Joint Budget Rule Review Committee

Feb. 17, 2022

 

L Johnson That gavel, it’s a little early for a loud clap. We’re going to call this meeting to order. Apologize for having to bring everybody back again today. You know, this is a big issue. We’re wanting to give a fair chance for everybody to hear what’s, what’s being presented and have a chance to ask all the questions they want to ask. So when we ended the meeting yesterday, we were up against a hard stop. And we had ended with Rep. Garner had asked for the AG’s office to come to the table to answer some questions. We’re going to have the AG’s office come and be available for some questions. I want to remind committee members the role of the AG and what they do for us. You know, they’re our legal counsel for the legislative body, as well as for state agencies. And so as legal counsel, sometimes they are limited in how and why they can answer questions. I just encourage members to be sensitive to that as they come to the table. But they’re going to do the best they can to provide any answers for us that they can and feel comfortable doing so. If we can have– Mr. Bowen, are you coming to the table to present? If we could have you come to the table, introduce yourself, whoever else you want to bring. Oh, and before we get started– I’m being tapped by my co-chair– point of personal privilege for my co-chair. I almost forgot him. 

 

Flippo So kind of you to remember, Rep. Johnson. 

 

L Johnson Terrible, terrible. 

 

Flippo I appreciate the courtesy. Colleagues, we do have a special visitor today. Miss Julie Hill. Julie is Senator Hill’s daughter. And Julie, if you would please stand to be recognized. Members, today’s her birthday, by the way. Julie, looking great. We’re happy to have you here. By the way, who does your hair? I noticed some split ends from up here. You might want to get that taken care of because it’s pretty hideous, actually. All right. 

 

L Johnson Miss Hill, I apologize for both your, your father and your coworker here. 

 

Flippo I told you I was going to get you, Julie. Told you. 

 

L Johnson We’re glad to have you here today and glad to have everyone here. Mr. Bowen, if you can go ahead and approach the table.

 

Bowen Good morning, Mr. Chairman. Members, my name is Brian Bowen. I’m the chief of staff for the Attorney General’s Office. I believe there were some questions yesterday. And before I start and I will reiterate what the chair has said. In anticipation of potential litigation, some of my answers may be limited today. I apologize for that, but I’m happy to discuss with you one on one or off line any more detailed questions that you may, you may have. I also want to make clear that the discussion today that I give you is, is a legal opinion and it is not in support or opposition to the rule or the policy that is being presented to you. It is strictly a legal opinion based on our review. We have discussed with legal counsel for the Racing Commission. I have discussed with our attorneys in our office, including our solicitor general. And after review of the role, we feel that the role can be defended if challenged. There was several comments yesterday made on the legality of the rule and opinions as to whether or not it would violate the dormant Commerce Clause. Our position is, if challenged, we can defend this rule. 

 

L Johnson Thank you, Mr. Bowen, are there questions? Representative Garner, do you have a question? 

 

Garner That’s all I wanted to know. 

 

L Johnson Are there any other questions from any members? I see some questions here. Representative Wooten, you’re recognized for a question. 

 

Wooten Thank you, Mr. Chairman. Can you show me in the constitutional amendment or any rule or any law where it makes a reference to offsite betting? And will you give me your definition of a casino? 

 

Bowen A casino is defined by Amendment 100 and Amendment 100 does address sportsbook betting. 

 

Wooten That’s not my question. My question is, is on-site– offsite betting mentioned in any of the constitutional amendment, in any rule or any law, offsite betting, other than the reference to sports betting? Is it in the constitutional amendment? Is it referenced for offsite betting? 

 

Bowen So offsite betting in Amendment 100 is not specifically mentioned. It does discuss–

 

Wooten So it’s not, it’s not mentioned. 

 

Bowen No, sir. It is not specifically mentioned.

 

Wooten Could, could you, could you say then that we don’t know what the intent was? The intent could have been not to permit it. The intent could have been to permit it, but it was not mentioned, off-site, specifically by the people of Arkansas who who voted on the constitutional amendment. Is that correct? 

 

Bowen I would say that you are partially correct, sir. Amendment 100 is silent. But what the amendment does is give the Racing Commission the authority to develop rules regarding sports betting. So while the Constitution may be silent as to specifically off site or app gaming, the Racing Commission has the authority under the Constitution to develop the rules that have been put in front of you today. 

 

Wooten What is your definition of a casino? 

 

Bowen Again, I don’t want to misspeak, but a casino is defined by Amendment 100, as well as the rules that have been promulgated by that.

 

Wooten You’re not answering my question. Tell me what, what your office or the attorney general or what, would y’all, how would you describe a casino?

 

Bowen Not having it in front of me, I don’t want to misspeak. And I’m happy to speak with you offline about what a definition of a casino is. 

 

Wooten [You’re still not answering my question.

 

L Johnson Representative Wooten, we have other people lined up and queued to question– 

 

Wooten I realize that, Mr. Chair– 

 

L Johnson He’s given an answer– 

 

Wooten The witness is not answering my question.

 

L Johnson I think he has given an answer, and we can queue you back up for another question. But I’ve got several other people lined up, so I’m going to move on. Senator Chesterfield. 

 

Chesterfield Mr. Chair, I move immediate consideration. 

 

L Johnson That’s a proper motion. So that’s a voice vote. So all those in favor of immediate consideration say aye. Hold on. So, Senator Chesterfield, we’re trying to sort through exactly the proper protocol here. You’ll have to be patient with us for a second. 

 

Chesterfield We have a rule before us on which we can vote. And it is proper to say, let us vote now on that rule, because there has been objection. We will be voting either on the objection, sustaining the objection– 

 

L Johnson So, so– 

 

Chesterfield –or not. Is that correct?  

 

L Johnson I think, I think the issue is there is– the process and procedure would be, without objection, the rule is reviewed. 

 

Chesterfield But there has been objection. 

 

L Johnson There would have to be– there would have to be– we’re not required to vote on this. The default is we review the rule. And so if we have an objection, is that a debatable– so if, so if 

 

Chesterfield I’m trying to find out where we are, Mr. Chair? 

 

L Johnson I understand, Senator, I understand. We’re trying to work through that too. But I understand what you’re trying to accomplish. We’re just trying to– I’m trying to work with BLR staff to understand the right way to approach that. So I think the, I think the proper motion that you would want to make would be to end debate– 

 

Chesterfield Which is immediate consideration. 

 

L Johnson: Well, I think there’s just a nomenclature difference there. 

 

Chesterfield I move to end debate.

 

L Johnson OK, that sounds fine. So there’s a motion to stop discussion and end debate on this rule. That’s a voice vote. All those in favor say aye. All those opposed say no. The no’s have it 

 

Chesterfield Call the roll.

 

L Johnson Three hands? 

 

Chesterfield I tell you what, if there are other people who want to say something– I think the ayes had it. And so, what is the quorum of the chair– what is the quorum for the meeting? 

 

L Johnson It’s a majority–

 

Chesterfield Never mind. I withdraw my motion, Mr. Chair.

 

L Johnson Representative Dotson, you had a question. 

 

Dotson Thank you, Mr. Chair. Sorry, I was distracted on the other– where we’re at. Let me look back at my notes here. So I was in the queue yesterday to ask some questions just regarding this. And I mean, there’s been a lot of discussion here regarding public policy, but that’s not necessarily what we’re here to determine the public policy of the rule. I mean, we would debate that during a session and that sort of thing. But the legality of it is, is really the question. And not being an attorney, I’ll have to admit, before yesterday, I’d never heard of the dormant comment clause, the Commerce Clause. So I had to do a little bit of research and try to figure out a little bit more about that. And one of the attorneys yesterday,  I wrote down, kept saying clearly excessive to local benefit. And I tried to figure out exactly what that is, whether or not this is a discriminatory and clearly excessive benefit to local interests. Many of the comments, the public comments, said that this would, this rule would cause revenues to stay in state, that it would be more beneficial to have this rule than not. I don’t necessarily believe that it’s a requirement that 51 percent, according to Amendment 100, be in there. It’s a policy question determined by the commission, and they’ve made that policy decision. But it seems they’ve made that decision because it bases– it, it clearly benefits local interests more than out-of-state interests. So in that regard, does that violate– and I know I’m asking you to, to say what a judge would say in this case. But based off some of the the case law that’s out there, you know, differential treatment of in-state and out-of-state economic interests that benefit the former and burdens the latter, is, if it is clearly excessive in relation to its punitive local benefits, I mean, it seems to me that’s a lot of the argument that some people have been making for this, that it’s more beneficial locally, it’s more beneficial to our in-state operators for this rule to be 51 percent. And that’s the argument that they’re making to try to pass it, then how does that not violate the, the, this dormant commerce, Commerce Clause? 

 

Bowen Thank you for your question, Representative. And you are correct on the dormant Commerce Clause. It is not a easy area of the law to understand. It is conceptually very difficult. But specifically to your question, I must apologize, because, again, in anticipation of litigation, I don’t want to lay a road map out for any defense that our office might have. I’m happy to visit with you more offline. And we’ll say again after our review of the rule, we do feel like we can defend the rule if challenged.  

 

Dotson That’s really the only question I have for the AG, I may ask that same question of the, the attorneys for the commission when they get back up here. 

 

L Johnson I understand. Does anyone have any other questions for the AG’s office? Seeing none, thank you for your time this morning. We appreciate it. 

 

Bowen Thank you, members. 

 

L Johnson But prior to requesting the AG, the casino representatives were at the table. I think there were, there were other questions lined up before that for the casino Representatives. Is there anyone in the audience now that has– and the committee members that have questions for the casinos? It sounds like you do, Representative Dotson. So if y’all could come back to the table and answer whatever questions Representative Dotson has. And if there are other members that have questions, feel free to queue up. If you’d recognize yourselves one more time for the committee, thank you. 

 

Lancaster Steve Lancaster, Representative for Southland. 

 

Ebel Skip Ebel for Oaklawn. 

 

Saffa Carlton Saffa, Saracen Casino. 

 

L Johnson Rep. Dotson, you’re recognized to ask your question. 

 

Dotson Thank you, Mr. Chair. So I’m sure you just heard what my question was. I guess Mr. Lancaster is probably the, the one I heard speaking about this clearly excessive to local benefit yesterday. And I guess, I guess first of all, the question would be, obviously, this is about the money. And you feel as if this is a more beneficial rule than not having a requirement by the state to have 51 percent. That’s obviously a policy discussion. I know, Mr. Saffa, you feel this is a good public policy. I mean, I don’t necessarily agree that it’s good public policy, but that’s a public policy debate for a later time. That’s not what we’re talking about with this rule. The, the real– I guess, first of all, do you think that this is more beneficial, this rule, for your local interest than having a a rule that doesn’t require a 51 percent? 

 

Lancaster I believe the local interest that would be under consideration for we’re looking at the commerce or the dormant Commerce Clause would be the, the state benefit rather than, than our, our benefit. And that benefit has been the case in a lot of other areas, primarily gaming is that it provides a strong regulatory framework over gaming. That’s something that we’ve worked with for years. It also satisfies the public benefit of Amendment 100 requiring that gaming, mobile wagering be conducted by a casino licensee. That addresses that public policy, that preference by requiring that the licensee retain at least 51 percent. 

 

Dotson So would that make more– I guess, you’re talking about in state. Would that make more in state tax revenue if, if 51 percent of the revenue was to an in-state casino versus going out of state? I’m assuming we would collect more state tax revenue. 

 

Lancaster It could potentially. I don’t think that, that’s necessarily would have to be the case, but that could potentially be the case. 

 

L Johnson We have other questions. I’m going to move on. Senator Johnson, do you have a question? Representative Eaves, I’m sorry, you’re next in the queue. It should be on. Sorry, I moved you down. There you go. 

 

Eaves Sorry, I think I hit the button twice. I’m still looking for and I know this is not exactly what we’re talking about in this committee, but I’m still looking for a good answer to why the 50 percent, 51 percent rule needs to be there. I have not had anyone tell me what a casino could or could not do differently without that rule in there. And I don’t see how you can make the statement that this is a good regulatory framework. They’re already, you know, a constitutionally protected monopoly, which I have no problem with. But I just have– and I talked to people about it last night trying to understand the real reason that 51 percent needs to be in there. Can you enlighten me, someone? 

 

Saffa So I don’t think– I don’t think this question has to be as sort of hostile as it might seem. I’ve known you for a long time. 

 

Eaves I’m not intending it to be hostile. 

 

Saffa I know it’s not, and so I’ve known you for a long time. So although we’re in a formal setting, I’m going to talk to you like we would talk if we were having coffee. We have many rules in this state that make reference to being a resident or living here and having an ownership interest that, in my opinion, far exceed any kitchen sink, as I said yesterday, that could be thrown at this rule. And I want to answer your question by giving a reference to something totally unrelated. I know about this much about the marijuana business, but I know that the marijuana business has a 60 percent provision in ownership if I understand it correctly. We never talked about the Commerce Clause there, right? We never had a discussion about that, and that seemed logical and like it made sense to everyone in the room. And Representative, I’m not suggesting that that was wrong. I don’t have an opinion on that. I don’t know anything about the marijuana business. But we have rules all over state law that make references to in state and out of state. The question of whether or not 51 makes sense is real. And we can talk about it. But I think we should be honest, too. 51 is important to talk about, but the issue with 51 percent is not the number 51 percent, and it’s not the Commerce Clause. It is that the national vendors business model does not work unless, as they testified, they get 85 to 95 percent of the money. If they don’t get 85 to 95 percent of the money, they say they can’t enter the marketplace. Now I realize I’m out of the scope of whether the law is legal or not, but we have a little more time today, and I think this conversation’s fair if it’s OK with you. The law in marijuana says you got to have 60 percent Arkansas ownership. We never heard this dormant Commerce Clause thing because it wasn’t necessary to stop a rule. The Dormant Commerce Clause has only been introduced into this room because the national vendors need a Hail Mary pass to stop a rule, a rule that’s not illegal or not invalid or doesn’t comport with the law. It’s fine. As you’ve heard, it’s fine. But I get it. They must produce something for you today to stop this. And thus, we are hanging our hat on one of the most obscure and complex components of constitutional law. And I say that not as a lawyer, just as somebody who can google it and figure out it’s darn confusing. To the 51, specifically though, I still contend as a matter of public policy, it is important. We can make a decision at Saracen to run our own sportsbook, or we can make a decision to do business with an out-of-state vendor. If we did business with the out-of-state vendor, please understand, Representative, what that largely means is we turn over that book to the vendor. Our name may be associated with it. But what I’m essentially saying is, here’s my license. Go book business under it. Send me some money when you’re done, five percent. And I believe– and I can only speak on behalf of myself and our organization– I believe that that is not good public policy. Because while the national vendors certainly have lobbyists in this state, they don’t have buildings and employees. They don’t have known entities. If you want to talk to me, half the people in this room have my number. And if the other half– 

 

Eaves Let me just say something before I forget. I don’t disagree with that. I don’t disagree with your premise. But the casinos could– if, if you don’t think that the casino would make enough money using an outside vendor, I totally get that. And I respect that and believe what you’re saying. So then just don’t sign a contract with a third vendor or third party vendor. I don’t know why you need a rule that would ultimately just completely prevent any casino from using a third party vendor if, if one of the other three at some point decides, you know, this isn’t working. Our App sucks and we want a third party vendor. If we pass this rule like it is, clearly that’s not going to happen. They can’t use a third party vendor. So I understand what you’re saying, and I wholeheartedly agree that it– that you may want to develop your own app, you may want to use a third party vendor. But I guess what I’m trying to say is I just can’t see why you need us or the Racing Commission rule to prevent you from entering into a contract with a third party vendor. It should be just– it’s your choice. 

 

Saffa And we may–

 

L Johnson I hate to interrupt good conversation. Obviously, good conversations, good dialog. But again, reminding the committee the question at hand is, you know, not the rule itself, but does the rule violate state or federal law. Does rule violate legislative intent? I want to try to keep the conversation directed that way. There’s lots of questions in the queue. I want to be fair to the process, give everybody a chance to ask their questions. Again, it’s good discussion, but I need to keep the meeting moving along because we want to get to the question at hand. Representative Cavenaugh, you’re recognized for a question. 

 

Cavenaugh Thank you, Mr. Chair. I have a motion at the proper time. 

 

L Johnson What’s your motion? 

 

Cavenaugh Move for approval of the rule. 

 

Second. 

 

L Johnson All those in favor say aye. All those opposed. Ayes have it. So now– so the rule is reviewed and approved. And there’s no further business.