racino fiscal note

8/3/2019 Racino Fiscal Note

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Consolidated Fiscal Note 2011-12 Session

Bill #: H9000-0 Complete Date: 10/17/11

Chief Author: HACKBARTH, TOM

Title: GAMING MACHINE PROV MOD (RACINO)

Fiscal Impact Yes No

State X

Local X

Fee/Departmental Earnings X

Tax Revenue X

Agencies: Lottery (10/17/11) Public Safety Dept (10/14/11)Human Services Dept (10/14/11) Racing Commission (10/17/11)

Education Department (10/11/11) Lawful Gambling (10/17/11)Minnesota Management & Budget (10/17/11) Revenue Dept (10/17/11)

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only.

Dollars (in thousands) FY11 FY12 FY13 FY14 FY15

Net ExpendituresNew Fund 0 9,942 27,592 35,819

Human Services Dept 0 106 405 634Minnesota Management & Budget 0 9,735 26,803 34,583Lawful Gambling 0 101 384 602

General Fund 0 438 337 337Revenue Dept 0 18 4 4Public Safety Dept 420 333 333

Misc Special Revenue Fund 0 (8) (8) (8) (8)

Lawful Gambling 0 (8) (8) (8) (8)Building Construction - Bonded Fund 0 78,666 146,667 94,667

Minnesota Management & Budget 0 78,666 146,667 94,667Miscellaneous Agency Fund 6,800 24,600 34,600

Racing Commission 6,800 24,600 34,600

RevenuesNew Fund 0 20,205 76,721 120,332

Human Services Dept 0 5 21 32Lawful GamblingLottery 20,200 76,700 120,300

General Fund (334) 2,066 8,566 12,666Lawful Gambling (334) (334) (334) (334)Lottery 2,400 8,900 13,000

Misc Special Revenue Fund 0 (8) (8) (8) (8)Lawful Gambling 0 (8) (8) (8) (8)

Building Construction - Bonded Fund 0 78,666 146,667 94,667Minnesota Management & Budget 0 78,666 146,667 94,667

Environmental Trust Fund 1,600 6,000 8,600Lottery 1,600 6,000 8,600

Miscellaneous Agency Fund 6,800 24,600 34,600Racing Commission 6,800 24,600 34,600

Net Cost New Fund 0 (10,263) (49,129) (84,513)

Human Services Dept 0 101 384 602Minnesota Management & Budget 0 9,735 26,803 34,583Lawful Gambling 0 101 384 602Lottery (20,200) (76,700) (120,300)

General Fund 334 (1,628) (8,229) (12,329)Revenue Dept 0 18 4 4Lawful Gambling 334 334 334 334Lottery (2,400) (8,900) (13,000)Public Safety Dept 420 333 333

Misc Special Revenue Fund 0 0 0 0 0Lawful Gambling 0 0 0 0 0

Building Construction - Bonded Fund 0 0 0 0Minnesota Management & Budget 0 0 0 0

Environmental Trust Fund (1,600) (6,000) (8,600)Lottery (1,600) (6,000) (8,600)

Miscellaneous Agency Fund 0 0 0Racing Commission 0 0 0


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Total Cost to the State 0 334 (13,491) (63,358) (105,442)

FY11 FY12 FY13 FY14 FY15

Full Time EquivalentsNew Fund 0.00 0.00 0.25 0.50

Human Services Dept 0.00 0.00 0.25 0.50General Fund 3.00 3.00 3.00

Public Safety Dept 3.00 3.00 3.00

Misc Special Revenue Fund 0.00 0.00 0.00 0.00 0.00Lawful Gambling 0.00 0.00 0.00 0.00 0.00

Total FTE 0.00 0.00 3.00 3.25 3.50

Consolidated EBO Comments

I have reviewed this Fiscal Note for accuracy and content.

EBO Signature: LISA BARNIDGEDate: 10/17/11Phone: 651-201-8032


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Fiscal Note 2011-12 Session




Fiscal Impact Yes NoState X

Local X


Tax Revenue X

Agency Name: Lottery



Expenditures-- No Impact --

Less Agency Can Absorb-- No Impact --

Net Expenditures-- No Impact --

RevenuesNew Fund 20,200 76,700 120,300General Fund 2,400 8,900 13,000Environmental Trust Fund 1,600 6,000 8,600

Net Cost New Fund (20,200) (76,700) (120,300)General Fund (2,400) (8,900) (13,000)Environmental Trust Fund (1,600) (6,000) (8,600)

Total Cost to the State (24,200) (91,600) (141,900)


Full Time Equivalents-- No Impact --

Total FTE


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Bill DescriptionThe bill authorizes the Minnesota State Lottery to place electronic gaming machines at the states two racetracks.It also establishes a new Minnesota First Fund that will fund stadiums for the Minnesota Vikings and St. PaulSaints and increased payments to school districts. The fund will receive its income from a tiered in-lieu-of fee onthe gaming machines. The fee varies from 25 percent to 40 percent depending on the level of revenue raised atthe facility. Of this amount, 1 percent is dedicated to compulsive gambling programs, with percent going to theDepartment of Human Services and percent to the Gambling Control Board for an appropriation to theMinnesota affiliate of the National Council on Problem Gambling. A portion of the proceeds (between 45 percent

and 60 percent depending on revenue) will be distributed to the racetracks (with 14 percent of this amount goingto a new industry improvement fund) with the remaining 15 percent covering lottery operating expenses andlottery net proceeds, which are split between the general fund and the environment and natural resources trustfund.

The racetracks are required to remit 1 percent of their compensation to both the city and county where the tracksare located.

Under the provisions of the bill, the Lottery would own or lease the gaming machines and be responsible for allaspects of their operation. The machines would be connected to a central system located at lottery headquartersthat monitor all activities of every machine. The Lottery is also responsible for testing and examinations of themachines. The racetracks, however, would be responsible for expenses relating to advertising, marketing, facilityexpenses, staffing, security, and surveillance.

AssumptionsThis estimate is based on the experience of gaming machines at racetracks in major urban or suburban areas.While machines exist at racetracks in other states, we have not included these states for a variety of reasons.Most notably, reported income in many states (such as West Virginia) does not distinguish between machinesoperated in racinos or other large facilities and machines operated in limited numbers in bars, taverns, or othersuch locations. In addition, programs in Maryland are too new to have generated useful data.

There are several remaining relevant comparisons. In each case income is reported as net (after prize payout)income per gaming machine per year.

Delaware: Delaware Park (about 40 miles from Philadelphia) - $87,000

Indiana: Hoosier Park (about 40 miles NW of Indianapolis) - $111,000.

Indiana Downs (about 30 miles SE of Indianapolis) - $115,000

New York: Yonkers Raceway (New York City) - $112,000

Pennsylvania: Parkx (20 miles NW of Philadelphia) - $124,000The Meadows (25 miles SW of Pittsburgh) - $71,000Chester Downs (15 miles SW of Philadelphia) - $105,000

Rhode Island: Twin River (about 45 miles from Boston) - $86,000

From these figures I eliminate Twin Rivers, Yonkers, and The Meadows as each have considerably more gamingmachines than are contemplated at the proposed Minnesota facilities. The remaining five facilities have anaverage of $108,000 per machine per year. This figure will be used in this fiscal note.

Officials at both Canterbury Park and Running Aces estimate that they should each be able to accommodate2,000 gaming machines in a permanent facility. However, they will not be able to accommodate this number ofmachines right away and instead will utilize the existing racetrack facilities and/or construct small, temporaryfacilities. Canterbury Park estimates that they would be able to accommodate 1000 machines in a temporaryfacility while Running Aces estimates a capacity of 500 for a total of 1,500,machines in January 2013, with thepermanent facility opening in January 2014.

We believe that 10 percent of net revenue would be needed to cover lottery expenses, leaving 5 percent to bedistributed to lottery beneficiariesthe general fund and environment and natural resources trust fund.


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Expenditure and/or Revenue FormulaIn FY13, therefore, we would have 1,500 machines x $108,000 per year x year, or adjusted gross revenue ofapproximately $81 million. For FY14 we would have approximately $81 million for the first six months, followed by4,000 machines x $108,000 x year, or approximately $216 million for the second six months, for a total of $297million. For FY15 and beyond, adjusted gross revenue would total of approximately $432 million per year.

The bill divides adjusted gross revenue in three ways. The first is an in-lieu-of fee dedicated to a new MinnesotaFirst Fund. The fee is tiered, set at 25 percent of the first $125 million of adjusted gross revenue per facility, 30

percent of the next $75 million, and 40 percent of all revenue over $200 million. Next, the racetracks arecompensated at a level of 60 percent of the first $125 million, 55 percent of the next $75 million, and 45 percent ofrevenue over $200 million. Of this amount, 1 percent is paid to the city and/or 1 percent to the county in which theracetracks are located. Finally, the remaining 15 percent is allocated to the Lottery, with an estimated 10 percentneeded to cover operating expenses and the remaining 5 percent distributed with other net lottery proceeds to theGeneral Fund (60 percent) and Environment and Natural Resources Trust Fund (40 percent).

For FY13:$81 million x .25 = $20.2 mill ion to the Minnesota First Fund$81 million x ..05 = $ 4.0 in net lottery proceeds

$4 million x .6 = $2.4 million to the General Fund$4 million x .4 = $1.6 million to the Environment and Natural Resources Trust Fund$81 million x .6 = $48.6 million to racetracksThe remaining 10 percent of revenue goes to lottery operating costs.

For FY14:Total adjusted gross revenue is $297.0 million of which $162 mill ion would be from Canterbury Park and $135from Running Aces.Minnesota First Fund:

Canterbury Park: $125 million x .25 + $37 million x .3 = $42.4 millionRunning Aces: $125 million x .25 + $10 million x .3 = $34.3 millionTotal: $76.7 million

$297 million x .05 = $14.9 million in net lottery proceeds$14.9 million x .6 = $8.9 million to the General Fund$14.9 million x .4 = $6.0 million to the Environment and Natural Resources Trust FundRacetracks would receive $175.7 million

For FY15 (and subsequent years):Total adjusted gross revenue is $432 million, or $216 million per track. They would pay in-lieu fee at a rate of 25percent on the first $125 million, a rate of 30 percent on the next $75 million, and a rate of 40 percent on theremaining $16 million.$125 million x .25 x 2 (tracks) = $62.5 million$75 million x .3 x 2 = $45 million$16 million x .4 x 2 = $12.8 millionTotal to Minnesota First Fund = $120.3 million$432 million x .05 = $21.6 million in net lottery proceeds$21.6 million x .6 = $13 million to the General Fund$21.6 million x .4 = $8.6 million to the Environment and Natural Resources Trust FundThe tracks would receive 60 percent of the first $125 million, 55 percent of the next $75 million, and 45 percent ofthe remaining $16 million.

$125 million x .6 x 2 = $150 million$75 million x .55 x 2 = $82.5 million$16 million x .45 x 2 = $14.4 millionTotal to tracks: $246.9 millionLong-Term Fiscal Considerations

Local Government CostsLocal governments would likely incur some costs for items such as police and fire protection and perhaps forinfrastructure improvements. However, the affected cities and counties would receive a total of $1 million inFY13, $3.6 million in FY14, and $5 million in FY15 and beyond to cover these costs.


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References/SourcesRevenue figures for programs in other states are supplied by individual racetracks.

FN Coord Signature: DON FEENEYDate: 10/12/11 Phone: 651-635-8239

EBO Comments


EBO Signature: LISA BARNIDGEDate: 10/17/11 Phone: 651-201-8032


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Local X


Tax Revenue X

Agency Name: Education Department



Expenditures-- No Impact --


Net Expenditures-- No Impact --

Revenues-- No Impact --

Net Cost -- No Impact --

Total Cost to the State



Total FTE


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Bill DescriptionArticle 2, Section 1 of HF 9000 creates the Minnesota First Fund, a special revenue fund in the state treasury withproceeds of racino adjusted gross revenues and interest earned on the revenues. This fiscal note addressesonly this portion of the bill.

Subdivision 3, clause 1 of the Article specifies that funds in the Minnesota First Fund may be appropriated for aVikings football stadium and a regional ballpark for the St. Paul Saints. Funds can be appropriated annually orbiennially for transfer to the state bond debt service account to pay principal and interest on state-issued bonds.

When those projects are completed and outstanding bonds are retired, redeemed or repurchased, money in thefund may be appropriated for other stadia, ice arenas, ballparks, event centers, and other publicly owned facilities.

Subdivision 3, clause 1 of the Article provides that the Minnesota First Fund may also be used to increase thepayment schedule for state education aids and credits in section 127A.45 to not more than 90% (reversing theaid shift) and to restore the aid reductions to school districts for the tax shift in section 123B.75, subd. 5.

Clarification would be helpful regarding two items. Language restoring the education aid shift and tax shiftduplicates that in section 16A.15. It is unclear if both the special revenue funds and general fund dollars areavailable which is to be used, or which source is used first to restore education shifts. Second, it is not clear ifMinnesota First funds must first be used for the debt service payments on stadia/ballpark/arenas, etc., and then torestore aid and tax shifts, or if the legislature may choose to fund education shifts prior to, or at the same time asfunding athletic facilities. Clarification would also be useful regarding what with any remaining funds deposited inthe budget reserve means.

AssumptionsMDE does not know revenues projected for a racino or how the legislature will choose to appropriate funds madeavailable through the Minnesota First Fund.

Expenditure and/or Revenue FormulaAs of the end of the 2011 legislative session, the total aid shift at a 60/40 pattern through FY 2013 is about $2.195billion. The total tax shift projected through FY 2013 is about $595 million. Each percentage buyback of the aidshift equals about $73 million. Each percentage buyback of the tax shift equals about $13 million based on FY2011 data.

Long-Term Fiscal ConsiderationsThe amounts to reverse the education aid shift and tax shift remain unpaid until funds are available. This billprovides a possible source of funds.

Local Government CostsReversal of the aid and tax shift will allow school districts to reduce cash flow borrowing.

FN Coord Signature: KAREN DYKOSKIDate: 10/11/11 Phone: 651-582-8766

EBO Comments


EBO Signature: KRISTY SWANSON


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Date: 10/11/11 Phone: 651-201-8082


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Local X


Tax Revenue X

Agency Name: Human Services Dept



ExpendituresNew Fund 0 106 405 634

Less Agency Can AbsorbNew Fund 0 0 0 0

Net ExpendituresNew Fund 0 106 405 634

RevenuesNew Fund 0 5 21 32

Net Cost New Fund 0 101 384 602

Total Cost to the State 0 101 384 602


Full Time EquivalentsNew Fund 0.00 0.00 0.25 0.50

Total FTE 0.00 0.00 0.25 0.50


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Narrative for H9000 Article 2 Section 1 Subdivision 2 Compulsive gambling; appropriations

Bill Description

The bill appropriates one-half of one percent (.5%) of the revenue deposited in the state treasury under MinnesotaStatutes, section 297A.651, to the commission of human services for the compulsive gambling treatment programestablished under Minnesota Statutes, section 245.98. Money appropriated under this provision must supplement,

and must not replace, existing state funding for the program.

Assumptions

Based on the projections made by the Minnesota State Lottery related to this proposal, it is estimated that DHSwould receive $101,000 in fiscal year 2013, $383,500 in fiscal year 2014 and $601,500 in fiscal year 2015 andbeyond.

The Department of Human Services (DHS) will use the new funding to supplement funding for the compulsivegambling treatment program, thus allowing DHS to expand the current services under the program. Of theappropriation, $90,900 in fiscal year 2013, $345,150 in fiscal year 2014 and $541,350 in fiscal years 2015 andbeyond would supplement existing compulsive gambling treatment program funds.

DHS will also incur costs to administer this additional program funding which will generate revenue from FederalFund Participation (FFP) to offset a portion of this cost as outlined in the table below. The agency estimates thecost to administer this additional funding to be approximately $15,000 in fiscal year 2013, $60,000 in fiscal year2014 and $92,000 in fiscal year 2015 and beyond. These monies would be used for administrative non-salarycosts including meeting expenses, postage, printing and travel costs along with the addition of .25 FTE supportstaff beginning in fiscal year 2014 increasing to .5 FTE beginning in fiscal year 2015.

Expenditure and/or Revenue Formula

Fiscal Summary (dollars in thousands)

FUND BACT TITLE SFY2012 SFY2013 SFY2014 SFY2015

new 57 Compulsive Gambling Grants 0 91 345 542new 15 Admin (.25 FTE - .5 FTE) 0 15 60 92new REV2 FFP on Administration @ 35% 0 (5) (21) (32)new Total Net Cost 0 101 384 602

Long-Term Fiscal Considerations

N/A

Local Government Costs

N/A

References/Sources

Agency Contact Name: Shirley Jacobson 651-431-3696FN Coord Signature: JAYNE RANKINDate: 10/14/11 Phone: 651-431-3432

EBO Comments



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EBO Signature: EMILY ENGELDate: 10/14/11 Phone: 651-201-8029


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Local X


Tax Revenue X

Agency Name: Minnesota Management & Budget



ExpendituresNew Fund 0 9,735 26,803 34,583Building Construction - Bonded Fund 0 78,666 146,667 94,667


Net ExpendituresNew Fund 0 9,735 26,803 34,583Building Construction - Bonded Fund 0 78,666 146,667 94,667

RevenuesBuilding Construction - Bonded Fund 0 78,666 146,667 94,667

Net Cost New Fund 0 9,735 26,803 34,583Building Construction - Bonded Fund 0 0 0 0

Total Cost to the State 0 9,735 26,803 34,583



Total FTE


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Bill DescriptionHouse file 9000 relates to gambling by authorizing the director of the State Lottery to establish gaming machinesat a licensed racetrack; imposing a fee on gaming machine revenue; providing powers and duties to the director;establishing a Minnesota First fund and dedicating money in the fund for education and to finance and construct astadium for the Minnesota Vikings and a ballpark for the St. Paul Saints.

As currently written, the legislation did not provide a specific amount of state general obligation bond or any otherstate issued debt financing to provide funding to construct a stadium for the Minnesota Vikings and a ballpark for

the St. Paul Saints. The debt service on the bonds is to be paid from the new Racino revenues as deposited tothe newly created Minnesota First Fund. If the revenues collected in the Minnesota First Fund are insufficient topay the required debt service the general fund would be required to transfer the difference to the debt servicefund annually.

Assumptions

Due to the inclusion of the reference to M.S. 16A.643ASSESSMENTS IF AGENCY MUST PAY DEBT SERVICE, it

is assumed that state general obligation bonds will be sold to finance the capital project. However, as required by

statute there was not bond authorization language included nor was there appropriation of bond proceeds language

included in the proposed legislation.

Federal tax regulations dictate that because the use of the bond proceeds will be to fund private entities and notgovernmental entities, the general obligation bonds will need to be sold as taxable bonds. The taxable bonds willbe sold at a higher interest rate than that of tax-exempt bonds. Because of the States Capital InvestmentGuidelines, the general obligation bonds would be sold with level principal payments and mature over 20 years. Iflevel debt service bonds are to be sold to finance these projects, it would result in Guideline 3 to be out ofcompliance. Guideline 3 stipulates that 40% of general obligation debt shall be due within five years and 70%within ten years. With this Guideline out of compliance, it would require the general fund to pay the debt service onthe maturities of additional bonds to bring our general obligation bonds back into compliance.

For this analysis, we are assuming the state share of the projects will be $300 million for the Minnesota Vikings

Stadium and $20 million for the ballpark for the St. Paul Saints. Bonds will be sold in the amount that matches the

cash needs of the project which has been estimated at 20 percent the first year, 55 percent the second year and 25percent the third year. The revenues shown in this fiscal note are the amounts from the proceeds of each of the

bond issues. The costs shown in the fiscal note are the amounts that would be required to be transferred from the

new Racino revenues as deposited to the newly created Minnesota First Fund. If the revenues collected in the

Minnesota First Fund are insufficient to pay the required debt service the general fund would be required to transfer

the difference to the debt service fund annually.

TaxableBond Sale Date Interest Rate Bonds SoldAugust 2012 5.0% 21,333,000November 2012 5.0% 57,333,000August 2013 5.5% 146,667,000

August 2014 5.5% 41,334,000November 2014 5.5% 53,333,000

Expenditure and/or Revenue FormulaDebt Service Costs by Fiscal Year ($ in thousands)

2011 $02012 $0


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2013 $9,7352014 $26,8032015 $34,583

Long-Term Fiscal ConsiderationsThe total debt service on the assumed $320,000,000 projects over the 20 year life of the bonds will be

$500,670,000.

Local Government CostsNot available.

References/SourcesNot applicable.

Agency Contact Name: Sue Gurrola 651-201-8046FN Coord Signature: DENNIS MUNKWITZDate: 10/17/11 Phone: 651-201-8004

EBO Comments


EBO Signature: KATHARINE BARONDEAUDate: 10/17/11 Phone: 651-201-8026


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Local X


Tax Revenue X

Agency Name: Public Safety Dept



ExpendituresGeneral Fund 420 333 333


Net ExpendituresGeneral Fund 420 333 333


Net Cost General Fund 420 333 333

Total Cost to the State 420 333 333


Full Time EquivalentsGeneral Fund 3.00 3.00 3.00

Total FTE 3.00 3.00 3.00


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Bill DescriptionThis bill authorizes the Minnesota State Lottery to own and operate gambling device machines under chapter349A for placement and operation on the premises of a state licensed Class A pari-mutuel racetrack asauthorized by chapter 240.

AssumptionsUnder Minn. Statutes 299L, the Minnesota Alcohol & Gambling Enforcement Division (A&GED) is the state lawenforcement agency with primary jurisdiction for the investigation of gambling related criminal offenses and to

conduct gaming license background investigations and criminal history checks on behalf of the Minnesota gamingregulatory agencies. While the bill proposes 299L statutory changes to allow the State Lottery to possess, ownand operate gaming devices, the bill is unclear as to a defined role being proposed for the A&GED for criminalinvestigation responsibilities for gambling related offenses, gambling related background investigations andcriminal history checks. Minnesota State Statute 299L currently gives primary jurisdiction to the Alcohol andGambling Enforcement Division for any criminal investigation related to gambling. Minnesota State statute 299Lalso provides the framework so that the criminal history checks and background investigations required or neededby the Minnesota Lottery, Minnesota Racing Commission, or the Minnesota Gambling Control Board can beconducted by the Minnesota Alcohol and Gambling Enforcement Division. Under the tribal/state compacts theA&GED is the inspection authority for inspections of the gambling devices. There is no mention of inspections inthis bill and this fiscal note does not address any costs associated with inspections of the video lottery terminalsby A&GED personnel. The A&GED presumes that if the bill becomes law that the states only two eligible Class Aracetracks will seek to enter into a contract with the State Lottery for the allowable 2,000 on-site video lotteryterminals. Currently, both of these racetracks operate Card Rooms on a 24/7 basis. The A&GED presumes thatthe public access to the video lottery terminals would also be on a 24/7 basis.

The A&GED has learned from other state gaming law enforcement agencies that have similar gaming facilitiesthat they have determined that best practices in their state is for sworn gaming law enforcement agents to beon-site at all times the gaming machines are available to the public. This staffing level has been also supported bythe gaming industry in those states. A brief synopsis of that is reflected in the staffing of 150 sworn lawenforcement agents in Indiana to cover their 11 casinos and two riverboats, 45 law enforcement personnel inColorado to cover the activities in 37 small casinos in three towns that are geographically close to each other, 95law enforcement personnel to cover the activities in 13 casinos in Missouri, and 101 law enforcement personnel tocover the activities in 14 Riverboat casinos and 3 pari-mutuel casinos in Iowa.

A Minnesota 24/7 possible staffing of 1 law enforcement personnel on-duty per shift for a large casino thatcontains 2,000 gambling devices is below what these comparable staffing levels are for similar states. A&GED

presently has staffed trained in detecting cheating done of gambling devices and has had a presence inconducting gambling device inspections for over 20 years, and as such, have a thorough knowledge of gamblingdevices. The presence of an on-site Special Agent ensures an immediate response to protect the integrity of thestate owned video lottery terminals at the two facilities. There are criminal groups that travel from state to state tosteal from and cheat gambling devices. If it is the legislatures desire for 24/7 coverage, this would allow theA&GED be on site to conduct criminal investigations of thefts from gambling by patrons or employees. Thecurrent bill is unclear as to the amount of coverage that A&GED should plan to provide to the two racinos whichwould contain 2,000 State of Minnesota video lottery terminals. Therefore, the A&GED is initially proposing a bareminimum fiscal note of 2 Special Agent FTE positions , 1 Administrative position and for the on call expenditure toprovide a bare minimum of a Special Agent availability during business hours, to provide for some assistance inany background checks requested of upper management personnel assigned to the operations of the videolottery terminals, to have an administrative assistant to conduct the criminal history checks of employees to belicensed, and to allow the racinos to contact a designated Special Agent during non-business hours for criminal

investigations.

There is not a specified funding mechanism in this proposed legislation for A&GED activities necessitated by thisproposed legislation. As such, the revenues needed will be proposed to be funded through the General Fund.

The A&GED would recommend staff coverage be proposed for 24/7 available coverage. This would increase theFTEs in a fiscal note to 10 FTEs to allow the staffing of 8 Special Agent positions, one Senior Special Agentposition to conduct criminal investigations and one Administrative position to conduct the criminal history checksnecessary for licensing purposes and for reports generated in order to adequately staff for the presence of an on-site special agent at the racetrack(s). This 24/7 coverage would also increase the proposed fiscal note from thisbare minimum proposal to total cost for FY 13 = $1,600,416.53 with a total cost per year for FY14 to FY16 =$1,040,057.83


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This 24/7 staffing level would assist the Division to maintain the integrity of state owned gambling activitiesprovided for in this bill. The Minnesota A&GED will await further instruction as to the legislative intent on coveragethe Division should provide.

Expenditure and/or Revenue FormulaFiscal year 13 expenditures reflects all costs related to the 3 FTEs, which includes standard issued equipment,related vehicle costs, office related supplies and space costs and pre-hiring expenses. The grid below indicates

the initial costs of all 3 FTEs in FY 13, along with the lesser on-going costs carried into fiscal years 14, 15, & 16.

FY 13 FY14 FY 15 FY 162 special

agents1=$61,199.30x 2fy13,14,15, 156

$122,398.56

1 on-callSpecial Agent

1= $54,633.84 x1 fy 13, 14, 15,16

$54,633.84

1-OfficeAdmin Spec-I

1=$29,691.36 X1 fy 13,14,15, 16

$29,691.36

Salary 3 FTEs &1 on-call

S/A

(a) SUBTOTAL $206,723.76 $206,723.76 $206,723.76 $206,723.76

Fringe Cost 3 FTEs& 1 on-call S/A

(b) $39,250.96 $39,250.96 $39,250.96 $39,250.96

InsuranceCost

3 FTEs (c) $47.227.99 $47.227.99 $47.227.99 $47.227.99

Total Salary& Fringe

` $293,202.71 $293,202.71 $293,202.71 $293,202.71

Supplies and Expenses FY 13 FY14 FY 15 FY 16Office Space RentFY 12

@ $20.55 sq ftX 80 sq ft X 3Pos

$4,932.0 0.00 0.00 0.00

Office Space RentFY 13, 14, 15

@ $21.10 sq ftx 80 sq ft X 3positions

0.00 $5,064.00 $5,064.00 $5,064.00

Furniture @ $3,000/cubex 3 pos fy12

$9,000.00 0.00 0.00 0.00

Telephone @$72/mo/12mo x3positions

$2,592.00 $2,592.00 $2,592.00 $2,592.00

Parking @ $96/moX12mo x2positions

$2,304.00 $2,304.00 $2,304.00 $2,304.00

Other OperatingCosts

@ $400 X 3positions

$1,200.00 $1,200.00 $1,200.00 $1,200.00

SUPPLIES

TelephoneEquipment

@ $470.67 X 3positions

$1,412.100.00 0.00 0.00

Gasoline @$325/moX12mo x 2 fy12@$400/mox12

$7,800.00


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mo x 2fy13,14,15

$9,600.00 $9,600.00 $9,600.00

Vehicle Repairs,maintenance & Alt.

@ $100/mo X12mo X 2

$2,400.00 $2,400.00 $2,400.00 $2,400.00

PrintCommunications

@ $50/mo X12 mo x 3

$1,800.00 $1,800.00 $1,800.00 $1,800.00

Basic office

Supplies

@ $60/moX12

mo x 3

$2,160.00 $2,160.00 $2,160.00 $2,160.00

EQUIPMENTPC/Software @ $3075 X 3

pos fy 12 only$9,225.00 0.00 0.00 0.00

Cameras @ $300 X 2pos fy 12

$600.00 0.00 0.00 0.00

Laptops @ $1650 X 3pos fy 12

$4,950.00 0.000.00 0.00

OASI TranscriptionEquip

@ $300 x 1pos fy 12

$300.00 0.000.00 0.00

Cell Phones @ $200 X 2pos fy 12 $400.00 0.00 0.00 0.00Cell phone service @ $75/moX12

mo x 2positions

$1,800.00 $1,800.00 $1,800.00 $1,800.00

(New) Sworn AgentDuty Gear

@ $1,863 x 2pos fy 12

$3,726.00 0.000.00 0.00

Portable 800mhzradios

@ $4,800 x 2pos fy 12

$9,600.00 0.000.00 0.00

Vehicles @ $21,000 X 2pos fy 12

$42,000.00 0.000.00 0.00

Vehicle Emergency

Equip

@$2,300 x 2

pos fy 12

$4,600.00 0.00

0.00 0.00Vehicle Ins. @ $400 pr yr X2 positions

$800.00 $800.00 $800.00 $800.00

New VehicleRegistration

@$1,135 x 2pos fy 12

$2,270.00 0.000.00 0.00

Vehicle Licenserenewal

@ $10/yr X 2pos fy13,14,15

0.00 $20.00 $20.00 $20.00

Training/ContinuingEducation

@ $4,000 x 2positions

$8,000.00 $8,000.00 $8,000.00 $8,000.00

Clothing Allowance @ $450/yr x 2

pos fy13,14,15

0.00 $900.00 $900.00 $900.00

(pre-hire) MedicalExam for 2 S/As

@ $350 X 2pos fy 12

$700.00 0.000.00 0.00

(pre-hire)PsychologicalExam for 12 S/As

@ $400 X 2pos fy 12

$800.00 0.00 0.00 0.00

Overtime costs @ $1,000/yr x2 positions

$2,000.00 $2,000.00 $2,000.00 $2,000.00

TOTAL SUPPLIES& EXPENSES

$ 127,371.00 $40,640.00 $40,640.00 $40,640.00


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TOTAL FTESALARY.SUPPLIES &EXPENSES

$420,573.71 $333,842.71 $333,842.71 $333,842.71

Long-Term Fiscal ConsiderationsWhile the largest expenditures are associated with FY13, fiscal years 14, 15 & 16 reflect lesser costs associated

with standard on-going expenditures, e.g., salaries, office space & supplies, communications, training, and vehiclegas and service costs. Under Laws of 2002, Chapter 220 of Minnesota statutes, the A&GED is authorized tocharge a $15.00 fee for background checks performed on tribal background checks and on manufacturers anddistributors of gambling devices. The A&GED presumes that upon passage of this bill that requests from theState Lottery and the Minnesota Racing Commission for background checks will increase significantly. To assistin staffing the resources needed to meet the background check needs of the Minnesota lottery, MinnesotaGambling Control Board, and the Minnesota Racing Commission a change in Chapter 220 to allow the A&GED tocharge a $15.00 fee to perform background checks for the other gaming regulatory agencies, i.e. State Lottery,MN Racing Commission and the Gambling Control Board should be considered.

Local Government CostsLocal governments could incur direct and indirect costs associated with increased vehicle traffic and requests foremergency services in response to incidents not necessarily related to gaming such as: auto accidents, medicals,thefts, assaults, disorderly conduct, etc

References/SourcesA&GED staff, DPS Fiscal and Administrative Services and other state gaming regulatory agencies.

Agency Contact Name: James Arlt (651-201-7521)FN Coord Signature: LARRY FREUNDDate: 10/12/11 Phone: 651-201-7050

EBO Comments


EBO Signature: KEITH BOGUTDate: 10/14/11 Phone: 651-201-8034


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Local X


Tax Revenue X

Agency Name: Revenue Dept



ExpendituresGeneral Fund 0 18 4 4


Net ExpendituresGeneral Fund 0 18 4 4


Net Cost General Fund 0 18 4 4

Total Cost to the State 0 18 4 4



Total FTE


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Bill Description

HF9000

The bill authorizes the State Lottery to establish gaming machines as a licensed racetrack. A fee is imposed on gaminmachine revenues. A Minnesota First Fund is established for gambling treatment, education and to finance theconstruction of a stadium for the Minnesota Vikings and a ballpark for the St. Paul Saints.

The bill will result in an impact to state revenues.

The bill will result in administrative costs for the Department of Revenue.

Revenue Analysis

The bill will result in an impact to state revenues. The Department of Revenue will not be completing an independentrevenue estimate for this bill. It is assumed the revenue impact will be determined by the Minnesota State Lottery andaddressed in their fiscal note.

Assumptions

Currently, sales of state lottery tickets are exempt from sales tax imposed under 297A.62 but are subject to an inlieu tax under 297A.65 to be reported on the sales and use tax return on the 20

thof the following month for the

preceding month.

The bill amends 349A to include gaming machines, whereby customers will deposit tokens to play a game thatuses a video display and microprocessors. We would ordinarily tax these under 297A.61, subd. 3, paragraph(g)(1) as the making available of amusement devices.

However, this bill would exempt the gaming machine revenue from sales tax imposed under 297A.62 but wouldimpose an in lieu fee under 297A.651 which will also be reported on the sales and use tax return on the 20

thof the

following month for the preceding month.

We will need to add one new line to the sales and use tax return and test the changes to accommodate the newin lieu fee.

The new in lieu fee will be reported by the following formula:

25% of annual adj. gross revenues up 125,000,000 30% of annual adj. gross revenues between 125,000,000 and 200,000,000 40% of annual adj. gross revenues in excess of 200,000,000

The costs under this bill will be for systems development, testing and maintenance for one new line on the salesand use tax return.

As written, the effective date (day following enactment) for this section does not provide adequate time forsystems development and testing; however, it is assumed that it will take approximately six months for the gamingmachines to be in place and operational. Given this assumption, there will be adequate time to make theappropriate configuration changes to the Gentax application.


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Administrative Costs

FY 2013 FY 2014 FY 2015 FY 2016(Actual dollars)

Systems Development $17,680 $0 $0 $0Systems Support $0 $3,536 $3,536 $3,536Total Costs $17,680 $3,536 $3,536 $3,536

Systems Development Add one new line to the Sales and Use Tax returnSystems Support 20% of original development costs


There will be ongoing systems support/maintenance costs.


The department assumes there may be an impact to local units of government and that impact will be addressed by thMinnesota State Lottery in their fiscal note.

Agency Contact Name: Ron Empting 651-777-2021FN Coord Signature: RON EMPTINGDate: 10/17/11 Phone: 651-556-4042

EBO Comments


EBO Signature: BRYAN DAHLDate: 10/17/11 Phone: 651-201-8031


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Local X


Tax Revenue X

Agency Name: Lawful Gambling



ExpendituresNew Fund 0 101 384 602Misc Special Revenue Fund 0 (8) (8) (8) (8)

Less Agency Can AbsorbNew FundMisc Special Revenue Fund

Net ExpendituresNew Fund 0 101 384 602Misc Special Revenue Fund 0 (8) (8) (8) (8)

Revenues

New FundGeneral Fund (334) (334) (334) (334)Misc Special Revenue Fund 0 (8) (8) (8) (8)

Net Cost New Fund 0 101 384 602General Fund 334 334 334 334Misc Special Revenue Fund 0 0 0 0 0

Total Cost to the State 0 334 435 718 936


Full Time EquivalentsMisc Special Revenue Fund 0.00 0.00 0.00 0.00 0.00

Total FTE


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Bill DescriptionHF 9000 expands current law governing gambling at Canterbury Downs and Running Aces. Under this bill casinobetting would be allowed at these locations.

AssumptionsThe Gambling Control Board expects to see a drop in charitable gaming activity affecting charities with gamblingsites in the area of the two horse race tracks. The allowance of video gaming machines at the horse tracks willprovide these locations with an advantage over charitable gaming sites simply due to the fact that the projected

prize payouts will be greater than the charitable games such as pull-tabs (currently averaging 82%).

For purposes of determining impact, the Gambling Control Board calculated the number of charitable gamingsites within a 10 mile radius of each horse track location. Based on current licenses issued, there are 52charitable sites in the 10 mile radius of Canterbury Park and 44 charitable sites within 10 miles radius of RunningAces in the Forest Lake area.

The average annual gross receipts per charitable gaming site in Minnesota are $348,000. The average annualnet receipts (Gross receipts less prizes paid to player) are $64,000.

Based on the expected advantage from the prize payout under the Racino proposal the Gambling Control Boardis projecting a 25% drop in charitable gambling gross receipts at the 96 sites that are within the 10 mile radius ofthe horse tracks.

This bill establishes a Minnesota First fund to help pay for Minnesota Vikings and St. Paul Saints stadiums. Itappropriates one half of 1% (.5%) of the Minnesota First fund to the Commissioner of Human Services forcompulsive gambling treatment programs and appropriates one half of 1% (.5%) of the Minnesota First fund for agrant administered by the Gambling Control Board to the state affiliate recognized by the National Council onProblem Gambling.

Expenditure and/or Revenue FormulaRevenue- Current average annual gross receipts per charitable gaming site: $348,000- Projected decrease in annual gross receipts in charitable gaming per site (25%): ($87,000)- 96 sites X ($87,000) = ($8,352,000) annual reduction in gross receipts- ($8,353,000) X .1% (.001) regulatory fee = $8,352 decrease in fees

The Board is anticipating the reduction in gross lawful gambling receipts would result in a decrease of $334,000 instate gambling taxes paid to the Department of Revenue. (This is based on an average gambling tax rate of 4%of $8,352,000 of gross receipts = $334,000.)

The bill appropriates one half of 1% (.5%) of the Minnesota First fund for a problem gambling grant administeredby the Gambling Control Board.-FY 2013 $20.2 million is expected to be collected in the Minnesota First fund X .5% = $101,000-FY 2014 $76.7 million X .5% = $383,500-FY 2015 $120.3 million X .5% = $601,500

The cost to the Board for managing the grant is not expected to change with this additional funding.

Long-Term Fiscal ConsiderationsNone at this time

Local Government CostsNone

References/Sources

FN Coord Signature: DEBRA HELLENBERGDate: 10/13/11 Phone: 651-639-4083


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EBO Comments




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Local X


Tax Revenue X

Agency Name: Racing Commission



ExpendituresMiscellaneous Agency Fund 6,800 24,600 34,600


Net ExpendituresMiscellaneous Agency Fund 6,800 24,600 34,600

RevenuesMiscellaneous Agency Fund 6,800 24,600 34,600

Net Cost Miscellaneous Agency Fund 0 0 0

Total Cost to the State



Total FTE


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Bill Description

Permits the operation of gaming machines at licensed pari-mutuel racetracks.

Assumptions

For the purposes of this fiscal note, assume Implementation of operation of gaming machines at Canterbury Parkand Running Aces Harness Park by July of 2012.

Operation will be 7 days per week, 24 hours per day. This will require 24/7 coverage/oversight by staff of theRacing Commission.

Significant expansion of facilities, including security, surveillance, and occupational licensing, based on Statute240 which provides that the Racing Commission has oversight duties for Class A licensees.

It is anticipated that the gaming facility authorized by this bill will require new construction to the existing racetrackfacilities. Under current Commission rules any alteration, expansion, or remodeling of the facility in excess of$100,000 requires Commission approval. The Commission and staff will be providing oversight of theconstruction phase and the pre-opening and full operation phases of the facility. This is to assure adequacy offacilities regarding the safety and security for patrons and facility employees, surveillance camera location andoperation, adequate and competent staff employed by the racetracks working in the gaming area, and appropriatereporting and enforcement practices when needed.

All those hired at a gaming facility located at a Class A racetrack licensed under chapter 240 will be required to belicensed as they will be employed by a Class A racetrack. This requires a thorough background check as iscurrently done for all racing, simulcasting and card playing activities. The Commissions regulatory oversightduties and responsibilities will extend to the additional facility as it will be an additional activity authorized for aClass A licensee. Those duties include licensee background check, as mentioned, and oversight of security andsurveillance as to licensee and patron conduct on the gaming floor. Any instances of a suspicious nature will beimmediately investigated, regardless of the time of day, and the appropriate law enforcement agency (ShakopeePolice Department, Anoka County Sheriffs Department, or Alcohol and Gambling Division of the MinnesotaDepartment of Public Safety) will be contacted and a full report of the incident will be prepared by theCommissions investigators. This bill also places administrative responsibilities on the Commission in allocatingand administering the money for purse payments. This will require additional business management andinformation management staff to control all monies deposited and expended from the fund. Further, the grant

responsibilities will require staff to thoroughly review requests and to prepare an analysis and evaluation forpresentation to the Commission prior to allocation of those funds by the Commission.

The Racing Commissions administration of the purse payments will be critical in that all calculation must beprecise as to distribution of the monies to industry stakeholders. Controls must be in place for the distribution ofmonies to each breed at each facility which includes the purse and the Breeders Fund monies. In addition, theindustry grant responsibilities will include grant contract oversight and administration which will again include theappropriate internal controls, audit capability, and contract administration to assure the accomplishment of theproject and goals for the monies were granted.

Accordingly, this bill significantly affects the Racing Commissions regulatory oversight and responsibilities at aClass A licensed facility, as stated in Minnesota Statute Chapter 240. The Racing Commission receivesreimbursement from the racing and card club industries sufficient to recover their operating costs. The bill is not

clear as to how the Racing Commission will be reimbursed for the Commissions increased operating andregulatory costs due to the expansion of the racetracks operation of the gaming machines. Additional languageto clarify how reimbursement should occur would ensure the Racing Commissions ability to provide appropriateregulatory oversight.


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Expenditure and/or Revenue Formula; Industry Development Fund

Breakdown of Purse Distribution (in thousands)

Revenues/Expenditures FY12 FY13 FY14 FY15Racetrack Operations 41,800.0 151,100.0 212,300.0State Expenditures:

Purses 5,440.0 19,680.0 27,680.0Breeders Fund 1,088.0 3,936.0 5,536.0Grants 272.0 984.0 1,384.0


The current Special Revenue (2000) Fund is reimbursed by the racetracks for the Racing Commissionsregulatory oversight of the racetracks. The addition of gaming machines at the racetracks increases theCommissions regulatory responsibilities. If the fund is not reimbursed for the additional costs from the gamingmachine, the fund will not be able to continue to support the operations of the Commission.

Future expansion or contraction of gaming facility would proportionately affect regulatory/oversight cost.


References/Sources

Revenue estimates were prepared by the State Lottery

FN Coord Signature: RICHARD KRUEGERDate: 10/17/11 Phone: 952-496-7950

EBO Comments



racino fiscal note

Documents