TITLE: CONCERNING REGULATION OF GAMES OF CHANCE BY CONTINUING LICENSING POWERS CONFERRED UPON THE SECRETARY OF STATE BY THE COLORADO CONSTITUTION AND REASSIGNING ENFORCEMENT POWERS TO THE DEPARTMENT OF REVENUE.

STATE FISCAL IMPACT SUMMARY	FY 1998/99	FY 1999/2000
State Revenues General Fund Bingo-Raffle Enforcement Cash Fund* Department of State Cash Fund**	Possible Fine Revenue $2,261,516 (1,380,000)	Possible Fine Revenue $1,286,593 (1,380,000)
State Expenditures General Fund Bingo-Raffle Enforcement Cash Fund Department of Law* Department of Public Safety* Department of State Cash Fund	$2,261,516 65,664 539,028 (685,768)	$1,286,593 65,664 126,876 (685,768)
FTE Position Change****	3.5 FTE	3.5 FTE
Local Government Impact — None

*The revenues identified include direct and indirect costs, including pass-through costs for investigations of license applicants.

Department of State cash fund fee revenue from bingo and raffle licences are estimated to be $1,380,000 annually.

***The amount shown for the Department of Law and the Department of Public Safety is included in the Bingo-Raffle Enforcement Cash Fund state expenditure total.

****The Department of Revenue would require 13.5 additional FTE annually. However, there would be a reduction of 10.0 FTE at the Department of State. The net FTE position change would be an increase of 3.5 FTE in FY 1998-99 and FY 1999-00.

This bill would continue the function of licensing bingo and other games of chance within the office of the Secretary of State through July 1, 2003, and would move the responsibility for enforcement of laws relating to bingo and games of chance from the Department of State to the Division of Racing Events located within the Department of Revenue.

A five-member Colorado Charitable Gaming Commission would be established within the Division of Racing Events. Members would be appointed by the Governor, with the consent and approval of the Senate. Commission members would receive compensation of $50 per day spent in the conduct of commission business, and would be reimbursed for necessary travel and other expenses incurred in the performance of their official duties, up to a maximum annual compensation of $10,000 per member. The Secretary of State would be a nonvoting ex officio member of the commission, and would be reimbursed for travel expenses incurred in the performance of commission business. The commission would meet at least once per month. Powers and duties of the commission are identified in the bill.

Any persons who commits any act prohibited by the Bingo and Raffles Law would commit a class 2 misdemeanor. Any person who violates any rule of the Colorado Charitable Gaming Commission (other than rule violations which also constitute crimes under the “Colorado Criminal Code”) commits a class 2 petty offense. Conviction would be punishable by a fine of not more than $100. The Division of Racing Events would be authorized to assess monetary fines not to exceed $500 per violation by any licensee for violations of the Bingo and Raffles Law or rules adopted pursuant to the article.

The bill would establish the Bingo-Raffle Licensing Cash Fund for the purposes of financing the licensing activities of the Secretary of State, and the Bingo-Raffle Enforcement Cash Fund for the purposes of financing the enforcement activities of the Division of Racing Events. Both funds would be subject to annual appropriation by the General Assembly. Fees would be established in amounts sufficient to ensure that the total revenue generated by the collection of the fees approximates the direct and indirect costs incurred in carrying out the duties identified in the bill.

The bill allows a bingo-raffle licensee to annually conduct 158 games of chance, rather than the current annual limit of 105 games. The maximum single prize for bingo or lotto would be increased from $250 to $500. In addition, organizations would be allowed to conduct more than one game of chance simultaneously at separate locations.

The bill contains an appropriations clause that transfers appropriations from the Department of State to the Department of Revenue for the purposes of implementing the bill. The bill may affect state General Fund revenues and would affect cash fund revenues and expenditures. Therefore, the bill is assessed as having state fiscal impact. The bill would become effective July 1, 1998.

General Fund Revenue. The bill authorizes the assessment of monetary fines, not to exceed $100 for violations of a rule of the Colorado Charitable Gaming Commission, and $500 per violation of the Bingo and Raffles Law. All fines assessed would be payable to the State Treasurer and would be deposited in the state General Fund. The amount of potential fine revenue has not been determined.

Cash Fund Revenue. Administrative fees would be established for approximately 1,804 entities that will be overseen by the Division of Racing Events in the Department of Revenue. Fees would be deposited into the Bingo-Raffle Enforcement Cash Fund for the purposes of financing the enforcement activities of the Division. The fees would be set at a level sufficient to cover the direct and indirect expenses of the Division. Fee requirements are for $1,686,516 in FY 1998-99. In addition, $575,000 would be collected from license applicants and held in escrow to cover the direct costs of investigations. Funds not used for investigations would be returned to the applicant. See the Facts and Assumptions section below for a further explanation of the revenue impact of the bill.

Section 20 of Article X of the Colorado Constitution, limits the maximum annual percentage increase in state fiscal year spending. Once total state revenue from all sources that are not specifically excluded from fiscal year spending exceeds these limits for the fiscal year, the state constitution requires that the excess shall be refunded in the next fiscal year unless voters approve a revenue change as an offset. Based on the current Legislative Council economic forecast, it is projected that the state will be in a TABOR refund position during each of the next five fiscal years. Any increase or decrease in state revenue from changes in fees, fines, licenses, or other revenue sources will affect the amount of the state revenue to be refunded.

Background. Under current law, bingo and raffles are administered by the Licensing Section of the Department of State (DOS). As a cash funded department, the DOS generates funds through the collection of fees. A November 1996 report of the State Auditor contained a performance audit of the Department of State, Bingo/Raffles Enforcement and Customer Service. Based on Department of State cash receipt records, analysis, and budget documents, the report identified total revenues of $1,380,000, including $1,189,000 in nonprofit fees; $150,000 in mfg/sup/agent fees; $38,000 in landlord fees; and $3,000 in miscellaneous revenues in FY 1995-96. Expenditures included $590,000 in direct costs, $360,000 in indirect costs, and $146,000 for a reversion allocation. Excess revenue was identified as $284,000.

Further analysis by the office of the State Auditor based on information contained in the FY 1996-97 budget request for DOS shows that the Department of State currently utilizes 11.5 FTE for licensing and enforcement of bingo and raffles. The analysis indicates that since Licensing is also responsible for other functions, $685,768 and 10.0 FTE is estimated to be a reasonable estimate of the direct costs for the Department of State related to enforcement of bingo and games of chance. This figure does not include $178,171 for the proportionate costs of administration allocated by DOS to Bingo/Raffles Enforcement and Customer Service since these items would remain at the Department of State.

Department of Revenue. The Department of Revenue has identified state expenditure requirements of $2,261,516 and 13.5 FTE in FY 1998-99, and $1,286,593 and 13.5 FTE in FY 1999-00 in order to carry out the responsibilities for enforcement of laws relating to bingo and games of chance, including direct pass-through costs for investigation expenses. A summary of expenditures for the Department of Revenue is provided in Table 1.

Table 1. SB 98-197 Department of Revenue Summary of Expenditures
	FY 1998-99	FY 1999-2000
Division of Racing Events Personal Services* Operating Expenses Commission Expenses Licensing Activity (including fingerprints) Division of Racing Events Subtotal Office of the Executive Director Vehicle Expenses Capital Outlay Leased Space Legal Services Office of Executive Director Subtotal Information Technology Division Contract Programming Cash and Document Processing Division Application Processing Investigation Expenses Direct Cost Pass-Through	$655,165 95,483 32,650 592,988 $1,376,286 $43,512 113,096 22,230 65,664 $244,502 $52,800 $12,928 $575,000	$655,165 79,633 20,790 177,692 $933,280 $43,512 3,000 22,230 43,776 $112,518 $25,000 $15,795 $200,000
Total Expenses	$2,261,516	$1,286,593

*A schedule of personal services by position is provided in the Assumptions Section.

Department of State. The Department of State has an administrative appropriation for FY 1997-98 of $3,802,310 and 71.0 FTE, cash funds. This amount is from fees, taxes and other sources of revenue collected by the Department. The November, 1996 Audit Report by the State Auditor shows that the Department of State Licensing Division utilizes 11.5 FTE for licensing and enforcement of bingo and raffles, including administration of charitable solicitations, credit service bonds, and public notaries. Data compiled by the State Auditor suggests that 1.5 FTE would be sufficient at DOS to review license applications for bingo licenses and to provide administrative functions related to issuing licenses. Moving the responsibility for enforcement of laws relating to bingo and games of chance to the Department of Revenue should result in a reduction in the budget of the Department of State by $685,768 and 10.0 FTE (see the Facts and Assumptions section below)

Pursuant to the Joint Budget Committee’s budget policies, the following expenditures have not been included in this fiscal note:

Pursuant to Section 2-2-322, C.R.S., which requires legislative service agency review of legislative measures which include the creation or increase of any fee collected by a state agency, the following analysis is provided. License fees will be determined by the Colorado Charitable Gaming Commission after the transfer of authority occurs based on the new cost structure. The new fee structure will affect approximately 1,574 bingo/raffle licenses, 62 landlord licenses, 15 manufacturer licenses, 15 manufacturer admin. licenses, 32 manufacturer’s agent licenses, 15 supplier licenses; 15 supplier’s admin. licenses, and 76 supplier’s agent licenses.

The fiscal note would imply that the Department of Revenue would require a cash fund appropriation from the Bingo-Raffle Enforcement Cash Fund in the amount of $2,261,516 and 13.5 FTE in FY 1998-99 for allocation to the Division of Racing Events in order to implement the provisions of the bill. Of this amount, the Department of Law would require $65,664 cash fund exempt, and the Department of Public Safety would require $539,028 cash fund exempt. The appropriation includes the need for spending authority in the amount of $575,000 that would be collected from license applicants for the direct costs of investigations. The Department of State would require a decrease of $685,768 and 10.0 FTE in the Secretary of State Cash Fund.

The Department of State indicates that it presently allocates 8.0 FTE to the functions that would be transferred to the Department of Revenue, and that personal services costs for these employees are $426,487. The Department of State has identified a total of $487,117 and 8.0 FTE as the total amount that it believes should be reduced from its budget related to the transfer of this function. These figures conflict with the estimates provided by the State Auditor.

1. That the Secretary of State will retain the authority to issue Bingo/Raffle licenses to qualified non-profit organizations. All other licensing and enforcement authority will be transferred to the Division of Racing Events in the Department of Revenue or the Colorado Charitable Gaming Commission. It is assumed that the regulation of the bingo industry would be similar to the enforcement model used in the racing industry.

2. That the Licensing Authority will retain 1.5 FTE to administratively issue Bingo/Raffle licenses.

3. That the Division of Racing Events will require 13.5 FTE annually beginning in FY 1998-99 to implement the enforcement authority required by the bill. A summary of personal services requirements for the Department of Revenue is shown in the table below.

SB 98-197 Department of Revenue Personal Services Summary
	FY 1998-99	FY 1999-2000
Criminal Investigator II (1.0 FTE) Criminal Investigator I (5.0 FTE) Auditor II (1.0 FTE) Auditor I (2.0 FTE) Administrative Assistant III (2.0 FTE) Administrative Assistant II (2.5 FTE) Temporary Help (Contract)	$71,240 307,676 38,615 78,057 73,544 64,145 21,888	$71,240 307,676 38,615 78,057 73,544 64,145 21,888
Total Personal Services Expenses (13.5 FTE)	$655,165	$655,165

4. That the Secretary of State will retain the authority to issue Bingo/Raffle Licenses to qualified non-profit organizations. All other licensing and enforcement authority is the responsibility of the Division of Racing Events.

5. That the Division of Racing Events will process quarterly reports from 15 manufacturer licensees, 15 supplier licensees, and 1,574 bingo/raffle licensees.

6. That all fees and fines will be determined by rule of the Commission. Based on 1996 figures, fees will be collected from approximately 1,804 entities.

7. That it will be the responsibility of the Commission to determine and establish which violations are punishable by fine, and the levels of those fines. The amount of fine revenue cannot be determined at this time.

8. That license fees will be determined by the Colorado Charitable Gaming Commission after the transfer of authority occurs. Fees would be established for approximately 1,574 bingo/raffle licensees, 62 landlord licensees, 15 manufacturer licensees, 15 manufacturer admin. licensees, 32 manufacturer’s agent licensees, 15 supplier licensees; 15 supplier’s admin. licensees, 76 supplier’s agent licensees, and 10,000 games managers.

9. That the annual reduction of the budget of the Department of State as a result of the bill is shown in the table below.

SB 98-197 Department of State Bingo Enforcement Budget Estimates
	FY 1998-99	FY 1999-2000
Investigator II (1.0/1.0) Investigator I (5.0/5.0)* Auditor I (1.0/1.0) Administrative Assistant III (2.0/2.0) Administrative Assistant II (1.0/1.0) Medicare and PERA, etc. Operating and Travel Other Expenses**	$55,680 238,752 38,791 62,790 25,305 57,044 45,620 161,786	$55,680 238,752 38,791 62,790 25,305 57,044 45,620 161,786
Total Personal Services Expenses (10.0/10.0)	$685,768	$685,768

**Includes a proration of budgeted items for legal services, administrative law judges, computer services, leased space, risk management, and workers compensation.