Consolidated Fiscal Note 2011-12 Session

Bill #: H9000-0 Complete Date: 10/17/11 Chief Author: HACKBARTH, TOM Title: GAMING MACHINE PROV MOD (RACINO)
Agencies: Lottery (10/17/11) Human Services Dept (10/14/11) Education Department (10/11/11) Minnesota Management & Budget (10/17/11)

Fiscal Impact
State Local Fee/Departmental Earnings Tax Revenue Public Safety Dept (10/14/11) Racing Commission (10/17/11) Lawful Gambling (10/17/11) Revenue Dept (10/17/11)

Yes X X X X

No

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only. FY11 FY12 FY13 FY14 Dollars (in thousands)

FY15 35,819 634 34,583 602 337 4 333 (8) (8) 94,667 94,667 34,600 34,600 120,332 32 120,300 12,666 (334) 13,000 (8) (8) 94,667 94,667 8,600 8,600 34,600 34,600 (84,513) 602 34,583 602 (120,300) (12,329) 4 334 (13,000) 333 0 0 0 0 (8,600) (8,600) 0 0 Page 1 of 29

Net Expenditures

Revenues

New Fund Human Services Dept Minnesota Management & Budget Lawful Gambling General Fund Revenue Dept Public Safety Dept Misc Special Revenue Fund Lawful Gambling Building Construction - Bonded Fund Minnesota Management & Budget Miscellaneous Agency Fund Racing Commission New Fund Human Services Dept Lawful Gambling Lottery General Fund Lawful Gambling Lottery Misc Special Revenue Fund Lawful Gambling Building Construction - Bonded Fund Minnesota Management & Budget Environmental Trust Fund Lottery Miscellaneous Agency Fund Racing Commission New Fund Human Services Dept Minnesota Management & Budget Lawful Gambling Lottery General Fund Revenue Dept Lawful Gambling Lottery Public Safety Dept Misc Special Revenue Fund Lawful Gambling Building Construction - Bonded Fund Minnesota Management & Budget Environmental Trust Fund Lottery Miscellaneous Agency Fund Racing Commission

0 0 0 0 0 0 0 0 (8) (8) 0 0

9,942 106 9,735 101 438 18 420 (8) (8) 78,666 78,666 6,800 6,800 20,205 5 20,200 2,066 (334) 2,400 (8) (8) 78,666 78,666 1,600 1,600 6,800 6,800 (10,263) 101 9,735 101 (20,200) (1,628) 18 334 (2,400) 420 0 0 0 0 (1,600) (1,600) 0 0

27,592 405 26,803 384 337 4 333 (8) (8) 146,667 146,667 24,600 24,600 76,721 21 76,700 8,566 (334) 8,900 (8) (8) 146,667 146,667 6,000 6,000 24,600 24,600 (49,129) 384 26,803 384 (76,700) (8,229) 4 334 (8,900) 333 0 0 0 0 (6,000) (6,000) 0 0

0 0 (334) (334) 0 0 (8) (8) 0 0

Net Cost <Savings>

0 0 0 0 334 0 334 0 0 0 0 0 0

H9000-0

Total Cost <Savings> to the State Full Time Equivalents

FY11

334

(13,491)

(63,358)

(105,442)

FY12
0.00 0.00

FY13
0.00 0.00 3.00 3.00 0.00 0.00 3.00

FY14
0.25 0.25 3.00 3.00 0.00 0.00 3.25

FY15
0.50 0.50 3.00 3.00 0.00 0.00 3.50

New Fund Human Services Dept General Fund Public Safety Dept Misc Special Revenue Fund Lawful Gambling

Total FTE

0.00 0.00 0.00

0.00 0.00 0.00

Consolidated EBO Comments

I have reviewed this Fiscal Note for accuracy and content. EBO Signature: LISA BARNIDGE Date: 10/17/11Phone: 651-201-8032

H9000-0

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Fiscal Note 2011-12 Session

Bill #: H9000-0 Complete Date: 10/17/11 Chief Author: HACKBARTH, TOM Title: GAMING MACHINE PROV MOD (RACINO)
Agency Name: Lottery

Fiscal Impact
State Local Fee/Departmental Earnings Tax Revenue

Yes X X X X

No

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only. FY11 FY12 FY13 FY14 Dollars (in thousands)

FY15

Expenditures

Less Agency Can Absorb Net Expenditures Revenues

-- No Impact -New Fund General Fund Environmental Trust Fund New Fund General Fund Environmental Trust Fund 20,200 2,400 1,600 (20,200) (2,400) (1,600) (24,200) 76,700 8,900 6,000 (76,700) (8,900) (6,000) (91,600) 120,300 13,000 8,600 (120,300) (13,000) (8,600) (141,900) -- No Impact --

-- No Impact --

Net Cost <Savings>

Total Cost <Savings> to the State Full Time Equivalents

-- No Impact --

FY11

FY12

FY13

FY14

FY15

Total FTE

H9000-0

Page 3 of 29

Bill Description The bill authorizes the Minnesota State Lottery to place electronic gaming machines at the states two racetracks. It also establishes a new Minnesota First Fund that will fund stadiums for the Minnesota Vikings and St. Paul Saints and increased payments to school districts. The fund will receive its income from a tiered in-lieu-of fee on the gaming machines. The fee varies from 25 percent to 40 percent depending on the level of revenue raised at the facility. Of this amount, 1 percent is dedicated to compulsive gambling programs, with percent going to the Department of Human Services and percent to the Gambling Control Board for an appropriation to the Minnesota affiliate of the National Council on Problem Gambling. A portion of the proceeds (between 45 percent and 60 percent depending on revenue) will be distributed to the racetracks (with 14 percent of this amount going to a new industry improvement fund) with the remaining 15 percent covering lottery operating expenses and lottery net proceeds, which are split between the general fund and the environment and natural resources trust fund. The racetracks are required to remit 1 percent of their compensation to both the city and county where the tracks are located. Under the provisions of the bill, the Lottery would own or lease the gaming machines and be responsible for all aspects of their operation. The machines would be connected to a central system located at lottery headquarters that monitor all activities of every machine. The Lottery is also responsible for testing and examinations of the machines. The racetracks, however, would be responsible for expenses relating to advertising, marketing, facility expenses, staffing, security, and surveillance. Assumptions This estimate is based on the experience of gaming machines at racetracks in major urban or suburban areas. While machines exist at racetracks in other states, we have not included these states for a variety of reasons. Most notably, reported income in many states (such as West Virginia) does not distinguish between machines operated in racinos or other large facilities and machines operated in limited numbers in bars, taverns, or other such locations. In addition, programs in Maryland are too new to have generated useful data. There are several remaining relevant comparisons. In each case income is reported as net (after prize payout) income per gaming machine per year. Delaware: Delaware Park (about 40 miles from Philadelphia) - $87,000

Indiana: Hoosier Park (about 40 miles NW of Indianapolis) - $111,000. Indiana Downs (about 30 miles SE of Indianapolis) - $115,000 New York: Yonkers Raceway (New York City) - $112,000

Pennsylvania: Parkx (20 miles NW of Philadelphia) - $124,000 The Meadows (25 miles SW of Pittsburgh) - $71,000 Chester Downs (15 miles SW of Philadelphia) - $105,000 Rhode Island: Twin River (about 45 miles from Boston) - $86,000 From these figures I eliminate Twin Rivers, Yonkers, and The Meadows as each have considerably more gaming machines than are contemplated at the proposed Minnesota facilities. The remaining five facilities have an average of $108,000 per machine per year. This figure will be used in this fiscal note. Officials at both Canterbury Park and Running Aces estimate that they should each be able to accommodate 2,000 gaming machines in a permanent facility. However, they will not be able to accommodate this number of machines right away and instead will utilize the existing racetrack facilities and/or construct small, temporary facilities. Canterbury Park estimates that they would be able to accommodate 1000 machines in a temporary facility while Running Aces estimates a capacity of 500 for a total of 1,500,machines in January 2013, with the permanent facility opening in January 2014. We believe that 10 percent of net revenue would be needed to cover lottery expenses, leaving 5 percent to be distributed to lottery beneficiariesthe general fund and environment and natural resources trust fund.

H9000-0

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Expenditure and/or Revenue Formula In FY13, therefore, we would have 1,500 machines x $108,000 per year x year, or adjusted gross revenue of approximately $81 million. For FY14 we would have approximately $81 million for the first six months, followed by 4,000 machines x $108,000 x year, or approximately $216 million for the second six months, for a total of $297 million. For FY15 and beyond, adjusted gross revenue would total of approximately $432 million per year. The bill divides adjusted gross revenue in three ways. The first is an in-lieu-of fee dedicated to a new Minnesota First Fund. The fee is tiered, set at 25 percent of the first $125 million of adjusted gross revenue per facility, 30 percent of the next $75 million, and 40 percent of all revenue over $200 million. Next, the racetracks are compensated at a level of 60 percent of the first $125 million, 55 percent of the next $75 million, and 45 percent of revenue over $200 million. Of this amount, 1 percent is paid to the city and/or 1 percent to the county in which the racetracks are located. Finally, the remaining 15 percent is allocated to the Lottery, with an estimated 10 percent needed to cover operating expenses and the remaining 5 percent distributed with other net lottery proceeds to the General Fund (60 percent) and Environment and Natural Resources Trust Fund (40 percent). For FY13: $81 million x .25 = $20.2 million to the Minnesota First Fund $81 million x ..05 = $ 4.0 in net lottery proceeds $4 million x .6 = $2.4 million to the General Fund $4 million x .4 = $1.6 million to the Environment and Natural Resources Trust Fund $81 million x .6 = $48.6 million to racetracks The remaining 10 percent of revenue goes to lottery operating costs. For FY14: Total adjusted gross revenue is $297.0 million of which $162 million would be from Canterbury Park and $135 from Running Aces. Minnesota First Fund: Canterbury Park: $125 million x .25 + $37 million x .3 = $42.4 million Running Aces: $125 million x .25 + $10 million x .3 = $34.3 million Total: $76.7 million $297 million x .05 = $14.9 million in net lottery proceeds $14.9 million x .6 = $8.9 million to the General Fund $14.9 million x .4 = $6.0 million to the Environment and Natural Resources Trust Fund Racetracks would receive $175.7 million For FY15 (and subsequent years): Total adjusted gross revenue is $432 million, or $216 million per track. They would pay in-lieu fee at a rate of 25 percent on the first $125 million, a rate of 30 percent on the next $75 million, and a rate of 40 percent on the remaining $16 million. $125 million x .25 x 2 (tracks) = $62.5 million $75 million x .3 x 2 = $45 million $16 million x .4 x 2 = $12.8 million Total to Minnesota First Fund = $120.3 million $432 million x .05 = $21.6 million in net lottery proceeds $21.6 million x .6 = $13 million to the General Fund $21.6 million x .4 = $8.6 million to the Environment and Natural Resources Trust Fund The tracks would receive 60 percent of the first $125 million, 55 percent of the next $75 million, and 45 percent of the remaining $16 million. $125 million x .6 x 2 = $150 million $75 million x .55 x 2 = $82.5 million $16 million x .45 x 2 = $14.4 million Total to tracks: $246.9 million Long-Term Fiscal Considerations

Local Government Costs Local governments would likely incur some costs for items such as police and fire protection and perhaps for infrastructure improvements. However, the affected cities and counties would receive a total of $1 million in FY13, $3.6 million in FY14, and $5 million in FY15 and beyond to cover these costs.
H9000-0 Page 5 of 29

References/Sources Revenue figures for programs in other states are supplied by individual racetracks. FN Coord Signature: DON FEENEY Date: 10/12/11 Phone: 651-635-8239

EBO Comments
I have reviewed this Fiscal Note for accuracy and content. EBO Signature: LISA BARNIDGE Date: 10/17/11 Phone: 651-201-8032

H9000-0

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Fiscal Note 2011-12 Session

Bill #: H9000-0 Complete Date: 10/11/11 Chief Author: HACKBARTH, TOM Title: GAMING MACHINE PROV MOD (RACINO)
Agency Name: Education Department

Fiscal Impact
State Local Fee/Departmental Earnings Tax Revenue

Yes X X

No

X X

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only. FY11 FY12 FY13 FY14 Dollars (in thousands)

FY15

Expenditures

Less Agency Can Absorb Net Expenditures Revenues

-- No Impact --- No Impact --- No Impact --- No Impact --

-- No Impact --

Net Cost <Savings> Total Cost <Savings> to the State Full Time Equivalents
-- No Impact --

FY11

FY12

FY13

FY14

FY15

Total FTE

H9000-0

Page 7 of 29

Bill Description Article 2, Section 1 of HF 9000 creates the Minnesota First Fund, a special revenue fund in the state treasury with proceeds of racino adjusted gross revenues and interest earned on the revenues. This fiscal note addresses only this portion of the bill. Subdivision 3, clause 1 of the Article specifies that funds in the Minnesota First Fund may be appropriated for a Vikings football stadium and a regional ballpark for the St. Paul Saints. Funds can be appropriated annually or biennially for transfer to the state bond debt service account to pay principal and interest on state-issued bonds. When those projects are completed and outstanding bonds are retired, redeemed or repurchased, money in the fund may be appropriated for other stadia, ice arenas, ballparks, event centers, and other publicly owned facilities. Subdivision 3, clause 1 of the Article provides that the Minnesota First Fund may also be used to increase the payment schedule for state education aids and credits in section 127A.45 to not more than 90% (reversing the aid shift) and to restore the aid reductions to school districts for the tax shift in section 123B.75, subd. 5. Clarification would be helpful regarding two items. Language restoring the education aid shift and tax shift duplicates that in section 16A.15. It is unclear if both the special revenue funds and general fund dollars are available which is to be used, or which source is used first to restore education shifts. Second, it is not clear if Minnesota First funds must first be used for the debt service payments on stadia/ballpark/arenas, etc., and then to restore aid and tax shifts, or if the legislature may choose to fund education shifts prior to, or at the same time as funding athletic facilities. Clarification would also be useful regarding what with any remaining funds deposited in the budget reserve means. Assumptions MDE does not know revenues projected for a racino or how the legislature will choose to appropriate funds made available through the Minnesota First Fund.

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

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

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

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

EBO Comments
I have reviewed this Fiscal Note for accuracy and content. EBO Signature: KRISTY SWANSON
H9000-0 Page 8 of 29

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

H9000-0

Page 9 of 29

Fiscal Note 2011-12 Session

Bill #: H9000-0 Complete Date: 10/14/11 Chief Author: HACKBARTH, TOM Title: GAMING MACHINE PROV MOD (RACINO)
Agency Name: Human Services Dept

Fiscal Impact
State Local Fee/Departmental Earnings Tax Revenue

Yes X

No X X X

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only. FY11 FY12 FY13 FY14 Dollars (in thousands)

FY15 634 0 634 32 602 602

Expenditures
New Fund New Fund New Fund New Fund New Fund

Less Agency Can Absorb Net Expenditures Revenues

0 0 0 0 0 0

106 0 106 5 101 101

405 0 405 21 384 384

Net Cost <Savings> Total Cost <Savings> to the State Full Time Equivalents
New Fund

FY11

FY12
0.00 0.00

FY13
0.00 0.00

FY14
0.25 0.25

FY15
0.50 0.50

Total FTE

H9000-0

Page 10 of 29

Narrative for H9000 Article 2 Section 1 Subdivision 2 Compulsive gambling; appropriations Bill Description The bill appropriates one-half of one percent (.5%) of the revenue deposited in the state treasury under Minnesota Statutes, section 297A.651, to the commission of human services for the compulsive gambling treatment program established under Minnesota Statutes, section 245.98. Money appropriated under this provision must supplement, and must not replace, existing state funding for the program. Assumptions Based on the projections made by the Minnesota State Lottery related to this proposal, it is estimated that DHS would receive $101,000 in fiscal year 2013, $383,500 in fiscal year 2014 and $601,500 in fiscal year 2015 and beyond. The Department of Human Services (DHS) will use the new funding to supplement funding for the compulsive gambling treatment program, thus allowing DHS to expand the current services under the program. Of the appropriation, $90,900 in fiscal year 2013, $345,150 in fiscal year 2014 and $541,350 in fiscal years 2015 and beyond would supplement existing compulsive gambling treatment program funds. DHS will also incur costs to administer this additional program funding which will generate revenue from Federal Fund Participation (FFP) to offset a portion of this cost as outlined in the table below. The agency estimates the cost to administer this additional funding to be approximately $15,000 in fiscal year 2013, $60,000 in fiscal year 2014 and $92,000 in fiscal year 2015 and beyond. These monies would be used for administrative non-salary costs including meeting expenses, postage, printing and travel costs along with the addition of .25 FTE support staff beginning in fiscal year 2014 increasing to .5 FTE beginning in fiscal year 2015. Expenditure and/or Revenue Formula Fiscal Summary (dollars in thousands) FUND new new new new BACT 57 15 REV2 TITLE Compulsive Gambling Grants Admin (.25 FTE - .5 FTE) FFP on Administration @ 35% Total Net Cost SFY2012 0 0 0 0 SFY2013 91 15 (5) 101 SFY2014 345 60 (21) 384 SFY2015 542 92 (32) 602

Long-Term Fiscal Considerations N/A Local Government Costs N/A References/Sources

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

EBO Comments
I have reviewed this Fiscal Note for accuracy and content.
H9000-0 Page 11 of 29

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

H9000-0

Page 12 of 29

Fiscal Note 2011-12 Session

Bill #: H9000-0 Complete Date: 10/17/11 Chief Author: HACKBARTH, TOM Title: GAMING MACHINE PROV MOD (RACINO)
Agency Name: Minnesota Management & Budget

Fiscal Impact
State Local Fee/Departmental Earnings Tax Revenue

Yes X X

No X X

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only. FY11 FY12 FY13 FY14 Dollars (in thousands)

FY15 34,583 94,667

Expenditures

Less Agency Can Absorb Net Expenditures Revenues

-- No Impact --

New Fund Building Construction - Bonded Fund

0 0

9,735 78,666

26,803 146,667

New Fund Building Construction - Bonded Fund Building Construction - Bonded Fund New Fund Building Construction - Bonded Fund

0 0 0 0 0 0

9,735 78,666 78,666 9,735 0 9,735

26,803 146,667 146,667 26,803 0 26,803

34,583 94,667 94,667 34,583 0 34,583

Net Cost <Savings>

Total Cost <Savings> to the State Full Time Equivalents

-- No Impact --

FY11

FY12

FY13

FY14

FY15

Total FTE

H9000-0

Page 13 of 29

Bill Description House file 9000 relates to gambling by authorizing the director of the State Lottery to establish gaming machines at a licensed racetrack; imposing a fee on gaming machine revenue; providing powers and duties to the director; establishing a Minnesota First fund and dedicating money in the fund for education and to finance and construct a stadium for the Minnesota Vikings and a ballpark for the St. Paul Saints. As currently written, the legislation did not provide a specific amount of state general obligation bond or any other state issued debt financing to provide funding to construct a stadium for the Minnesota Vikings and a ballpark for the St. Paul Saints. The debt service on the bonds is to be paid from the new Racino revenues as deposited to the newly created Minnesota First Fund. If the revenues collected in the Minnesota First Fund are insufficient to pay the required debt service the general fund would be required to transfer the difference to the debt service fund annually.

Assumptions Due to the inclusion of the reference to M.S. 16A.643 ASSESSMENTS IF AGENCY MUST PAY DEBT SERVICE, it is assumed that state general obligation bonds will be sold to finance the capital project. However, as required by statute there was not bond authorization language included nor was there appropriation of bond proceeds language included in the proposed legislation. Federal tax regulations dictate that because the use of the bond proceeds will be to fund private entities and not governmental entities, the general obligation bonds will need to be sold as taxable bonds. The taxable bonds will be sold at a higher interest rate than that of tax-exempt bonds. Because of the States Capital Investment Guidelines, the general obligation bonds would be sold with level principal payments and mature over 20 years. If level debt service bonds are to be sold to finance these projects, it would result in Guideline 3 to be out of compliance. Guideline 3 stipulates that 40% of general obligation debt shall be due within five years and 70% within ten years. With this Guideline out of compliance, it would require the general fund to pay the debt service on the maturities of additional bonds to bring our general obligation bonds back into compliance. For this analysis, we are assuming the state share of the projects will be $300 million for the Minnesota Vikings Stadium and $20 million for the ballpark for the St. Paul Saints. Bonds will be sold in the amount that matches the cash needs of the project which has been estimated at 20 percent the first year, 55 percent the second year and 25 percent the third year. The revenues shown in this fiscal note are the amounts from the proceeds of each of the bond issues. The costs shown in the fiscal note are the amounts that would be required to be transferred from the new Racino revenues as deposited to the newly created Minnesota First Fund. If the revenues collected in the Minnesota First Fund are insufficient to pay the required debt service the general fund would be required to transfer the difference to the debt service fund annually. Taxable Bond Sale Date Interest Rate August 2012 5.0% November 2012 5.0% August 2013 5.5% August 2014 5.5% November 2014 5.5% Bonds Sold 21,333,000 57,333,000 146,667,000 41,334,000 53,333,000

Expenditure and/or Revenue Formula Debt Service Costs by Fiscal Year ($ in thousands) 2011 $0 2012 $0
H9000-0 Page 14 of 29

2013 2014 2015

$9,735 $26,803 $34,583

Long-Term Fiscal Considerations The total debt service on the assumed $320,000,000 projects over the 20 year life of the bonds will be $500,670,000.

Local Government Costs Not available. References/Sources Not applicable. Agency Contact Name: Sue Gurrola 651-201-8046 FN Coord Signature: DENNIS MUNKWITZ Date: 10/17/11 Phone: 651-201-8004

EBO Comments
I have reviewed this Fiscal Note for accuracy and content. EBO Signature: KATHARINE BARONDEAU Date: 10/17/11 Phone: 651-201-8026

H9000-0

Page 15 of 29

Fiscal Note 2011-12 Session

Bill #: H9000-0 Complete Date: 10/14/11 Chief Author: HACKBARTH, TOM Title: GAMING MACHINE PROV MOD (RACINO)
Agency Name: Public Safety Dept

Fiscal Impact
State Local Fee/Departmental Earnings Tax Revenue

Yes X X X

No

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only. FY11 FY12 FY13 FY14 Dollars (in thousands)

FY15 333

Expenditures

Less Agency Can Absorb Net Expenditures Revenues

General Fund -- No Impact -General Fund -- No Impact --

General Fund

420

333

420

333

333

Net Cost <Savings> Total Cost <Savings> to the State Full Time Equivalents
General Fund

420 420

333 333

333 333

FY11

FY12

FY13
3.00 3.00

FY14
3.00 3.00

FY15
3.00 3.00

Total FTE

H9000-0

Page 16 of 29

Bill Description This bill authorizes the Minnesota State Lottery to own and operate gambling device machines under chapter 349A for placement and operation on the premises of a state licensed Class A pari-mutuel racetrack as authorized by chapter 240. Assumptions Under Minn. Statutes 299L, the Minnesota Alcohol & Gambling Enforcement Division (A&GED) is the state law enforcement agency with primary jurisdiction for the investigation of gambling related criminal offenses and to conduct gaming license background investigations and criminal history checks on behalf of the Minnesota gaming regulatory agencies. While the bill proposes 299L statutory changes to allow the State Lottery to possess, own and operate gaming devices, the bill is unclear as to a defined role being proposed for the A&GED for criminal investigation responsibilities for gambling related offenses, gambling related background investigations and criminal history checks. Minnesota State Statute 299L currently gives primary jurisdiction to the Alcohol and Gambling Enforcement Division for any criminal investigation related to gambling. Minnesota State statute 299L also provides the framework so that the criminal history checks and background investigations required or needed by the Minnesota Lottery, Minnesota Racing Commission, or the Minnesota Gambling Control Board can be conducted by the Minnesota Alcohol and Gambling Enforcement Division. Under the tribal/state compacts the A&GED is the inspection authority for inspections of the gambling devices. There is no mention of inspections in this bill and this fiscal note does not address any costs associated with inspections of the video lottery terminals by A&GED personnel. The A&GED presumes that if the bill becomes law that the states only two eligible Class A racetracks will seek to enter into a contract with the State Lottery for the allowable 2,000 on-site video lottery terminals. Currently, both of these racetracks operate Card Rooms on a 24/7 basis. The A&GED presumes that the public access to the video lottery terminals would also be on a 24/7 basis. The A&GED has learned from other state gaming law enforcement agencies that have similar gaming facilities that they have determined that best practices in their state is for sworn gaming law enforcement agents to be on-site at all times the gaming machines are available to the public. This staffing level has been also supported by the gaming industry in those states. A brief synopsis of that is reflected in the staffing of 150 sworn law enforcement agents in Indiana to cover their 11 casinos and two riverboats, 45 law enforcement personnel in Colorado to cover the activities in 37 small casinos in three towns that are geographically close to each other, 95 law enforcement personnel to cover the activities in 13 casinos in Missouri, and 101 law enforcement personnel to cover the activities in 14 Riverboat casinos and 3 pari-mutuel casinos in Iowa. A Minnesota 24/7 possible staffing of 1 law enforcement personnel on-duty per shift for a large casino that contains 2,000 gambling devices is below what these comparable staffing levels are for similar states. A&GED presently has staffed trained in detecting cheating done of gambling devices and has had a presence in conducting gambling device inspections for over 20 years, and as such, have a thorough knowledge of gambling devices. The presence of an on-site Special Agent ensures an immediate response to protect the integrity of the state owned video lottery terminals at the two facilities. There are criminal groups that travel from state to state to steal from and cheat gambling devices. If it is the legislatures desire for 24/7 coverage, this would allow the A&GED be on site to conduct criminal investigations of thefts from gambling by patrons or employees. The current bill is unclear as to the amount of coverage that A&GED should plan to provide to the two racinos which would contain 2,000 State of Minnesota video lottery terminals. Therefore, the A&GED is initially proposing a bare minimum fiscal note of 2 Special Agent FTE positions , 1 Administrative position and for the on call expenditure to provide a bare minimum of a Special Agent availability during business hours, to provide for some assistance in any background checks requested of upper management personnel assigned to the operations of the video lottery terminals, to have an administrative assistant to conduct the criminal history checks of employees to be licensed, and to allow the racinos to contact a designated Special Agent during non-business hours for criminal investigations. There is not a specified funding mechanism in this proposed legislation for A&GED activities necessitated by this proposed legislation. As such, the revenues needed will be proposed to be funded through the General Fund. The A&GED would recommend staff coverage be proposed for 24/7 available coverage. This would increase the FTEs in a fiscal note to 10 FTEs to allow the staffing of 8 Special Agent positions, one Senior Special Agent position to conduct criminal investigations and one Administrative position to conduct the criminal history checks necessary for licensing purposes and for reports generated in order to adequately staff for the presence of an onsite special agent at the racetrack(s). This 24/7 coverage would also increase the proposed fiscal note from this bare minimum proposal to total cost for FY 13 = $1,600,416.53 with a total cost per year for FY14 to FY16 = $1,040,057.83
H9000-0 Page 17 of 29

This 24/7 staffing level would assist the Division to maintain the integrity of state owned gambling activities provided for in this bill. The Minnesota A&GED will await further instruction as to the legislative intent on coverage the Division should provide. Expenditure and/or Revenue Formula Fiscal year 13 expenditures reflects all costs related to the 3 FTEs, which includes standard issued equipment, related vehicle costs, office related supplies and space costs and pre-hiring expenses. The grid below indicates the initial costs of all 3 FTEs in FY 13, along with the lesser on-going costs carried into fiscal years 14, 15, & 16. 2 special agents 1 on-call Special Agent 1-Office Admin Spec-I Salary Fringe Cost Insurance Cost Total Salary & Fringe 1=$61,199.30x 2 fy13,14,15, 156 1= $54,633.84 x 1 fy 13, 14, 15, 16 1=$29,691.36 X 1 fy 13,14,15, 16 3 FTEs & (a) 1 on-call S/A 3 FTEs (b) & 1 oncall S/A 3 FTEs (c) ` $122,398.56 $54,633.84 $29,691.36 SUBTOTAL $206,723.76 $39,250.96 $47.227.99 $293,202.71 $206,723.76 $39,250.96 $47.227.99 $293,202.71 $206,723.76 $39,250.96 $47.227.99 $293,202.71 $206,723.76 $39,250.96 $47.227.99 $293,202.71 FY 13 FY14 FY 15 FY 16

Supplies and Expenses Office Space Rent @ $20.55 sq ft FY 12 X 80 sq ft X 3 Pos Office Space Rent @ $21.10 sq ft FY 13, 14, 15 x 80 sq ft X 3 positions Furniture Telephone Parking Other Operating Costs SUPPLIES Telephone Equipment Gasoline @ $3,000/cube x 3 pos fy12 @$72/mo/12 mo x3 positions @ $96/mo X12mo x2 positions @ $400 X 3 positions @ $470.67 X 3 positions @$325/moX12 mo x 2 fy12 @$400/mox12

FY 13 $4,932.0 0.00

FY14

0.00

FY 15 0.00 $5,064.00

FY 16 0.00 $5,064.00

$5,064.00

$9,000.00 $2,592.00 $2,304.00 $1,200.00

0.00 $2,592.00 $2,304.00 $1,200.00

0.00 $2,592.00 $2,304.00 $1,200.00

0.00 $2,592.00 $2,304.00 $1,200.00

$1,412.10

0.00

0.00

0.00

$7,800.00

H9000-0

Page 18 of 29

Vehicle Repairs, maintenance & Alt. Print Communications Basic office Supplies EQUIPMENT PC/Software Cameras Laptops OASI Transcription Equip Cell Phones Cell phone service (New) Sworn Agent Duty Gear Portable 800mhz radios Vehicles Vehicle Emergency Equip Vehicle Ins.

mo x 2 fy13,14,15 @ $100/mo X 12mo X 2 @ $50/mo X 12 mo x 3 @ $60/moX12 mo x 3 @ $3075 X 3 pos fy 12 only @ $300 X 2 pos fy 12 @ $1650 X 3 pos fy 12 @ $300 x 1 pos fy 12 @ $200 X 2 pos fy 12 @ $75/moX12 mo x 2 positions @ $1,863 x 2 pos fy 12 @ $4,800 x 2 pos fy 12 @ $21,000 X 2 pos fy 12 @$2,300 x 2 pos fy 12 @ $400 pr yr X 2 positions @$1,135 x 2 pos fy 12 @ $10/yr X 2 pos fy 13,14,15 @ $4,000 x 2 positions @ $450/yr x 2 pos fy 13,14,15 @ $350 X 2 pos fy 12 @ $400 X 2 pos fy 12 @ $1,000/yr x 2 positions

$9,600.00 $2,400.00 $1,800.00 $2,160.00 $2,400.00 $1,800.00 $2,160.00

$9,600.00 $2,400.00 $1,800.00 $2,160.00

$9,600.00 $2,400.00 $1,800.00 $2,160.00

$9,225.00 $600.00 $4,950.00 $300.00 $400.00 $1,800.00 $3,726.00 $9,600.00 $42,000.00 $4,600.00 $800.00

0.00 0.00 0.00 0.00 0.00 $1,800.00 0.00 0.00 0.00 0.00 $800.00

0.00 0.00 0.00 0.00 0.00 $1,800.00

0.00 0.00 0.00 0.00 0.00 $1,800.00

0.00 0.00 0.00 0.00 $800.00

0.00 0.00 0.00 0.00 $800.00

New Vehicle Registration Vehicle License renewal Training/Continuing Education Clothing Allowance (pre-hire) Medical Exam for 2 S/As (pre-hire) Psychological Exam for 12 S/As Overtime costs TOTAL SUPPLIES & EXPENSES
H9000-0

$2,270.00 0.00 $8,000.00 0.00 $700.00 $800.00 $2,000.00 $ 127,371.00

0.00 $20.00 $8,000.00 $900.00 0.00 0.00 $2,000.00 $40,640.00

0.00 $20.00 $8,000.00 $900.00

0.00 $20.00 $8,000.00 $900.00

0.00 0.00 $2,000.00 $40,640.00

0.00 0.00 $2,000.00 $40,640.00

Page 19 of 29

TOTAL FTE SALARY. SUPPLIES & EXPENSES

$420,573.71

$333,842.71

$333,842.71

$333,842.71

Long-Term Fiscal Considerations While the largest expenditures are associated with FY13, fiscal years 14, 15 & 16 reflect lesser costs associated with standard on-going expenditures, e.g., salaries, office space & supplies, communications, training, and vehicle gas and service costs. Under Laws of 2002, Chapter 220 of Minnesota statutes, the A&GED is authorized to charge a $15.00 fee for background checks performed on tribal background checks and on manufacturers and distributors of gambling devices. The A&GED presumes that upon passage of this bill that requests from the State Lottery and the Minnesota Racing Commission for background checks will increase significantly. To assist in staffing the resources needed to meet the background check needs of the Minnesota lottery, Minnesota Gambling Control Board, and the Minnesota Racing Commission a change in Chapter 220 to allow the A&GED to charge a $15.00 fee to perform background checks for the other gaming regulatory agencies, i.e. State Lottery, MN Racing Commission and the Gambling Control Board should be considered. Local Government Costs Local governments could incur direct and indirect costs associated with increased vehicle traffic and requests for emergency services in response to incidents not necessarily related to gaming such as: auto accidents, medicals, thefts, assaults, disorderly conduct, etc References/Sources A&GED staff, DPS Fiscal and Administrative Services and other state gaming regulatory agencies. Agency Contact Name: James Arlt (651-201-7521) FN Coord Signature: LARRY FREUND Date: 10/12/11 Phone: 651-201-7050

EBO Comments
I have reviewed this Fiscal Note for accuracy and content. EBO Signature: KEITH BOGUT Date: 10/14/11 Phone: 651-201-8034

H9000-0

Page 20 of 29

Fiscal Note 2011-12 Session

Bill #: H9000-0 Complete Date: 10/17/11 Chief Author: HACKBARTH, TOM Title: GAMING MACHINE PROV MOD (RACINO)
Agency Name: Revenue Dept

Fiscal Impact
State Local Fee/Departmental Earnings Tax Revenue

Yes X X X

No

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only. FY11 FY12 FY13 FY14 Dollars (in thousands)

FY15 4

Expenditures

Less Agency Can Absorb Net Expenditures Revenues

General Fund -- No Impact -General Fund -- No Impact --

General Fund

18

18

Net Cost <Savings> Total Cost <Savings> to the State Full Time Equivalents
-- No Impact --

0 0

18 18

4 4

4 4

FY11

FY12

FY13

FY14

FY15

Total FTE

H9000-0

Page 21 of 29

Bill Description HF9000 The bill authorizes the State Lottery to establish gaming machines as a licensed racetrack. A fee is imposed on gaming machine revenues. A Minnesota First Fund is established for gambling treatment, education and to finance the construction of a stadium for the Minnesota Vikings and a ballpark for the St. Paul Saints. The bill will result in an impact to state revenues. The bill will result in administrative costs for the Department of Revenue. Revenue Analysis The bill will result in an impact to state revenues. The Department of Revenue will not be completing an independent revenue estimate for this bill. It is assumed the revenue impact will be determined by the Minnesota State Lottery and addressed in their fiscal note. Assumptions Currently, sales of state lottery tickets are exempt from sales tax imposed under 297A.62 but are subject to an in th lieu tax under 297A.65 to be reported on the sales and use tax return on the 20 of the following month for the preceding month. The bill amends 349A to include gaming machines, whereby customers will deposit tokens to play a game that uses a video display and microprocessors. We would ordinarily tax these under 297A.61, subd. 3, paragraph (g)(1) as the making available of amusement devices. However, this bill would exempt the gaming machine revenue from sales tax imposed under 297A.62 but would th impose an in lieu fee under 297A.651 which will also be reported on the sales and use tax return on the 20 of the following month for the preceding month. We will need to add one new line to the sales and use tax return and test the changes to accommodate the new in lieu fee. The new in lieu fee will be reported by the following formula: 25% of annual adj. gross revenues up 125,000,000 30% of annual adj. gross revenues between 125,000,000 and 200,000,000 40% of annual adj. gross revenues in excess of 200,000,000 The costs under this bill will be for systems development, testing and maintenance for one new line on the sales and use tax return. As written, the effective date (day following enactment) for this section does not provide adequate time for systems development and testing; however, it is assumed that it will take approximately six months for the gaming machines to be in place and operational. Given this assumption, there will be adequate time to make the appropriate configuration changes to the Gentax application.

H9000-0

Page 22 of 29

Administrative Costs FY 2013 Systems Development Systems Support Total Costs Systems Development Systems Support Long-Term Fiscal Considerations There will be ongoing systems support/maintenance costs. Local Government Costs The department assumes there may be an impact to local units of government and that impact will be addressed by the Minnesota State Lottery in their fiscal note. Agency Contact Name: Ron Empting 651-777-2021 FN Coord Signature: RON EMPTING Date: 10/17/11 Phone: 651-556-4042 $17,680 $0 $17,680 FY 2014 FY 2015 (Actual dollars) $0 $0 $3,536 $3,536 $3,536 $3,536 FY 2016 $0 $3,536 $3,536

Add one new line to the Sales and Use Tax return 20% of original development costs

EBO Comments
I have reviewed this Fiscal Note for accuracy and content. EBO Signature: BRYAN DAHL Date: 10/17/11 Phone: 651-201-8031

H9000-0

Page 23 of 29

Fiscal Note 2011-12 Session

Bill #: H9000-0 Complete Date: 10/17/11 Chief Author: HACKBARTH, TOM Title: GAMING MACHINE PROV MOD (RACINO)
Agency Name: Lawful Gambling

Fiscal Impact
State Local Fee/Departmental Earnings Tax Revenue

Yes X X X

No X

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only. FY11 FY12 FY13 FY14 Dollars (in thousands)

FY15 602 (8)

Expenditures

Less Agency Can Absorb Net Expenditures Revenues

New Fund Misc Special Revenue Fund New Fund Misc Special Revenue Fund New Fund General Fund Misc Special Revenue Fund New Fund General Fund Misc Special Revenue Fund

New Fund Misc Special Revenue Fund

0 (8)

101 (8)

384 (8)

0 (8)

101 (8)

384 (8)

602 (8)

Net Cost <Savings>

(334) (8) 0 334 0 334

(334) (8) 101 334 0 435

(334) (8) 384 334 0 718

(334) (8) 602 334 0 936

Total Cost <Savings> to the State Full Time Equivalents

FY11

0 0

FY12
0.00

FY13
0.00

FY14
0.00

FY15
0.00

Misc Special Revenue Fund

Total FTE

0.00

H9000-0

Page 24 of 29

Bill Description HF 9000 expands current law governing gambling at Canterbury Downs and Running Aces. Under this bill casino betting would be allowed at these locations. Assumptions The Gambling Control Board expects to see a drop in charitable gaming activity affecting charities with gambling sites in the area of the two horse race tracks. The allowance of video gaming machines at the horse tracks will provide these locations with an advantage over charitable gaming sites simply due to the fact that the projected prize payouts will be greater than the charitable games such as pull-tabs (currently averaging 82%). For purposes of determining impact, the Gambling Control Board calculated the number of charitable gaming sites within a 10 mile radius of each horse track location. Based on current licenses issued, there are 52 charitable sites in the 10 mile radius of Canterbury Park and 44 charitable sites within 10 miles radius of Running Aces in the Forest Lake area. The average annual gross receipts per charitable gaming site in Minnesota are $348,000. The average annual net receipts (Gross receipts less prizes paid to player) are $64,000. Based on the expected advantage from the prize payout under the Racino proposal the Gambling Control Board is projecting a 25% drop in charitable gambling gross receipts at the 96 sites that are within the 10 mile radius of the horse tracks. This bill establishes a Minnesota First fund to help pay for Minnesota Vikings and St. Paul Saints stadiums. It appropriates one half of 1% (.5%) of the Minnesota First fund to the Commissioner of Human Services for compulsive gambling treatment programs and appropriates one half of 1% (.5%) of the Minnesota First fund for a grant administered by the Gambling Control Board to the state affiliate recognized by the National Council on Problem Gambling. Expenditure and/or Revenue Formula Revenue - Current average annual gross receipts per charitable gaming site: $348,000 - Projected decrease in annual gross receipts in charitable gaming per site (25%): ($87,000) - 96 sites X ($87,000) = ($8,352,000) annual reduction in gross receipts - ($8,353,000) X .1% (.001) regulatory fee = $8,352 decrease in fees The Board is anticipating the reduction in gross lawful gambling receipts would result in a decrease of $334,000 in state gambling taxes paid to the Department of Revenue. (This is based on an average gambling tax rate of 4% of $8,352,000 of gross receipts = $334,000.) The bill appropriates one half of 1% (.5%) of the Minnesota First fund for a problem gambling grant administered by the Gambling Control Board. -FY 2013 $20.2 million is expected to be collected in the Minnesota First fund X .5% = $101,000 -FY 2014 $76.7 million X .5% = $383,500 -FY 2015 $120.3 million X .5% = $601,500 The cost to the Board for managing the grant is not expected to change with this additional funding. Long-Term Fiscal Considerations None at this time Local Government Costs None References/Sources FN Coord Signature: DEBRA HELLENBERG Date: 10/13/11 Phone: 651-639-4083
H9000-0 Page 25 of 29

EBO Comments
I have reviewed this Fiscal Note for accuracy and content. EBO Signature: LISA BARNIDGE Date: 10/17/11 Phone: 651-201-8032

H9000-0

Page 26 of 29

Fiscal Note 2011-12 Session

Bill #: H9000-0 Complete Date: 10/17/11 Chief Author: HACKBARTH, TOM Title: GAMING MACHINE PROV MOD (RACINO)
Agency Name: Racing Commission

Fiscal Impact
State Local Fee/Departmental Earnings Tax Revenue

Yes X X X

No

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only. FY11 FY12 FY13 FY14 Dollars (in thousands)

FY15 34,600

Expenditures

Less Agency Can Absorb Net Expenditures Revenues

-- No Impact -Miscellaneous Agency Fund Miscellaneous Agency Fund Miscellaneous Agency Fund

Miscellaneous Agency Fund

6,800

24,600

6,800 6,800 0

24,600 24,600 0

34,600 34,600 0

Net Cost <Savings>

Total Cost <Savings> to the State Full Time Equivalents

-- No Impact --

FY11

FY12

FY13

FY14

FY15

Total FTE

H9000-0

Page 27 of 29

Bill Description Permits the operation of gaming machines at licensed pari-mutuel racetracks. Assumptions For the purposes of this fiscal note, assume Implementation of operation of gaming machines at Canterbury Park and Running Aces Harness Park by July of 2012. Operation will be 7 days per week, 24 hours per day. This will require 24/7 coverage/oversight by staff of the Racing Commission. Significant expansion of facilities, including security, surveillance, and occupational licensing, based on Statute 240 which provides that the Racing Commission has oversight duties for Class A licensees. It is anticipated that the gaming facility authorized by this bill will require new construction to the existing racetrack facilities. Under current Commission rules any alteration, expansion, or remodeling of the facility in excess of $100,000 requires Commission approval. The Commission and staff will be providing oversight of the construction phase and the pre-opening and full operation phases of the facility. This is to assure adequacy of facilities regarding the safety and security for patrons and facility employees, surveillance camera location and operation, adequate and competent staff employed by the racetracks working in the gaming area, and appropriate reporting and enforcement practices when needed. All those hired at a gaming facility located at a Class A racetrack licensed under chapter 240 will be required to be licensed as they will be employed by a Class A racetrack. This requires a thorough background check as is currently done for all racing, simulcasting and card playing activities. The Commissions regulatory oversight duties and responsibilities will extend to the additional facility as it will be an additional activity authorized for a Class A licensee. Those duties include licensee background check, as mentioned, and oversight of security and surveillance as to licensee and patron conduct on the gaming floor. Any instances of a suspicious nature will be immediately investigated, regardless of the time of day, and the appropriate law enforcement agency (Shakopee Police Department, Anoka County Sheriffs Department, or Alcohol and Gambling Division of the Minnesota Department of Public Safety) will be contacted and a full report of the incident will be prepared by the Commissions investigators. This bill also places administrative responsibilities on the Commission in allocating and administering the money for purse payments. This will require additional business management and information management staff to control all monies deposited and expended from the fund. Further, the grant responsibilities will require staff to thoroughly review requests and to prepare an analysis and evaluation for presentation to the Commission prior to allocation of those funds by the Commission. The Racing Commissions administration of the purse payments will be critical in that all calculation must be precise as to distribution of the monies to industry stakeholders. Controls must be in place for the distribution of monies to each breed at each facility which includes the purse and the Breeders Fund monies. In addition, the industry grant responsibilities will include grant contract oversight and administration which will again include the appropriate internal controls, audit capability, and contract administration to assure the accomplishment of the project and goals for the monies were granted. Accordingly, this bill significantly affects the Racing Commissions regulatory oversight and responsibilities at a Class A licensed facility, as stated in Minnesota Statute Chapter 240. The Racing Commission receives reimbursement from the racing and card club industries sufficient to recover their operating costs. The bill is not clear as to how the Racing Commission will be reimbursed for the Commissions increased operating and regulatory costs due to the expansion of the racetracks operation of the gaming machines. Additional language to clarify how reimbursement should occur would ensure the Racing Commissions ability to provide appropriate regulatory oversight.

H9000-0

Page 28 of 29

Expenditure and/or Revenue Formula; Industry Development Fund Breakdown of Purse Distribution (in thousands) Revenues/Expenditures Racetrack Operations State Expenditures: Purses Breeders Fund Grants Long-Term Fiscal Considerations The current Special Revenue (2000) Fund is reimbursed by the racetracks for the Racing Commissions regulatory oversight of the racetracks. The addition of gaming machines at the racetracks increases the Commissions regulatory responsibilities. If the fund is not reimbursed for the additional costs from the gaming machine, the fund will not be able to continue to support the operations of the Commission. Future expansion or contraction of gaming facility would proportionately affect regulatory/oversight cost. Local Government Costs FY12 FY13 41,800.0 5,440.0 1,088.0 272.0 FY14 151,100.0 19,680.0 3,936.0 984.0 FY15 212,300.0 27,680.0 5,536.0 1,384.0

References/Sources Revenue estimates were prepared by the State Lottery FN Coord Signature: RICHARD KRUEGER Date: 10/17/11 Phone: 952-496-7950

EBO Comments
I have reviewed this Fiscal Note for accuracy and content. EBO Signature: LISA BARNIDGE Date: 10/17/11 Phone: 651-201-8032

H9000-0

Page 29 of 29