PRINTER'S NO. 4619
No. 2986 Session of 2002
INTRODUCED BY PALLONE, NOVEMBER 19, 2002
REFERRED TO COMMITTEE ON FINANCE, NOVEMBER 19, 2002
AN ACT
1 Authorizing a video lottery system at certain racetracks;
2 providing for disbursements of revenues; imposing duties on
3 the Division of the State Lottery; establishing an advisory
4 committee; imposing a video lottery tax; and making an
5 appropriation.
6 The General Assembly finds as follows:
7 (1) The Commonwealth's horse racing industry is
8 responsible for the preservation of 500,000 acres of open
9 space land, which is devoted to the breeding, training,
10 feeding and care of 30,000 horses Statewide.
11 (2) This industry is also responsible for the creation
12 of more than 35,000 jobs, of which 10,000 are in agriculture.
13 Each year the racing industry contributes at least
14 $750,000,000 to the value of goods and services and
15 $576,000,000 in personal income.
16 (3) The industry is adversely affected by neighboring
17 states with approved gaming devices at licensed racetrack
18 facilities.
19 (4) This act establishes a racetrack video lottery
1 system to be operated by the State Lottery and sustains and
2 improves this Commonwealth's horse racing industry.
3 The General Assembly of the Commonwealth of Pennsylvania
4 hereby enacts as follows:
5 Section 1. Short title.
6 This act shall be known and may be cited as the Horse Racing
7 Industry Improvement Act.
8 Section 2. Definitions.
9 The following words and phrases when used in this act shall
10 have the meanings given to them in this section unless the
11 context clearly indicates otherwise:
12 "Applicant." A licensed corporation which applies for a
13 racetrack video lottery license under this act.
14 "Associated equipment." Any equipment or mechanical,
15 electromechanical or electronic contrivance, component or
16 machine used in connection with gaming, including links which
17 connect to progressive slot machines, equipment which affects
18 the proper reporting of gross revenue, computerized systems for
19 monitoring gaming devices and devices for weighing or counting
20 money.
21 "Department." The Department of Revenue of the Commonwealth.
22 "Division." The Division of the State Lottery.
23 "Fund." The State Lottery Fund.
24 "Gross income." The total amount of cash, vouchers or tokens
25 inserted into the racetrack video lottery machines operated by a
26 licensee, minus the total value of coins and tokens won by a
27 player and game credits which are cleared from the video lottery
28 terminals in exchange for winning redemption tickets.
29 "Licensed corporation." A corporation that has obtained a
30 license from either the State Horse Racing Commission or the
20020H2986B4619 - 2 -
1 State Harness Racing Commission to conduct thoroughbred or
2 harness horse race meetings respectively with pari-mutuel
3 wagering.
4 "Licensee." A licensed corporation that has obtained a
5 racetrack video lottery license from the Division of the State
6 Lottery under this act.
7 "Racetrack." The physical facility where a licensed
8 corporation conducts thoroughbred or harness race meetings
9 respectively with pari-mutuel wagering.
10 "Racetrack video lottery license" or "license." A license
11 authorizing a licensed corporation to place and operate
12 racetrack video lottery machines at its racetrack pursuant to
13 this act.
14 "Racetrack video lottery machine." A machine in which coins,
15 credits or tokens are deposited in order to play any game of
16 chance in which the results, including options available to the
17 player, randomly and immediately are determined by the machine.
18 The machine may use spinning wheels or video displays or both,
19 and may or may not dispense coins or tokens directly to winning
20 players. A machine shall be considered a racetrack video lottery
21 machine notwithstanding the use of an electronic credit system
22 making the deposit of bills, coins or tokens unnecessary. The
23 term includes, but is not limited to, a device commonly referred
24 to as a "slot machine."
25 "Secretary." The Secretary of Revenue of the Commonwealth.
26 Section 3. Racetrack video lottery system.
27 A racetrack video lottery system is hereby established and
28 shall be administered by the division in accordance with this
29 act.
30 Section 4. Division of the State Lottery powers.
20020H2986B4619 - 3 -
1 (a) General powers.--
2 (1) The division shall establish, administer and ensure
3 the integrity of racetrack video lottery machines and shall
4 have jurisdiction over the location and operation of
5 racetrack video lottery machines.
6 (2) The secretary shall employ an executive director,
7 deputies, secretaries, officers and representatives as it may
8 deem necessary, who shall serve at the secretary's pleasure.
9 The secretary shall also employ other employees as the
10 secretary sees fit and whose duties and compensation shall be
11 prescribed by the secretary.
12 (b) Specific powers.--The division shall have the following
13 specific powers and duties:
14 (1) Investigate, evaluate and decide upon applications
15 for all racetrack video lottery licenses provided for in this
16 act.
17 (2) Issue licenses pursuant to the provisions of section
18 6.
19 (3) Promulgate regulations as the division deems
20 necessary to carry out the policy and purposes of this act
21 and to enhance the credibility and integrity of racetrack
22 video lottery machines in this Commonwealth. Notwithstanding
23 any other provision of law to the contrary and in order to
24 facilitate the prompt implementation of this act, regulations
25 promulgated by the division during the first year of its
26 existence shall not be subject to notice of proposed
27 rulemaking pursuant to section 204 of the act of July 31,
28 1968 (P.L.769, No.240), referred to as the Commonwealth
29 Documents Law. Regulations adopted after the one-year period
30 shall be promulgated, adopted and published as provided by
20020H2986B4619 - 4 -
1 law.
2 (4) The division or designated officers, employees or
3 agents of the secretary shall have the power to administer
4 oaths, examine witnesses and may issue subpoenas to compel
5 attendance of witnesses and production of all relevant and
6 material reports, books, papers, documents and other evidence
7 relating to the administration and enforcement of this act.
8 (5) Levy and collect an annual fee from each licensee of
9 $150 per racetrack video lottery machine in operation as of
10 September 1 of each calendar year beginning with September 1
11 after the effective date of this act. This fee shall be
12 deposited into the fund. The annual fee of $150 per machine
13 shall be used to cover the administrative cost of the
14 racetrack video lottery system. If the amount collected does
15 not cover the administrative cost in any given year, the
16 department may increase the amount to cover the increased
17 cost. The increased amount shall be published as a notice in
18 the Pennsylvanian Bulletin.
19 (6) Provide for the assessment and collection of fines
20 and penalties for violations of this act. All fines and
21 penalties shall be credited for deposit to the fund.
22 (7) Revoke or suspend any license provided for in this
23 act if the division finds by a preponderance of the evidence
24 that a licensee under this act, its officers, employees or
25 agents do not comply with the provisions of this act or the
26 rules and regulations of the division and that it would be in
27 the public interest, convenience or necessity to revoke or
28 suspend the license. None of the licenses provided for in
29 this act shall be transferable or assignable in any manner.
30 (8) Restrict access to confidential information obtained
20020H2986B4619 - 5 -
1 under this act and ensure that the confidentiality of
2 information is maintained and protected.
3 (9) Prescribe financial reporting and internal control
4 requirements for the operations of licensees that relate to
5 racetrack video lottery machines.
6 (10) Prescribe the manner in which gross revenue must be
7 computed and reported by the licensee that relate to
8 racetrack video lottery machines.
9 (11) Require audits of the financial statements of the
10 operations of licensees that relate to racetrack video
11 lottery machines.
12 (12) Require periodic financial reports from licensees
13 consistent with standards and intervals prescribed by the
14 division.
15 (13) Prescribe the procedures to be followed by
16 licensees for cash transactions affecting racetrack video
17 lottery machines.
18 (14) Prescribe criteria and conditions for the operation
19 of the racetrack video lottery system.
20 (15) Enforce the prescribed hours for the operation of
21 racetrack video lottery machines, so that licensees may
22 operate racetrack video lottery machines on any day, except
23 Christmas day, between the hours of 10 a.m. on one day until
24 2 a.m. the next day.
25 (16) Prohibit the offering of free alcohol or free malt
26 or free brewed beverages to patrons operating or using
27 racetrack video lottery machines.
28 (17) Prohibit wagering by persons under 21 years of age
29 on racetrack video lottery machines.
30 (18) Establish procedures for the inspection and
20020H2986B4619 - 6 -
1 certification of each racetrack video lottery machine prior
2 to being placed into use at the racetrack by a licensee to
3 insure that no racetrack video lottery machine may be set to
4 pay out less than 85% of all wagers on an average annual
5 basis unless specifically approved otherwise by the division.
6 (19) Prescribe any rule or regulation necessary to
7 administer the provisions of this act.
8 Section 5. Advisory committee.
9 (a) Establishment.--There is hereby established an advisory
10 committee within the department, to be known as the Racetrack
11 Video Lottery Advisory Committee. The committee shall assist the
12 department in developing and discussing proposed regulation,
13 final regulation or policy guidance and to provide continuing
14 advice on implementing and administering the provisions of this
15 act.
16 (b) Membership.--The advisory committee shall consist of the
17 following members:
18 (1) the Secretary of Agriculture or his designee;
19 (2) the chairperson of the State Horse Racing
20 Commission;
21 (3) the chairperson of the State Harness Racing
22 Commission; and
23 (4) five members appointed by the Governor with the
24 advice and consent of the Senate who shall be representative
25 of the interests affected by the provisions of this act. The
26 Secretary of Revenue shall serve as an ex officio member of
27 the committee.
28 (c) Terms.--The Governor shall appoint the initial members
29 of the committee under subsection (b)(4) within 60 days of the
30 effective date of this act. The members appointed by the
20020H2986B4619 - 7 -
1 Governor shall serve three-year terms, except that the initial
2 appointees shall have staggered terms so that one member shall
3 be appointed for a one-year term, two members shall be appointed
4 for a two-year term and two members shall be appointed for a
5 three-year term.
6 (d) Chairperson.--A chairperson shall be chosen by a
7 majority vote of the committee members present at a regularly
8 scheduled meeting. A person employed by the Commonwealth may not
9 chair the committee.
10 (e) Expenses.--Members of the committee shall be reimbursed
11 for their travel expenses to attend committee meetings.
12 Employees of the Commonwealth shall only be entitled to the
13 compensation and expenses they receive as public employees.
14 (f) Support.--The department shall provide the appropriate
15 administrative and technical support needed by the committee in
16 order to accomplish its objectives.
17 Section 6. Issuance of racetrack video lottery licenses.
18 (a) Authorization.--The division may issue a racetrack video
19 lottery license to a licensed corporation that desires to
20 operate racetrack video lottery machines at its racetrack if
21 that licensed corporation makes application to the division and
22 meets all of the following:
23 (1) The licensed corporation maintains its license to
24 conduct racing in good standing with the appropriate
25 commission.
26 (2) The licensed corporation continues to provide for
27 live horse racing as provided for in the act of December 17,
28 1981 (P.L.435, No.135), known as the Race Horse Industry
29 Reform Act.
30 (3) The licensed corporation has a written live racing
20020H2986B4619 - 8 -
1 agreement with a horsemen's organization representing a
2 majority of owners and trainers at the racetrack where the
3 licensed corporation conducts racing dates.
4 (4) Provides evidence satisfactory to the division that
5 a local option election was conducted under section 9 and
6 resulted in an affirmative vote for the county and licensed
7 corporation.
8 (5) The licensed corporation abides by all of the
9 provisions and regulations of this act.
10 (b) Limitation.--The division may determine the number of
11 racetrack video lottery machines that may be operated by a
12 licensee, provided that the number does not exceed 2,000 at any
13 one racetrack.
14 (c) Restriction.--No applicant that has been convicted in
15 any jurisdiction of a felony, crime of moral turpitude or
16 gambling offense may be issued a racetrack video lottery license
17 under this act.
18 (d) Suspension.--The division shall suspend the racetrack
19 video lottery license of any licensee who fails to satisfy the
20 requirements of subsection (a)(2) and (3) during the term of the
21 racetrack video lottery license until those requirements are
22 satisfied.
23 Section 7. Application.
24 (a) General rule.--Any licensed corporation which meets the
25 requirements of section 6 that desires to install racetrack
26 video lottery machines and operate or alter the number of or
27 location of racetrack video lottery machines within its
28 racetrack must file an application form with the division.
29 (b) Form.--The division shall develop an application form
30 that collects such information as deemed necessary by the
20020H2986B4619 - 9 -
1 division.
2 Section 8. Accounting controls and audits.
3 (a) Approval.--A licensed corporation which desires to
4 install and operate racetrack video lottery machines at its
5 racetrack must first obtain approval of its internal control
6 systems and audits from the division.
7 (b) Minimum requirements.--At a minimum, the internal
8 controls and audits shall consist of:
9 (1) The safeguarding of its assets and revenues,
10 especially the recording of cash and evidences of
11 indebtedness related to the racetrack video lottery machines.
12 (2) The provision of reliable records, accounts and
13 reports of transactions, operations and events, including
14 reports to the division that relate to the racetrack video
15 lottery machines.
16 (3) The ensuring that each racetrack video lottery
17 machine within each racetrack facility is directly connected
18 to the racetrack's central computerized system and can
19 provide details of all transactions, including, but not
20 limited to, coin in, coin out, jackpots, machine door
21 openings and power failures.
22 (4) A procedure whereby assets that relate to racetrack
23 video lottery machine operations are safeguarded.
24 (5) Financial records that relate to racetrack video
25 lottery machine operations are accurate and reliable.
26 (6) Transactions that relate to racetrack video lottery
27 machine operations are performed only in accordance with the
28 management's general or specific authorization.
29 (7) Transactions that relate to racetrack video lottery
30 machine operations are recorded adequately to permit proper
20020H2986B4619 - 10 -
1 and timely reporting of gaming revenue and of fees and taxes
2 and to maintain accountability for assets.
3 (8) Access to assets that relate to racetrack video
4 lottery machine operations is permitted only in accordance
5 with management's specific authorization.
6 (9) Recorded accountability for assets that relate to
7 racetrack video lottery machine operations is compared with
8 actual assets at reasonable intervals and appropriate action
9 is taken with respect to any discrepancies.
10 (10) Functions, duties and responsibilities that relate
11 to racetrack video lottery machine operations are
12 appropriately segregated and performed in accordance with
13 sound practices by competent, qualified personnel.
14 (c) Internal control.--A licensed corporation which seeks to
15 operate racetrack video lottery machines at its racetrack shall
16 describe, in the manner the division may approve or require, its
17 administrative and accounting procedures that relate to
18 racetrack video lottery machine operations in detail in a
19 written system of internal control and shall submit a copy of
20 its written racetrack video lottery system to the division. Each
21 written video lottery system shall include:
22 (1) An organizational chart depicting appropriate
23 segregation of functions and responsibilities.
24 (2) A description of the duties and responsibilities of
25 each position shown on the organizational chart.
26 (3) A detailed narrative description of the
27 administrative and accounting procedures designed to satisfy
28 the requirements of subsection (a).
29 (4) A written statement signed by the chief financial
30 officer of the licensed corporation and the chief executive
20020H2986B4619 - 11 -
1 officer of the licensed corporation attesting that the system
2 satisfies the requirements of this section.
3 (5) Any other item that the division may require.
4 Section 9. Local option election.
5 (a) Condition of application submission.--A licensed
6 corporation that desires to submit an application to the
7 division for a racetrack video lottery license must first obtain
8 an affirmative vote from a ballot question in accordance with
9 this section.
10 (b) Procedure.--
11 (1) The placement of racetrack video lottery machines in
12 the facility of a licensed corporation shall be submitted as
13 a ballot question to the qualified electors of the county in
14 which the facility is located upon petition signed by at
15 least 500 qualified electors of the county, and filed with
16 the county election board by the licensed corporation in
17 accordance with the act of June 3, 1937 (P.L.1333, No.320),
18 known as the Pennsylvania Election Code.
19 (2) The question shall be placed upon the ballot of that
20 county for the next regularly scheduled election as a "yes"
21 or "no" question in the following form:
22 Do you favor the Division of the State Lottery
23 issuing a license for the operation of racetrack
24 video lottery machines, commonly referred to as "slot
25 machines," within this county at the (name of the
26 racetrack owned by the licensed corporation that
27 submitted the petition) where pari-mutuel wagering is
28 authorized under Pennsylvania law?
29 (3) The results of the ballot question shall be
30 certified by the county election board to the licensed
20020H2986B4619 - 12 -
1 corporation that submitted the petition.
2 (c) Certification to be submitted with application.--An
3 application to the division for a license shall not be deemed
4 complete and may not be approved by the division unless the
5 certification from the respective county election board
6 identified in subsection (b) is included with the application
7 and the result of the ballot question is in the affirmative.
8 (d) Effect of affirmative vote.--If the majority of
9 qualified electors voting in the county in which a ballot
10 question was presented in accordance with this section vote in
11 the affirmative, then no similar ballot question for that
12 licensed corporation or any other licensed corporation may be
13 presented in that county for a period of five years from the
14 date of the election, unless a petition of qualified electors in
15 that county is filed after the election with the county board of
16 elections, which petition contains at least 5% of the signatures
17 of the qualified electors in that county.
18 (e) Effect of negative vote.--If the majority of qualified
19 electors voting in the county in which a ballot question was
20 presented in accordance with this section vote in the negative,
21 then no similar ballot question for that licensed corporation or
22 any other licensed corporation may be presented in that county
23 for a period of two years from the date of the election.
24 Section 10. Allocation of gross revenue to pari-mutuel purses.
25 A racetrack video lottery licensee shall use at least 40% of
26 the gross revenue arising from the operation of the racetrack
27 video lottery machines to increase the purses of pari-mutuel
28 wagering.
29 Section 11. Racetrack video lottery tax and distributions of
30 tax.
20020H2986B4619 - 13 -
1 (a) Imposition of tax.--Each racetrack video lottery
2 licensee shall pay a tax in the amount of 60% of the gross
3 income arising from the operation of the video lottery machines.
4 (b) Payment and credit.--The tax imposed by this section
5 shall be paid by the licensed corporation through the department
6 for credit to the fund monthly on or before the 20th day of the
7 month next succeeding the month in which the tax accrues.
8 (c) Distribution.--The division shall distribute money from
9 the fund together with the interest earned thereon at least once
10 annually on September 1, 2003, and each September 1 thereafter
11 to the State Treasurer for deposit in the following manner: No
12 more than 10% of the money may be used for the administrative
13 expenses of the system as incurred by the division and the
14 balance of the money shall be distributed annually to the school
15 districts of this Commonwealth in proportion to the number of
16 children who are at least five years of age but not yet 18 years
17 of age as determined by the last school census conducted under
18 section 1351 of the act of March 10, 1949 (P.L.30, No.14), known
19 as the Public School Code of 1949. Upon receipt of its
20 distribution, each school district shall adjust its real
21 property tax millage for the next following fiscal year so that
22 the revenue which was to have been received from the real
23 property tax is reduced by the amount of the distribution under
24 this subsection.
25 (d) Tax reconciliation.--If the amount of tax required to be
26 reported and paid pursuant to this section is later determined
27 to be greater or less than the amount actually reported and paid
28 by the licensed corporation, the division shall:
29 (1) assess and collect the additional tax determined to
30 be due with interest thereon until paid; or
20020H2986B4619 - 14 -
1 (2) provide for a refund of any overpayment, with
2 interest thereon, to the licensed corporation.
3 Section 12. Declaration of exemption from Federal laws
4 prohibiting gambling devices.
5 (a) Declaration.--Pursuant to section 2 of the act of
6 January 2, 1951 (64 Stat. 1135, 15 U.S.C. § 1172), the
7 Commonwealth declares that it is exempt from section 1134 of
8 that act.
9 (b) Legal shipments.--All shipments of racetrack video
10 lottery machines into this Commonwealth, the registering,
11 recording and labeling of which has been effected by the
12 supplier of the racetrack video lottery machines, in accordance
13 with sections 5 and 7 of the act of January 2, 1951 (64 Stat.
14 1135, 15 U.S.C. §§ 1175 and 1177), shall be deemed legal
15 shipments of gambling devices into this Commonwealth.
16 Section 13. Annual report.
17 The division shall, within 18 months of the effective date of
18 this act and each year thereafter, submit a report to the
19 Governor and General Assembly, which reports on the general
20 operation of the division under this act and all taxes, fees,
21 fines and other revenues collected and disbursed. The number and
22 result of hearings conducted under this act and any other
23 information that the division deems necessary or appropriate.
24 Section 14. Appropriation.
25 The sum of $1,500,000, or as much thereof as may be
26 necessary, is hereby appropriated to the Department of Revenue
27 for the establishment of the racetrack video lottery system
28 within the Division of the State Lottery. The department shall
29 reimburse the General Fund from the revenue generated within the
30 first year of the operations of racetrack video lottery
20020H2986B4619 - 15 -
1 machines.
2 Section 15. Effective date.
3 This act shall take effect in 60 days.
J29L72DMS/20020H2986B4619 - 16 -