LTR-53-08-00015-P The Operation of Video Lottery Gaming

12/31/08 N.Y. St. Reg. LTR-53-08-00015-P

NEW YORK STATE REGISTER

VOLUME XXX, ISSUE 53

December 31, 2008

RULE MAKING ACTIVITIES

DIVISION OF THE LOTTERY

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. LTR-53-08-00015-P

The Operation of Video Lottery Gaming

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Repeal of Part 2836 and addition of new Part 2836 to Title 21 NYCRR.

Statutory authority:

Tax Law, sections 1604, 1612 and 1617-a

Subject:

The operation of Video Lottery Gaming.

Purpose:

To update 21 NYCRR Part 2836 relating to the operation of Video Lottery Gaming.

Substance of proposed rule (Full text is posted at the following State website:www.nylottery.org):

Chapter 383 of the Laws of 2001, as most recently amended by Chapters 18, 140 and 286 of the Laws of 2008, codified as Sections 1612 and 1617-a of the New York State Tax Law, authorized the Division of the Lottery (the "Lottery") to license the operation of Video Lottery Gaming ("VLG") at eligible racetracks in New York State. That legislation directed the Lottery to promulgate rules and regulations for the licensing and operation of VLG.

The Lottery recognizes that certain requirements must be clarified to reflect the knowledge and experience gained since the establishment of VLG. The proposed amendments update the Lottery's regulations for the operation of VLG and reflect changes in the Tax Law, as well as, better assist the public in understanding the operation of VLG. The Lottery shared these proposed amendments with licensed VLG agents and sought their comments. The Lottery incorporated some of those comments received into the proposed amendments.

The VLG regulations begin by setting forth the general provisions, construction and application of the rules, including definitions for terms that are used throughout the VLG regulations. Definitions in Section 2836-1 were revised, added and certain definitions were removed to more clearly describe terms and define terms that were previously undefined. Definitions were also updated to reflect changes in terminology since the initial adoption of the VLG regulations. For example, redundant definitions were removed that were already defined under 21 NYCRR 2800.3 and applicable to VLG. Additionally, terms were removed to reflect the proposed deletion of certain related provisions.

Section 2836-6 relating to VLG Key Employee and Employee licensing is reorganized for clarity and revised to simplify the licensing process for video lottery gaming non-key employees. This section is further revised to more clearly and succinctly describe certain criteria that may cause the denial of a VLG license application or suspension or revocation of a VLG license.

Under the proposed amendments, the renewal process provided under Section 2836-7 will no longer be required. The removal of this section relating to the VLG license renewal process eliminates the substantial administrative burden imposed on the Lottery by license renewals and reflects traditional lottery retailer licensing practices. The Lottery retains its discretionary authority to review any licensee's background or ask for additional documentation should any questions arise as to his or her suitability to retain a VLG license.

The proposed amendments remove Section 2836-12 relating to non-gaming vendor licensing, because non-gaming vendors will no longer be required to obtain a non-gaming vendor license. This section is now entitled "Requirements for Doing Business with Construction Contractors", and requires registration of certain construction contractors.

Section 2836-18 regulating the marketing allowance has been significantly revised to reflect changes adopted by Chapter 18 of the Laws of 2008 and to reflect recent changes in the Lottery's management of such allowance.

Section 2836-19 restricting underage gaming, responsible gaming and undesirable persons has been revised to reflect changes in the self-exclusion program. An individual may now exclude himself or herself from a VLG facility for periods of one, three or five years. Excluded persons will no longer be able to petition for reinstatement prior to the expiration of the exclusionary periods.

Section 2836-20 describing the persons prohibited from playing VLG has been revised to more precisely reflect generally accepted gaming industry standards.

Section 2836-24 has been added to regulate the capital award program that was established by Chapter 18 of the Laws of 2008 and amended by Chapter 140 of the Laws of 2008. This section describes the process required to obtain a capital award, including the submission of a capital improvement plan to the Lottery for approval and describing the payment process for such an award.

Technical amendments are also made throughout the VLG regulations.

Text of proposed rule and any required statements and analyses may be obtained from:

Julie B. Silverstein Barker, Associate Attorney, New York Lottery, One Broadway Center, PO Box 7500 Schenectady, NY 12301-7500, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

45 days after publication of this notice.

Regulatory Impact Statement

1. Statutory authority: Chapter 383 of the Laws of 2001, codified as §§ 1612 and 1617-a of the New York State Tax Law authorizes the Lottery to license the operation of VLG at racetrack locations around the State. Chapter 383 of the Laws of 2001 has been amended by Chapter 85 of the laws of 2002, as amended further by Chapters 62 and 63 of the Laws of 2003, and amended further by Chapter 61 of the Laws of 2005, and as further amended by Chapters 18, 140 and 286 of the Laws of 2008. Chapter 383 of the Laws of 2001, as amended, directed the Lottery to promulgate regulations allowing for the licensed operation of VLG. Furthermore, pursuant to the authority conferred in New York State Tax Law Sections 1604, 1612 and 1617-a and the Official Compilation of Codes, Rules and Regulations of the State of New York, Title 21, Chapter XLIV, Section 2836, the proposed rule updates the existing regulations relating to the operation of VLG.

2. Legislative objectives: The purpose of operating Lottery games is to generate earnings for the support of education in the State. The regulations satisfy the legislative mandate directing the Lottery to promulgate regulations for the design, licensing and implementation of video lottery gaming. Amendment of these regulations advances the mission of generating earnings for education. These proposed amendments update the Lottery's regulations relating to the operation of VLG and incorporate changes in the Tax Law made by Chapter 18 of the Laws of 2008, as well as, better assist the public in understanding the operation of VLG.

3. Needs and benefits: The Lottery is constantly evaluating its programs and methods to advance its mission to support education. The Lottery recognizes that certain requirements must be clarified or addressed to reflect the knowledge and experience gained since the establishment of VLG. These revisions will better assist the public in understanding the operation of VLG, as well as, update the Lottery's regulations and reflect changes in the Tax Law made by recent legislative activity.

The VLG regulations begin by setting forth the general provisions, construction and application of the rules, including definitions for terms that are used throughout the VLG regulations. Definitions in Section 2836-1 were revised, added and certain definitions were removed to more clearly describe terms and define terms that were previously undefined. Definitions were also updated to reflect changes in terminology since the initial adoption of the VLG regulations.

Section 2836-6 relating to VLG Key Employee and Employee licensing is reorganized for clarity and revised to simplify the licensing process for VLG non-key employees. These sections are further revised to more clearly and succinctly describe certain criteria that may cause the denial of a VLG license application or suspension or revocation of a VLG license.

Under the proposed amendments, the renewal process provided under Section 2836-7 will no longer be required. The removal of this section relating to the VLG license renewal process eliminates the substantial administrative burden imposed upon the Lottery by license renewals and reflects traditional lottery retailer licensing practices. The Lottery retains its discretionary authority to review any licensee's background or ask for additional documentation should any questions arise as to his or her suitability to retain a VLG license.

The proposed amendments remove Section 2836-12 relating to non-gaming vendor licensing, because non-gaming vendors will no longer be required to obtain a non-gaming vendor license. This section is now entitled "Requirements for Doing Business with Construction Contractors", and requires registration of certain construction contractors.

Section 2836-18 regulating the marketing allowance has been significantly revised to reflect changes adopted by Chapter 18 of the Laws of 2008 and to reflect recent changes in the Lottery's management of such allowance.

Section 2836-19 restricting underage gaming, responsible gaming and undesirable persons has been revised to reflect changes in the self-exclusion program. An individual may now exclude himself or herself from a VLG facility for periods of one, three or five years. Excluded persons will no longer be able to petition for reinstatement prior to the expiration of the exclusionary periods.

Section 2836-20 describing the persons prohibited from playing VLG has been revised to more precisely reflect generally accepted gaming industry standards.

Section 2836-24 has been added to regulate the capital award program that was established by Chapter 18 of the Laws of 2008. This section describes the process required to obtain a capital award, including the submission of a capital improvement plan to the Lottery for approval and describing the payment process for such an award.

Also, technical amendments are made throughout the VLG regulations.

4. Costs:

a. Costs to regulated parties for the implementation and continuing compliance with the rule: None.

b. Costs to the agency, the State, and local governments for the implementation and continuation of the rule: No additional operating costs are anticipated, since funds originally appropriated for the expenses of operating VLG are expected to be sufficient to support these proposed revisions.

There will be no reduction of revenue to the State as a result of eliminating the VLG license renewal process or eliminating the non-gaming vendor licensing process because there is no application fee charged by the Lottery for such licenses, only a fingerprint fee that is paid to the Division of Criminal Justice Services. The majority of VLG licenses have not been subject to a renewal yet because the period of the initial licenses has not expired. By eliminating the substantial administrative burden imposed by license renewals and non-gaming vendor licensing, the Lottery will be able to devote its staff resources to other licensing matters, including the licensing and commencement of VLG operations at Aqueduct racetrack.

Section 2836-18 regulates the marketing allowance authorized in Section 1612 of the Tax Law. The proposed revisions to this section will not have an effect on the amount of the marketing allowance to be used by VLG facilities. Pursuant to Tax Law Section 1612 (b)(1)(iii), a VLG agent shall receive a specific percentage of the total revenue wagered at the vendor track after the payout of prizes to be used for the marketing and promotion of its facility. The proposed revisions eliminate certain restrictions on the use of such marketing allowance in compliance with recent amendments to the Tax Law. Additionally, the Lottery's proposed amendments provide for a more efficient and less administratively burdensome procedure for the approval of marketing allowance expenditures. Such proposed amendments will allow Lottery employees to focus on other areas of VLG, including the commencement of VLG operations at Aqueduct racetrack.

c. Sources of cost evaluations: The foregoing cost evaluations are based on the Lottery's experience in operating traditional Lottery games for more than 40 years and the establishment of VLG in 2001.

5. Local government mandates: None.

6. Paperwork: None.

7. Duplication: None.

8. Alternatives: The alternative to updating the VLG regulations is to allow the current regulations to remain effective without necessary amendments. The Lottery shared these proposed amendments with licensed VLG agents and sought their comments. In its effort to continue a policy dialogue, the Lottery hosted a meeting with licensed agents' VLG managers on August 21, 2008. The proposed VLG regulations were discussed at the meeting. Responses and comments received from the VLG agents were incorporated into the proposed amendments.

For example, a VLG agent suggested a provision of the regulation requiring that serial numbers and VLT identification numbers be printed on certain VLG equipment be revised. The VLG agent explained that due to changes in standard industry procedure, serial numbers and VLT identification numbers are no longer printed on such VLG equipment. As a result, Section 2836-21.2 (b) is revised to remove references to serial numbers and identification numbers.

Another agent suggested that the VLG regulations be revised to permit access by agent personnel to areas restricted only to Lottery employees for emergency purposes. However, this suggestion was not incorporated into the proposed amendments because of the highly sensitive nature of the Lottery's records maintained in its restricted areas including internal audit and regulatory documents.

VLG agents requested clarification or exceptions to the competitive bid requirements related to the marketing allowance under Section 2836-18 and the capital awards program added to the VLG regulations in Section 2836-24. One agent provided examples of situations in which competitive bidding may not be feasible before Lottery approval of the capital project concept. Additionally, an agent explained that it may not be practical to require relatively small marketing or promotional expenses to be subject to a competitive bid process. After review and consideration of the agents' comments, the Lottery determined that the best course of action was to provide a threshold amount for competitive bidding. Additionally, the Lottery revised the proposed amendments to allow capital award project concepts to be submitted to the Lottery for approval with a cost estimate. A cost justification will be required after the project has been competitively bid and awarded.

9. Federal standards: None.

10. Compliance schedule: None.

Regulatory Flexibility Analysis and Rural Area Flexibility Analysis

The rulemaking does not require a Regulatory Flexibility Analysis or a Rural Area Flexibility Analysis. There will be no adverse impact on rural areas, small business or local governments.

The proposed amendments to the Lottery's VLG regulations will not impose any adverse economic or reporting, recordkeeping or other compliance requirements on small businesses or local governments. Small businesses or local governments are not regulated by the Lottery's VLG regulations nor are any economic burdens or recordkeeping requirements imposed on small businesses or local governments as a result of the proposed amendments to the VLG regulations.

The proposed amendments will not impose any adverse impact on rural areas or reporting, recordkeeping or other compliance requirement on public or private entities in rural areas. The Lottery expects that the proposed amendments will positively impact VLG facilities located in rural areas by updating the regulations to provide a process for the approval of capital awards which will provide VLG facilities across the State with economic development opportunities. Furthermore, the proposed VLG regulations will simplify the licensing process for VLG employees and vendors that work for or with VLG facilities. The Lottery shared these proposed amendments with licensed VLG agents and sought their comments, including VLG facilities located in rural areas of the State. The Lottery has reviewed and incorporated the comments received, where appropriate.

Job Impact Statement

The proposed repeal and replacement of 21 NYCRR Parts 2836 does not require a Job Impact Statement because there will be no adverse impact on jobs and employment opportunities in New York State. The repeal and replacement of the regulations is sought merely to update the Lottery's VLG regulations to make them more comprehensible, consistent and efficient.

The Lottery recognizes that certain requirements must be clarified or addressed to reflect the knowledge and experience gained since the establishment of VLG. Provisions relating to VLG employee licensing have been reorganized for clarity and revised to simplify the licensing process for certain VLG employees.

Under the proposed amendments, a non-gaming vendor is no longer required to seek a VLG license. Certain vendors will be required to register with the Lottery.

The proposed revision to the VLG regulations will not have any adverse effect on jobs or employment opportunities and are intended to have a positive impact on current VLG license holders and encourage employment opportunities at the VLG facilities across New York State.