to work with you. Thank you.

MR. RYAN: Thank you. MR. O'TOOLE: Thank you, Chairman.

CHAIRMAN ADOLPH: The next hearing will start in exactly five minutes. Thank you.

(At 10:45 a.m., the hearing concluded.) C E R T I F I C A T E

I, Roxy C. Cressler, Reporter, Notary

Public, duly commissioned and qualified in and for the County of York, Commonwealth of

Pennsylvania, hereby certify that the foregoing is a true and accurate transcript of my stenotype notes taken by me and subsequently reduced to computer printout under my supervision, and that this copy is a correct record of the same.

This certification does not apply to any reproduction of the same by any means unless under my direct control and/or supervision.

Dated this 14th day of March, 2012.

Roxy C. Cressler - Reporter Notary Public

My commission Expires 5/09/2012