An Analysis of the Nevada Resort Association and S.B. 88

CHAPTER 1 INTRODUCTION

The state of Nevada is synonymous with gaming. Since 1931, gaming has been fully legalized in Nevada. The legalization of gaming has brought prosperity and growth to Nevada. Gaming taxes and casino entertainment taxes made up 38.6% of the General Fund in Fiscal Year 1997[1]. Gaming is currently one of Nevada’s largest sources of tax revenue as seen in Chart 1 below.

1999-2001 Executive Budget General Fund Revenue by Source Chart 1[2]

Evidence of Nevada’s prosperity is outlined in Governor Guinn’s Executive Budget Summary FY 1999-2000 and 2000-2001. Nevada has an average annual job growth rate of 6.3% since FY 1992, approximately 3 times the US average[3]. Nevada has had an annual personal income growth average of 8.8%, compared to 5.3% nationally since Fiscal Year 1992[4]. Both of the Nevada figures are well above national averages. The gaming industry continues to expand and in 1997 directly employed 307,500 Nevadans, 35% of Nevada’s total workforce[5]. Even though gaming contributes to Nevada’s prosperity through jobs and is one of the largest tax revenue sources for the General Fund, the issue of raising gaming taxes is a hot topic. The introduction will briefly cover the areas of growth, state tax revenue issues, professional paper proposal, and the history of the Nevada Resort Association and gaming taxes.

Growth

The gaming industry causes tremendous growth as well as prosperity in Nevada. The prosperity of the gaming industry has been a contributing factor to the population growth with the expansion of hotel/casino megaresorts offering new jobs. The population in Nevada has grown from 897,000 in 1983 to 1.7 million in 1997[6]. With growth comes many infrastructure needs that must be provided by government. Road construction is 24 hours a day and

commonplace. Schools are continuously being built and remodeled to keep up with all of the new students. Government services have been inundated, such as the Department of Motor Vehicles reporting waits of up to 6 hours[7]. All of these expansions are paid for with tax dollars. The debate then becomes who will pay for all of the growth?

State Tax Revenue Issues

The most common way to generate revenue in government is through taxation[8]. Nevada’s tax structure has two main sources of revenue; the gaming tax and the sales tax. Nevada has no state income tax or corporate income tax[9]. Nevada depends on the gaming and sales tax sources to operate. There is a delicate balance between equal distribution of the tax burden and economic prosperity. Can Nevada find a balance in the tax structure that will maintain the economic prosperity Nevada currently enjoys?

There are many changes that could be made to the tax structure to generate revenue for infrastructure needs. During the 1999 Nevada Assembly legislative session, Senator Joe Neal proposed S.B. 88 that would have raised the gross gaming tax on establishments with gross revenue of 1 million or more per month from 6.25% to 8.25%. He thinks that gaming doesn’t pay its share and should increase contributions toward the costs of government growth at all levels[10]. The bill was held in the Senate Finance Committee, the only “Yea” vote being the sponsor, Joe Neal[11]. The defeat prompted Senator Neal to engage in a petition campaign that will bring the gaming tax up from his proposal of 8.25% to 11.25%. Should Senator Neal get the required signatures, his petition will be heard at the next legislative session and the legislature has 40 days to act on it. If the legislature votes against it or doesn’t act on it, it will go on ballot at the next general election.

There is a great deal of public support for an increase in gaming taxes for two main reasons. The first reason is the reported need for more revenue. Secondly, because the Nevada gaming tax structure has been compared by Senator Neal and the press, to other states with various forms of legalized gaming that pay up to 35%. Each state however, is structured individually. The impacts of gaming in Nevada have been publicly focused on the negative economic impacts. An economic shortfall was predicted in 1998 by the Economic Forum, a group of 5 private citizens who make budget projections for the governor to base the Executive Budget upon[12]. The predicted shortfall was incorrect. This prediction created much public concern over revenue shortfalls that had been predicted by other sources for Nevada’s future. Since gaming is seen as the source of growth, the most visible profit driven industry in Nevada, the public wants them to pay!

Senator Neal is not the only one with a petition circulating for tax reform. The Nevada State Education Association also has a petition calling for a 5% business profit tax. The Nevada State Education Association is not looking to gaming for a tax increase because it may not prove to be a stable source of revenue in a recession time. The unfolding political strategies on this issue are intensifying and well worth investigation.

Proposal

I am proposing an analysis of the Nevada Resort Association for my professional paper. The Nevada Resort Association is the lobbying arm for the large to mid-size resorts in Nevada. My question is: “In the face of what seems to be strong public support for an increase in the Nevada Gross Gaming Revenue Monthly Percentage Fee, and the reported need for more state government revenue, how did the Nevada Resort Association lobby for the defeat of S.B. 88 in the 1999 Nevada Legislative Session?”. Secondarily, I will be focusing on the political influences surrounding the issue of the tax structure and how it relates to the Nevada Resort Association and their membership.

Why did I choose this topic? First, I recognize that gaming is the current leading industry in Nevada. Second, the gaming industry is concentrated in Las Vegas, NV. Third, upon moving to Las Vegas I worked at the Mirage Resort and Casino in the Credit Department as a secretary. Watching the amount of money that was funneled in and out of just one of the top twenty casinos fascinated me. Fourth, my undergraduate degree is in Political Science and I inherently possess an interest in government relations. The Nevada Resort Association is ranked by the Nevada legislature as one of the most powerful lobbies in Nevada[13], and I believe this is a unique and interesting topic.

Nevada contributed almost twice as much gaming tax revenue to Nevada than did any other gaming state[14]. The state should not rely solely on one or two sources to provide for the whole state. In times of recession, the gaming industry may create a revenue shortfall if the state continues this tax relationship. Diversification of the tax structure is what the Nevada State Education Association and the Nevada Resort Association support - with good reason.

History

In Nevada, the Nevada Resort Association formed in the 1960s as a result of the need to change their image and the need for a united front on gaming taxation. The federal government was very intent on shutting down organized crime during this era. Organized crime was central to casino operations in Las Vegas at the time and the investigations hit Las Vegas hard. These threats to shut down gaming in Nevada drove the gaming industry to organize their interests. The formation of the Nevada Resort Association helped gaming stay operational and worked on their public image. The Nevada Resort Association represents casinos and more generally gaming interests.

In 1966, there was a study of the General Fund Revenues of the State of Nevada called the Legislative Counsel Bureau Bulletin #68. This bulletin addressed the issue of raising the gaming tax. Robbins Cahill, a Nevada Resort Association employee in the 1960s surmises, “In assuming how much taxes could be increased, they recognized…the most difficult and controversial issues that had to be solved before you made this conclusion was how much costs rise, and how effective would management be in controlling the increase in costs? And to what extent will the industry be able to pass on any increase in gaming taxes by reducing odds to the customers, or increasing charges for a hotel, restaurant, bar, and other services?[15]”. The Nevada Resort Association helped the accounting firm charged with the task of determining the formula for gaming taxes in the state of Nevada[16]. The Nevada Resort Association was instrumental in safeguarding the gaming industry against being completely overtaxed. The gaming industry had to change after the gaming tax was implemented to maintain a profit. No longer could the industry rely upon gaming profits alone, because they couldn’t raise odds just to make up for the lost profits from taxes. Customers would stop coming if they felt they were being ripped off. The industry had to make the profits up with more hotel rooms, restaurants, and other forms of entertainment. Gaming in Nevada has changed dramatically over the last 40 years.

This paper will cover a literature review of existing literature, the methodology of the research conducted, an analysis of in depth interviews conducted, tax structure, and the issues surrounding gaming tax in Nevada to determine how the Nevada Resort Association lobbies and the level of influence that occurred in the defeat of S.B. 88. Finally, this paper will examine the findings from all of the analyzed information and the conclusions of this research.

CHAPTER 2

LITERATURE REVIEW

In order to find out what other authors have written about this topic, a literature review was conducted. The literature review includes sources on lobbying, lobbying in Nevada, associations, history of Nevada gaming and the Nevada Resort Association, and gaming regulation.

Lobbying

What does lobbying mean? Webster’s New World Dictionary defines lobby as, “1) a group of lobbyists representing the same special interest, 2) to attempt to influence in favor of something: often with for, 3) to attempt to influence the passage of (a measure) by acting as a lobbyist”. Webster’s New World Dictionary defines lobbyist as, “a person, acting for a special interest group, who tries to influence the introduction of or voting on legislation or the decisions of government administrators”. The right to lobby in the state of Nevada is granted under the Nevada Lobbying Disclosure Act. The legislative declaration of this act 218.902 states, “The legislature declares that the operation of responsible representative government requires that the fullest opportunity be afforded to the people to petition their government for the redress of grievances and to express freely to individual members of the legislature and to committees of the legislature their opinions on legislation[17]”. In addition to granting the lobbying right to the public, the act defines who lobbyists are.

The Nevada Revised Statute 218.912 defines lobbyist as:i

1. “Lobbyist” means, except as limited by subsection 2, a person who:

(a) Appears in person in the legislative building or any other building in which the legislature or any of its standing committees hold meetings; and

(b) Communicates directly with a member of the legislative branch on behalf of someone other than himself to influence legislative action whether or not any compensation is received for the communication.

2. “Lobbyist” does not include:

(a) Persons who confine their activities to formal appearances before legislative committees and who clearly identify themselves and the interest or interests for whom they are testifying.

(b) Employees of a bona fide new medium who meet the definition of “lobbyist” only in the course of their professional duties and who contact members of the legislature for the sole purpose of carrying out their news gathering function.

(c) Employees of departments, divisions or agencies of the state government who appear before legislative committees only to explain the effect of legislation related to their departments, divisions or agencies.

(d) Employees of the legislature, legislators, legislative agencies or legislative commissions.

(e) Elected officers of this state and its political subdivisions who confine their lobbying activities to issues directly related to the scope of the office to which they were elected.

(f) Persons who contact the members of the legislature who are elected from the district in which they reside.

Lobbying in Nevada has been restricted over the past 25 years. Prior to that, lobbyists had a very close relationship with legislators - even being able to sit on the floor with themii! Nevada legislators are traditionally very friendly toward lobbyists.

Nevada is a part - time body, meeting on a biennial basis (every 2 years) so legislators are particularly reliant upon lobbyists for information regarding pending bills.

Restrictions imposed upon lobbyists are[18]:

· 1973 - Registration with the Secretary of State.

· 1975 - Report monthly on their expenditures during the session for entertainment, gifts, and loans to legislators.

· 1979 - Required to wear identification badges while in the halls of the legislature and registration moved to Legislative Counsel Bureau.

· 1993 - starting in 1995, specify individual legislators on whom expenditures were made this cut lobbyist spending on legislators by more than 90%!

· 1998 - defines paid lobbyist and unpaid lobbyist, also requires monthly expenditure reports to be filed whether expenditures have been made or not.

One of the most powerful lobbies in Nevada is the Nevada Resort Association that formed from a coalition of casino owners in the 1960s.

Associations

A special type of coalition is the association. Associations are a coalition that can be private or public sector. The association is a type of group that stems from closely connected relationships or organizations. The association is unique in that they influence not only government and governmental processes, they influence their own membership. Associations allow the membership to overlap where they may not necessarily command aspects on their own such as; legal representation, expertise, and money. The formation of an association usually results in splinter groups. “The considerable political importance of associations, lies not only in their strong tendency to operate through or upon the institutions of government but in their stabilizing functions, in the larger resources of various kinds that they can command as compared with any of the participant elements, and in their great numbers in our society”[19]. The strongest associations have strong attributes. These attributes according to Arnold and Plant[20] are “mission, linkage functions, policy involvement, professionalization, leadership, and socialization”. The executive directors of these associations know their mission and take strategic planning quite seriously. DeGregorio[21], outlines the organizational attributes of successful advocates as “(1) legal status, (2) campaign involvement, (3) number and location of offices, (4) membership size, diffusion and ideology, (5) budget and staff, and

(6) Institutional credibility”.

The following explanation of non-profits is attributed to Arnold and Plant[22]. Non-profits are more limited in the political process. Non-profits are tax-exempt and therefore distance themselves from candidates. A non-profit type 501(c)(3) will focus on education and research, without much professional lobbying and no campaign work. This type of non-profit is then allowed to seek contributions from members or supporters for their efforts. Those who donate to their cause may deduct an estate of gift tax deduction. 501(c)(3) organizations may receive public and private grant contributions for their research and management. These non-profits are prevalent among interest groups.

Another type of nonprofit is a 501(c)(4) organization and they are allowed to influence policy through professional lobbying and campaign contributions. Many large corporations will incorporate the two types of nonprofits to form a hybrid. The hybrids possess the research and education arm as well as the lobbying arm. The hybrid organizations are the most envied according to DeGregorio. Profit driven organizations may contribute toward campaigns and have lobbyists watching over their interests at Congress.

Political Action Committees (PACs) are another form of coalitions. According to Herrnson[23], PACs are the electoral arm of interest groups. There are two types of PACs. The first type stands alone and targets “contributions to heighten the proportion of decision makers who show an affinity for the groups’ tastes toward public policy[24]” only, no lobbying. The second type is part of a larger organization who will contribute to campaigns. This second type of PAC files as a 501(c)(4). PACs may contribute money to other PACs and individuals. Private PACs contribute to other PACs who lead in lobbying.

According to the Gaming Resources Newsletter, states that a casino association is “ …a private, nonprofit, membership organization made up of competing casinos for the purpose of promoting the gaming industry, rather than the particular casino each member represents.” It also says, “Casino associations serve several functions, including public relations and public influence. They send out press releases, combat myths and negative news, lobby politicians, monitor legislation and regulation, look out for the welfare of members, and sponsor charitable events.” The casino associations have the same type of organization and function as most corporate and government affairs organizations, there is nothing magical except that they have mastered their art.

The Nevada Resort Association files as a “C” Corporation[25]. “C” Corporation is the most common type of corporate structure, according to http://www.smartline.com, a web site with the slogan “Small Business Answers. From Small Business Owners.” The following information has been gleaned from this web site regarding what a “C” Corporation is. First, it is a legal business entity created by state statute separate from its owner(s). Second, it can be owned by an unlimited number of stockholders and has limited liability; the amount invested by the stockholder. It is also taxed on profitable income at special corporate rates. It does not offer liability protection in the case of fraud, failure to pay taxes, under capitalization of the corporation, or commingling of personal and corporate funds. It has an unlimited life; the life extends beyond illness or death of the owners. Finally, the “C” Corporation has the ability to sell and trade stock on public exchanges.

In “Public Relations: The Profession and Practice”, the term public affairs refers to the aspect of public relations that is political. Chart 2 on page 18, shows the mechanisms of public affairs. It demonstrates how the casino associations described by the Gaming Resources Newsletter and the Nevada Resort Association are normal in function.

History of Gaming and the Nevada Resort Association

Gambling was not always completely legal in Nevada. According to The Silver State, 1869 was the year that Nevada passed the first law legalizing and “presumably regulating gambling by requiring those who offered betting games to be licensed by the county sheriffs.[27]” The next thing to happen was that gambling was prohibited in 1910[28]. Gambling was legalized in Nevada in 1931.

Most of the forces behind legalization were casino patrons and owners. Author Eric N. Moody sums up the major players in legalization, “Most of the impetus behind the movement for a liberalization of the gambling statute came not from within local government, or from the public, but from gamblers and owners of gambling establishments who wished to expand the operations, and from business interests in the state who stood to benefit from the additional visitors and their spending that an expansion of gambling activity was to attract[29]”. The legalization of gambling in Nevada started the informal coalition of gaming interests.

In 1945, the link between gaming and the state’s economy was born. The Silver State purports that, “This became the law that gave the state government the responsibility for licensing gambling and for collecting a 1 percent gross revenue tax…It was a local government-funding measure that got the state of Nevada – and specifically the Nevada Tax Commission, which had been established for a totally different purpose – into the field of regulating and taxing gambling.” In 1957, S.B. 92 gave way to rural counties enjoying the wealth that casinos in Reno and Las Vegas generated[30]. The casinos got together and demonstrated that they were a force of influence in the legislature over S.B. 92[31].

In the 1950s and 1960s the federal government was targeting organized crime. Much of this targeting focused on gaming in Nevada and centrally in Las Vegas. The Kefauver hearings in 1950x were making recommendations to Congress on how to deal with organized crime. Organized crime had strong connections to Las Vegas casinos and it was recommended that a federal tax be imposed on all gambling transactions. This was meant to put organized crime out of business in Las Vegas and with it Nevada’s leading industry. This recommendation did not pass.

With the election of John F. Kennedy in the 1960s, the targeting of gambling was ignited. The intensity of the administration’s focus on gaming is felt in the words of sociologist Jerome Skolnik, “Kennedy was planning to clean out what he called the ‘bank of America’s organized crime’, and failing that, he would press Congress to close down gambling[32] ”.

With this climate surrounding the gaming industry, a united front was needed. George Ullom, former staff of Governor Sawyer, formed the Nevada Resort Association in 1961[33] from a coalition of casino interests. The Nevada Resort Association charged $1.00 per room, per month to members. Their goals were to review tax structure and review political involvement. They had no labor relations and they were not a lobbying organization. They did coordinate all requests to casinos for money. They also had information on cheaters funneled to them and were assigned with the task of clean up. They were to advertise only within Nevada and build goodwill in Nevada.

The Nevada Resort Association was involved with political campaigns by compiling a list for members containing who should be supported and how much should be contributed. They decided who was electable by talking to the candidates, presenting the Nevada Resort Association’s case, and asked no commitments. In the beginning of the Nevada Resort Association Ullom states, “ We weren’t looking for power, we just wanted to be left alonexii ”.

In an unpublished autobiography by Gabriel R. Vogliotti, past director of the Nevada Resort Association, he recounts the development of the Nevada Resort Association. This book is outlined by his personal experience. Vogliotti comments about the formation of the association, “The owners formed the Association as much to deal with the scavenging local as to deal with the national enemy.[34]”

Vogliotti described the meetings of the Nevada Resort Association as having a “soft voice”. He also stated that the discussions were casual, all officers were hotel presidents, and the budget was elastic. He explained that, “there is no vote, there seldom is. When these men agree, as they invariably do, it is with almost theatrical casualness. They can vote by dropping the subject: no show of hands, no minutes, no documentation.[35]”

He elaborates on those who sought out the casino owners for money, “ for political costs, for taxes, charities, jobs, for infinite free-loading…[36]”. He said that the Nevada Resort Association had fears and that one of them was “that Nevada’s legislature would cripple them with taxes. But this one was never phobic. The owners knew that, backs to wall, they could set up a war fund and buy up any legislature.[37]” He describes the type of men who formed the organization as courageous. This corresponding excerpt really sums up the flavor of this text[38]:

“…they elect governor, senators, legislatures, and yet some get a pounding heart if told that Dean Elson, Nevada FBI chief, just walked into the coffee shop.

…they carry the state on their backs, everything – the school system, garbage pickup, the economy – but they can hesitate to pick up a newspaper lest they read that they are linked to last week’s killing in Chicago.

…they will write more law than did some governors, but not one will allow his lawyers to think of suing anyone for libel.

…they know that the mighty American congress, taken as an abstraction hates them. But they remember many sneaky individual congressmen who come in, some in elaborate incognito, to spend a few days nibbling at this or that offering, a little gambling, some drinking, a few girls, before returning to congress.”

Robbins Cahill was an employee of the Nevada Resort Association hired in 1966. He said the Nevada Resort Association’s original concepts were to be a trade association, improve the public image of gaming, and control campaign donations[39]. Cahill also states that the goals and operation of the Nevada Resort Association were dependent upon which the head of the association was.

The Corporate Gaming Measure that passed in 1967, amended in 1969, allowed corporations to run casino operations legally. The Nevada Resort Association helped write this bill that would get organized crime out of the federal scope of gaming in Nevada. Corporations have flourished in Las Vegas as casino operators, and they have helped to positively change the reputation of gaming in Nevada.

Other tactics have helped change the reputation of gaming in Nevada. In 1983, the Nevada Resort Association was heavily involved in legal research of S.B. 335. This bill dealt with debt collection in states that have policy against gaming. Their research was instrumental in the bill passage and court interpretation[40]. The association has funded several causes other than campaigns. The Nevada Resort Association started the school of Hotel Management at University of Nevada Las Vegas by fully funding it for the first five yearsxiii. The school is still supported by the Nevada Resort Association on an annual basis according to Joyce McNeill, executive assistant for the Nevada Resort Association.

The Nevada Resort Association has evolved through different goals, different members, and different management over the years. According to Joyce McNeill, at one time, the association needed national recognition and filed as a PAC. They also used to handle the contract administration of labor relations, this ended in 1984. The association has had one consistency from its inception and that is Robert D. Faiss. Faiss was the attorney for the association starting with George Ullom and is still representing the Nevada Resort Association today.

The gaming lobby is a powerful and highly financed industry association. The Nevada Resort Association represents the industry generally as a lobby. Many Las Vegas resort casinos have in-house lobbying staff. The Nevada Public Policy of the State Concerning Gaming (NRS 463.0129)[41] establishes that “gaming industry is vitally important to the economy of the state and the general welfare of the inhabitants” also stressing the importance of honesty and integrity within the gaming industry. Nevada is unique in that the largest source of tax revenue for the state[42]. With such a heightened state of intermixed interests, the state has established the Nevada Gaming Policy Committee, Nevada Gaming Commission, and the State Gaming Control Board. These groups administer the laws and regulations that govern gaming according to the previously mentioned policyxiv.

Gaming Regulation

The Nevada Policy Committee is comprised of the governor, one senator, one state assembly person, one member of the Nevada Gaming Commission, one member of the State Gaming Control Board, one Nevada Indian tribe member, and five governor appointed members - two from the general public, two from non-restricted gaming licensees, and one from restricted gaming licensees. The Nevada Gaming Commission acts upon the recommendations of the State Gaming Control Board and is the final authority on licensing matters. There are five governor appointed members.

The Gaming Control Board consists of 6 divisions and they are; Audit Division, Corporate Securities Division, Electronic Service Division, Enforcement Division, Investigations Division, and Tax and License Division. The Gaming Control Board received an appropriation from the General Fund for Fiscal Year 1998 of $20,248,765 and a General Fund Salary Adjustment of $100,000[43]. The Gaming Control Board had resources of $24,231,884 for Fiscal Year 1998 with some other contributing sources being training charges, sale of reports, books and pamphlet sales, fines, and gaming investments. The Gaming Control Board had spent that $24,231,884 during Fiscal Year 1998 with the largest portion of $21,039,957 on personnel. They also had $9,129,544 Non-General Fund expenditures in Fiscal Year 1998. Their total expenditures for Fiscal Year 1998 were $33,361,428. In comparison to the total revenues in the General Fund for Fiscal Year 1998, gaming regulation expenditures in Fiscal Year 1998 were 2.4%. In comparison to the total revenues from gaming taxes and fees (current as of 9/11/99), gaming regulation expenditures in Fiscal Year 1998 were 5.7%. The costs of regulating gaming are small compared to the amount of revenue gaming brings to Nevada.

There are many interests in gaming within the state of Nevada. The gaming industry is the lifeblood of Nevada’s economy and must be represented at a local, state, and national level. The Nevada Resort Association is that representation.

CHAPTER 4 ANALYSIS AND FINDINGS

Several sources of information were analyzed to try answering the question, “In the face of what seems to be strong public support for an increase in the Nevada Gross Gaming Revenue Monthly Percentage Fee, and the reported need for more state revenue, how did the Nevada Resort Association lobby for the defeat of S.B. 88 in the 1999 Nevada Legislative Session?”. The analysis includes a S.B. 88 and Neal’s petition. The Senate Taxation Committee Minutes from 3/9/99, 3/16/99, 4/8/99 were looked at to ascertain who the stakeholders were, the issues surrounding the legislation, and the methods of lobbying used by the Nevada Resort Association. The field research of the paper was in-depth interviews conducted with the stakeholders surrounding the question. To gain more information about the level of support from the public, the Public Opinion Poll in Nevada, December 1998 was examined. For more understanding about the level of contribution by gaming to the state General Fund the 1999-2001 Executive Budget was examined. To better understand the total state revenue contributions by the gaming industry the Gaming Tax Collections were examined. The Jackpot Report and Gaming Contributions from Progressive Leadership Alliance of Nevada of Southern Nevada frame the level of campaign contributions made by the gaming industry. Lastly, analysis of other literature produced by the International Gaming Institute at UNLV and the American Gaming Association gave overall perception of gaming impacts.

Senate Bill 88

During the 1999 Nevada assembly legislative session, Senator Joe Neal proposed S.B. 88 that would have raised

the monthly percentage tax on gaming establishments with gross revenue of $1 million per month to 8.25% of that gross revenue.

There are several types of taxes on gaming. These taxes include slot machines annual tax, slot machines quarterly license fee, games annual license fee, games

quarterly license fee, monthly percentage fee, and the casino entertainment tax. The monthly percentage fee makes up the biggest portion (79%) of gaming tax revenues[44]. From July 1, 1998 through March 31, 1999 the state has collected $355,346,256 in percentage fee taxes, a 9.97% increase from the prior fiscal nine-month period[45].

The percentage fee is the tax that would have been affected by S.B. 88. S.B. 88 would have amended the Nevada Revised Statute 463.370 to include non-restricted licensees that exceed gross revenues of 1 million per month and collecting 8.25% of those gross revenues. In Fiscal Year 1997 the General Fund Gaming Revenue totaled

$521,515,443 – 38.6% of the General Fund![46] The 2% increase on affected properties purportedly would have raised an additional $113 million a year[47].

Senator Neal took his defeat as an opportunity to let the voters decide if the gross gaming revenue percentage fees should be raised to 11.25% on properties grossing $1 million or more per month. He needs to gather 44,009 signatures by November 14, 2000 in order to present to the 2001 Legislature. “If the petition qualifies, and the Legislature rejects it, it goes on the ballot in 2002 for a decision by the voters.[48]” The Nevada Resort Association only needs to stop the petition from qualifying in five counties to stop the petition process.

Senate Taxation Committee

Senator Joe Neal’s testimony in the Senate Committee on Taxation was, “He emphasized gaming was not paying their fair share and in order to meet the service needs, bond issues were approved by a vote of the people…”[49]. Neal’s testimony also indicated that the “National Gambling Impact Study Commission was formed and studies were compiled on gaming, studies indicated gaming was responsible for up to 10 percent or more of gaming addiction. Senator Neal said unless gaming paid its fair share, everyone would suffer the consequences. He noted Nevadans were concerned about gaming’s tremendous amount of power and control. He said gaming needs to be taxed sufficiently to pay for the problems that it creates”[50].

According to testimony from Jim Mulhall, Vice President for Governmental Affairs at the Nevada Resort Association, during the Senate Taxation Committee, “any tax on the gaming industry will negatively impact the many families and businesses which are directly or indirectly linked to the continued economic success of this industry”[51]. The Nevada Resort Association contracts with an outside firm, Arthur Andersen LLP, based in California to conduct objective research on gaming issues. Steve Comer, Partner in Charge, Arthur Andersen LLP, also testified at the Senate Taxation Committee. Mr. Comer testified about the impacts of a tax increase. According to Mr. Comer, “the impact of a tax increase could impact salaries, wages and jobs for people. He continued one of biggest impacts would be a reduction in capital expenditures and replacement capital expenditures that occur, such as carpet replacement, room refurbishment, and adding new amenities. He stated this is not wanted because this would reduce the competitive ability to draw customers. He noted more expenditures are required by the casinos to continue to draw customers. He concluded this would potentially drive stock valuations down, which would hurt the ability of the gaming industry to borrow and reduce the ability of the gaming industry to increase aggregate taxes that are paid by the industry to the state”[52]. The implications of raising the gaming tax seemed to be much further reaching than just the casinos. The economic stability of the state is dependent upon the prosperity of the gaming industry.

The targeted properties were the top 20 casino resorts in Nevada. The Nevada Resort Association cautioned that the passage of S.B. 88 might close several midsize properties. Russell Guindon, Senior Research Analyst at the State Gaming Control Board testified in the Senate Committee on Taxation that “based on the reporting revenues for FY 1998, there were 107 casinos that averaged $1 million in gaming revenue per month”[53]. Joe Neal brought up that these additional taxes might be deducted from federal taxes paid by the property. When asked, Richard Bunker noted that these deductions do not save that much money because there are too many varying factors when considering deductions and the actual dollar amount saved. Should raising the taxes affect midsize properties and the profit margins of larger casinos, not only will additional tax dollars be in jeopardy so will the growth of our tourist population.

Interviews with Stakeholders

The stakeholders were identified through the Senate Finance Committee testimony on S.B. 88 and gaming expert, Dr. William N. Thompson. The interviews were conducted in person, through e-mail and fax, and over the telephone. The governor’s office did not respond to several requests for information and will not be included. I have identified three main topic areas from the interview questions: the Nevada Resort Association as a lobby, Nevada Resort Association lobbying S.B.88 and issues surrounding S.B.88.

Nevada Resort Association as a Lobby

Carole Vilardo, lobbyist Nevada Taxpayers Association since 1986, said that any trends in the way the Nevada Resort Association lobbies legislation is perception verses reality. She said their power is based on their involvement in elections; they are major contributors in campaigns. She felt the impact of their success is three fold. 1) Contributions; 2) they are recognized as the engine that drives the state’s economy; and 3) they have very good lobbyists.

Shannon Bybee is an Associate Professor of Hotel Management at UNLV, and former government relations at Mirage Resorts Inc. from 1983 – 1987. When working at Mirage, he said the individual government affairs department worked with the Nevada Resort Association to coordinate efforts. He said communication is important both ways. The Nevada Resort Association has a Washington lobby also. There is a need to prioritize issues, to spend more on specific issues. PACs are only required at the federal level. The state level can make direct corporate contributions. The Nevada Resort Association may recommend candidates to support. There is a guideline on contribution amounts according to level. The lobbyists are key in this area.

Jon Ralston, reporter for the Las Vegas Review Journal, has been covering the Nevada Resort Association for about 14 years. He said the main trend is that the industry has grown more and more Balkanized; they are less cohesive than ever before, egos, and corporate swallowing of other companies, Indians. He sees their main source of power as a lobby coming from money. He said they hire the best people, contribute the most money and can decide who runs and who loses, and who serves on what committee.

Senator Dina Titus said she has had a good relationship with the Nevada Resort Association. She doesn’t vote with them on every bill, she voted against the art tax. She feels their lobbying is the very best. She has had no threats. They have gone after legislators by supporting another candidate.

Nevada Resort Association Lobbying S.B. 88

Richard Bunker, President of the Nevada Resort Association, felt that S.B. 88 was flawed on the face of the bill. Mr. Bunker felt that there was no following in Carson City for the policy change and it was not necessary to make an effort to lobby against S.B. 88. He also felt that there was a knee jerk reaction to the gaming industry not paying their fair share. At the time the bill was introduced, the Economic Forum had not made their forecast so there was no need to raise taxes at all.

The Nevada Resort Association is meeting internally and with interest groups to formulate a strategy if something happens with the proliferation of raising the gaming tax. When asked if the Nevada Resort Association met with Joe Neal when S.B. 88 was first being drafted, Mr. Bunker stated that they did not and that Joe Neal did not request to meet with them.

Senator Neal felt S.B. 88 was defeated because the gamers didn’t want anybody to touch the gross revenue and there is no accountability for gross gaming. He said it was dollar for dollar and 9 billion gross revenue was collected this year and 118 billion since 1987.

Carole Vilardo felt that the way the Nevada Resort Association lobbied the defeat of S.B. 88 was strange. She said S.B. 88 had a lot of testimony but no fancy presentations, but the heads of companies. Usually everybody that gives money has the bulk of testimony by lobbyists. One of her previous experiences on major legislation was that the legislators wanted to hear from their members and hear how it would impact them. She said that the gaming lobbyists were there for S.B. 88 but their members were testifying. She also felt that S.B. 88 was a bad bill. She feels any increase that comes because there is no demonstrated need is bad.

Shannon Bybee said that there was no push for more revenue. The Nevada Resort Association was talking to everybody. He said they have to know concerns, provide facts, and they can’t lie or mislead. Trust is key to lobbying legislators.

Jon Ralston felt that the Nevada Resort Association’s involvement on the defeat of S.B. 88 was that they did it. “They worked it – hard. It never had a chance. They worked the committee members. It was all a show – Neal performing with the audience wearing earplugs.”

Senator Titus felt that Senator Neal’s information to raise the gaming tax made a compelling argument. She said figures leave out politics and people. She said the Nevada Resort Association knew going in they had it beat, they were more worried about it being a public issue. She felt they have moved from being monolithic to being fractionalized. Mike Sloan, of the Nevada Resort Association, supported the “Ring Around the Valley” concept as gaming proliferates for quality of life.

Issues Surrounding S.B. 88

Senator Joe Neal said that the gamers had stated the last time the tax was increased that they would come back in 10 years if the profits increased they would increase the tax again. Senator Neal stated that he was on the committee then and it had been 13 years so he brought up the bill, and they would not compromise so the best thing to do would be to go to petition. Senator Neal said he didn’t consider other tax revenue sources because over the last 13 years, sales tax had gone up tremendously, all other taxes and fees since 1987 had increased over 200%. Senator Neal had brought up compelling arguments.

The Nevada Resort Association has started beefing up efforts to lobby against this issue. The governor has set a review to look at Nevada’s needs. The review will look at whether or not taxes are used judicially and if we are getting the bang for our buck. Richard Bunker stated if the results of that review say that we do need new tax dollars there is a need to look at options other than gaming.

Mr. Bunker said in two major tax studies there is a consensus that “Nevada is a stool that has two legs and needs a third”. There is no state income tax because it is decreed in our state constitution and no one will raise property tax. He said there are people talking about broadening the sales tax and the teachers union has talked about a corporate tax. Mr. Bunker remembered in 1991 there was talk about the business tax including a gross receipts tax, but this is based on employees and the gaming industry is the biggest employer in the state.

In light of how many taxes are paid by the gaming industry already, the gross receipts tax “wouldn’t be prudent or judicious”. Joe Neal brought up the issue of tax deductions from federal taxes for the taxes paid to the state. Mr. Bunker felt that this tax deduction wasn’t helpful because it “affects the bottom line for additional investment”.

Carole Vilardo stated that the Nevada Taxpayers Association does not support Senator Neal’s petition for an increase in the gross gaming revenue tax. Her board doesn’t support earmarked funds and industry targeting and feel that over time it is punitive.

Shannon Bybee felt there is probably a need for more tax revenue. He said the reason the people in Nevada are subsidized by gaming and with rapid growth of people who aren’t paying is disproportionate. He said that gaming revenue is growing as fast as the population. He felt that gaming isn’t the growth problem; people are coming here for retirement and lower taxes. He thinks that there is a need to develop a different tax structure and there is too much dependency on one industry. If Nevada charges gaming more taxes it could drive profits down and could lead to less growth. He said that gaming is visible and other industries are profiting but are not visible. Bybee stated that casinos also pay 14% property tax because they create their own value; the highest county rates are casinos.

Jon Ralston believes in his opinion that there is a need for more tax revenue because there are too many needs in education, social services, and health care. When asked if gaming should pay more he said yes, gaming should pay more, but more for political than policy reasons. He said “you can't pass a tax package without the gaming industry participating. What’s more important is getting those who don’t pay and have befitted from the gaming-driven economy – banks, out-of-state stores – to cough up. That way, when gaming slows down, the safety net will be there.”

Debbie Cahill said that her group doesn’t support Senator Neal’s petition because they have their own proposal. She felt his motivation was that gaming doesn’t pay its fair share. The teachers support a business profits tax.

Public Opinion Poll

Senator Neal gained credibility about the level of public support for an increase in the gross gaming tax with the Public Opinion in Nevada: Selected Legislative Issues, December 1998. The poll was sponsored by Nevada State, conducted by the Senator Alan Bible Center for Applied Research at University of Nevada, Reno and the Cannon Center for Survey Research at the University of Nevada, Las Vegas, and presented to the Nevada legislature. The results stated that 69% of Nevada residents sampled supported an increase of gaming taxes if the need for more state revenues existed[54]. The question asked, “Suppose more state revenues were necessary to support a program you favored, would you strongly favor, favor, oppose, strongly oppose, or would you be neutral about: An increase in taxes on gaming?[55]”. The survey sample size was 1,200 respondents. The survey sample method was a random digit dial to three sections of the state. The sections were Washoe County, Clark County, and rural area. Each of these sections had 400 respondents surveyed.

A similar question was asked about raising taxes on mining, Nevada’s second largest industry. Statewide 46% favored an increase on mining taxes. Those in the northern and southern region of the state favored the mining increase by 9 – 15% over the rural area. Those in the southern region favored an increase in gaming tax by 7 – 8% over those in the northern and rural area. The difference in the mining increase percentiles logically shows that those in the rural area are more dependent upon the mining industry. The interesting twist is that the southern region, which is very dependent upon the gaming industry, favored the increase of gaming taxes more than the other regions who are not as dependent upon gaming. This may indicate hostility in the southern region toward the gaming industry. However, this stratified sample may not correctly represent the southern region because they are equally measured against the other two regions and the bulk of Nevada’s population is in the southern region. To have a more accurate view of public perception in the southern region a separate study could be conducted.

Gaming Tax Contribution

What is the current state gaming tax and fee for non-restricted and restricted gaming licenses? Revenues generated from these taxes are dedicated and received by the General Fund. The State’s General Fund receives all revenues and accounts for all expenditures not otherwise provided for by law to be dedicated to any other fund. For a detailed breakdown of all taxes other than the Gross Gaming Revenue Monthly Percentage Fee and the Casino Entertainment Tax Fee, refer to the Appendix.

A non-restricted gaming license is issued “for the operation of table games and/or tables only; or, for the operation of 16 or more slot machines only; or, for the operation of games and/or tables in conjunction with slot machines” [56].

Monthly Percentage Fee according to Nevada Revised Statute 463.370 is based on gross gaming revenue - payable on or before the 24^th day of each month covering the preceding calendar month at the following rates:

- 3% of the first $50,000 during the month, plus

- 4% of the next $84,000 plus

- 6.25% of revenue exceeding $134,000.

The Casino Entertainment Tax according to Nevada Revised Statute 463.403 payable on or before the 24^th day of each month covering the preceding calendar month applies only to licensees licensed for more than 50 slot machines, more than 5 table games, or any combination thereof. “The tax rate is 10% of all amounts paid for food, refreshment, merchandise, and admissions or similar charges, while in a casino entertainment status. Casino entertainment status is that condition which renders the selling of food, refreshment or merchandise subject to the tax, and commences either at the time entertainment starts or at the time when any charge such as admission, entertainment fee, minimum, cover, or similar charge attaches, whichever is earlier.”[57]

Restricted gaming licenses are issued for the operation of no more than 15 slot machines and no other games. Many of these licenses would include grocery stores or small bars.

Out of all of the gaming taxes and fees, the monthly percentage tax makes up the biggest portion (79%) of gaming tax revenues. From July 1, 1998 through March 31, 1999 the state has collected $355,346,256 in percentage fee taxes, a 9.97% increase from the prior fiscal year nine-month period[58]. The percentage fee is the tax that would have been affected by S.B. 88 amended the Nevada Revised Statute 463.370 to include non-restricted licensees that exceed gross revenues of 1 million per month and collecting 8.25% of those gross revenues. In Fiscal Year 1997 the General Fund Gaming and Entertainment Tax Revenue totaled $521,515,443 - 38.6% of the General Fund[59]!

The updated General Fund gaming revenue contribution from FY 99 through June 30, 1999 is $637,903,064[60] and the dedicated revenue from gaming for the same period is $55,642,912. The updated General Fund revenues from FY 99 through June 30, 1999 are $1,533,552,938[61]. This indicates that the gaming contribution to the General Fund for the last fiscal year is 41.6%! That is an increase of 3% in one fiscal year.

Nevada has a very low gross revenue gaming tax when compared to other gaming states. It is inconclusive to directly compare gaming taxes in Nevada to other states. There are different levels of legalized gaming, different gaming tax structures, area competition, and number of establishments. Though the Nevada gross revenue gaming tax is low, Nevada receives almost twice as much in gaming tax revenue than any other state[62].

Campaign Financing

The group Progressive Leadership Alliance of Nevada researches campaign finance. They produce a report titled Jackpot! Campaign Finances in Nevada, The 1998 Elections. Their figures are based on Campaign Contribution and Expenses reports filed by candidates for 1996 and 1998. Gaming ranked 3^rd among contributors in 1996 and 1998 coming in under Party contributions and Labor.

Another executive report by Paul Brown of Progressive Leadership Alliance of Nevada outlines other attributes of gaming. The amount of contributions given directly to Nevada legislative campaigns was $860,787 over the 1996 and 1998 elections. The average amount gaming contributed to an Assemblyperson was $9,619; the average for a State Senator was $21,751. Progressive Leadership Alliance of Nevada indicated the top legislative priority of gaming in the 1999 session was to kill S.B. 88. The amount of contributions made to the Senate Finance Committee by gaming was $116,750.

Findings

The implications of raising the gaming tax were heavily debated. The gaming industry faced stiff competition pending the passage of Prop5 in California that opened the door for Indian Gaming. A large portion of the Nevada tourist market is from California and now there is competition for this market with Indian Gaming.

Senator Neal focuses on moral dilemmas with gaming, this view coincides with public perception. The public perception of gaming has been negatively skewed dating back to the involvement of organized crime. The press failed to mention that gaming taxes are one of the biggest contributors to the state general fund and this could have further skewed the public’s perception. In some articles the numbers themselves were not accurate, “The reality is that the general public kicks in closer to 70 percent of the state’s revenue. The largest part of the revenue pie is the sales tax, which the rest of us pay…Gross gaming revenue winds up fourth among state revenue sources.[63]”. As analyzed, the gross gaming revenue tax is just one of many taxes paid by gaming and doesn’t accurately portray how much the gaming industry contributes to state revenue. The press combined with a negative perception of gaming will lend support to Senator Joe Neal’s continued efforts to raise the gaming tax.

With gaming as the leading industry in Nevada, the Nevada Resort Association is said to be one of the most powerful lobbies in the state. The Nevada Resort Association represents the industry generally as a lobby. The Nevada Resort Association lobbies the legislature to keep the gaming taxes and fees lower. Gaming has a majority of the tax burden in this state. During the 1999 legislative session, S.B. 88 was defeated with only one vote for its passage - Senator Joe Neal. This overwhelming support to keep gaming taxes low, is in large measure due to the work of the Nevada Resort Association. The amount of contributions made by the Nevada Resort Association is proportionate to other major industries in Nevada. While campaign contributions play a role in the level of support for the Nevada Resort Association by legislators, it is certainly not the only reason S.B. 88 did not pass.

A theme that kept occurring throughout the course of the research was that 1) the general sentiment about the gaming industry and the Nevada Resort Association is that they operate in some manipulative, mysterious way to get what they want, and 2) the reality is that they are an American corporate industry operating according to the laws and conducting business congruent with the way capitalism indicates. They must make absolutely sure that any action must be conservative. They answer to the investors, the gaming board, federal, state, and local government laws, the public, labor unions, and other interest groups. That means they are accountable for everything they do.

CHAPTER 5

CONCLUSION

The Nevada Resort purports that S.B. 88 was flawed. The issue of an increase to the gross gaming tax is one that they will face in the next legislative session. I think that the public’s perception of gaming may be incomplete and somewhat negative. There are economic realities and figures that the public should be made aware of.

Through working with contingency groups and the press, perhaps the Nevada Resort Association can sway public perception. If there is an increase in the gaming tax, I feel it should be very minimal perhaps up to 7.25%, the same rate as our sales tax.

An Analysis of the Nevada Resort Association and S.B. 88

CHAPTER 1

INTRODUCTION