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Back to Video Lottery Terminal Initiative of 2004

John Ray, counsel for proponents, statement in support of the
Lottery Expansion Initiative of 2004
June 2, 2004




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Manatt Phelps & Phillips

Counsel To The Citizens for Jobs, Education & Healthcare Initiative Committee

In Support Of The Proposed "Lottery Expansion Initiative of 2004"

Submitted to the District of Columbia Board of Elections and Ethics Public Hearing, June 2, 2004

Good morning, Chairperson Lewis and Members of the Board. Thank you for the opportunity to present testimony in support of the "Lottery Expansion Initiative of 2004". For the record, I am John Ray, counsel to the Initiative committee and the Initiative proposers, Pedro Alfonso and Vickey Wilcher, who are with me today.

The proposed Initiative before you today is a revision of the original measure filed with the Board on April 22nd. In consultation with your General Counsel, and after studying the written comments received from the Attorney General for the District of Columbia, we have modified the document to address the legal concerns that were expressed to us. The changes are of a technical and clarifying nature, and do not alter the substantive intent and purpose of the proposal.

Though we remain convinced that the original proposal qualified as a "proper subject" for an initiative, we decided it would be advisable to revise the language that raised questions in the minds of others in order to avoid a time-consuming debate. With that preface, I will address my comments to the revised Lottery Expansion Initiative which is now before you.

The proposed Initiative would amend the D.C. Lottery Law1 by adding new sections to authorize the licensing of video lottery terminals - commonly called "VLTs" - in the District of Columbia. The legislative text of the proposed Initiative sets forth procedures to be followed by the D.C. Lottery Board - or the District's Chief Financial Officer (CFO), who presently carries out Lottery Board responsibilities - in licensing and regulating VLT operations. (Throughout my statement, I use the term "Lottery Board" also to include the CFO.)

The legislative text clearly establishes that VLT operations would be fully integrated into, and controlled by, the D.C. Lottery system, and that VLTs are a lottery game. Thus, we have correctly titled the proposed Initiative as an "expansion" of the District's existing lottery.

With that brief summary of the proposal, I would like, first, to address the legal issues before the Board, and then share information about the economic development project that passage of this initiative will make possible. Although the policy aspects of the proposed initiative are not matters for the Board to decide, I believe it would be helpful for the Board and the public to understand the full scope of the project.

There are two questions before the Board for your decision today.

The first is whether the proposed measure is "a proper subject matter" for an initiative, in accordance with the Home Rule Act and the initiative provisions of the D.C. Code. If you find the proposed measure to be proper for an initiative, you will then decide on the form and text of the measure's Short Title, Summary Statement, and Legislative Text.

I. Whether the Proposed Initiative Is A "Proper Subject".

A. Overview and Board Actions on Previous Lottery Initiatives.

A measure must be determined to be "proper" if it:

  • Is not a law appropriating funds,
  • Does not violate the D.C. Charter,
  • Does not authorize discrimination in violation of the Human Rights Act,
  • Does not negate or limit an act of the Council of the District of Columbia pursuant to D.C. Code § 1-204.46 (the portion of the District Charter which establishes the appropriations and budget authority of the City Council and the Congress), and
  • If it has been submitted in the proper form and the proposers have submitted the required statement of contributions, which we have done.

Determining that this measure is a proper initiative subject should be an easy question - because the D.C. Board of Elections has determined twice previously that lottery proposals were proper subjects for ballot initiatives.

In early 1980, the Board received a proposed initiative to establish a broad range of gambling operations, including a city-run lottery and daily numbers game, pari-mutuel betting on jai alai and dog racing, bingo games, raffles, and social gambling. The Board approved the measure as proper, and the measure was Initiative 2 on the ballot in the May 1980 primary election.

It was defeated, but the organizers returned to the Board in a matter of weeks with a revised measure proposed for the November 1980 general election. The revised proposal authorized only the lottery and certain types of bingo operations and raffles. The Board again found the measure to be proper initiative subject. It was on the ballot in the November election, was approved by a large margin, and became the foundation for the D.C. Lottery system that has operated successfully for more than 20 years, currently generating some $60 million in annual revenues for the District.

Given the precedent of the Board's previous approvals of lottery proposals as proper initiative subjects, there should be no doubt that our proposed "Lottery Expansion Initiative" also is proper.

Turning now to the specific propriety criteria set forth in the law, the first test is that the proposed initiative must not be a law "appropriating funds".2 The revised Lottery Expansion Initiative states, in all relevant sections, that VLT revenues "shall be accounted for and managed in accordance with applicable laws and regulations of the District of Columbia." Thus, nothing in the revised Initiative interferes with or in any way encroaches upon the appropriation and budget allocation authority of the D.C. City Council and the Congress.

The Court of Appeals, and also this Board, have recognized that a proper initiative may authorize certain government actions or programs that may well require the City Council and Congress to decide whether or not to appropriate and allocate funds to implement the program. For example, Initiative No. 9 - the Mandatory Minimum Sentencing Initiative passed in 1982 - required the Council and Congress to consider whether mandatory minimum prison sentences for certain drug-trafficking firearms offenders would necessitate budget increases for the prison system. Initiative No. 9, while it had an ancillary and prospective effect on District budget actions, was determined not to be an improper appropriation or allocation of funds.

In Convention Center Referendum Committee v. D. C. Board of Elections,3 the Court of Appeals wrote: "We further conclude that the `laws appropriating funds' exception does not preclude initiatives (1) to establish substantive authorization for a new project...." (Emphasis added.)

B.   The Recommendations Provisions.

The Attorney General listed among his "Appropriations Concerns" the portions of the legislative text referring to recommended uses for the VLT usage fees to be paid to the District. In the revised Initiative, these references are only in paragraph (7) of Section 2, Findings and Purposes.

These portions of the legislative text state the recommendations of the electorate that VLT proceeds should be apportioned equally among the D.C. General Fund, the D.C. Public Schools, and a recommended new fund to provide prescription drug benefits for D.C. senior citizens.

We take exception to the Attorney General's characterization of these recommendations as "attempts to avoid the restriction of appropriating and/or allocating District funds...." To the contrary, the provisions reflect careful adherence to the guidance provided by the D.C. Court of Appeals in a Hessey v. D. C. Board of Elections and Ethics, decided November 22, 1991.4 The case involved two proposed housing initiatives. In the opinion for the Court, Chief Judge Judith Rogers drew a distinction between a recommendation and a mandate for the use of revenues. The Court stated:

"The right of initiative nevertheless remains `broad' under the allocation interpretation. The initiative right to propose authorizing legislation that the Council could enact is essentially unfettered. In addition, as the Board of Elections noted in the appeal involving the `Housing Now! Act of 1990' initiative, measures may be proper subjects for initiative where the proposal contains a 'non-binding policy statement' that revenues should be allocated for specified purposes. While the Mayor and Councilmembers, like any elected officials, may take a potential risk in allocating initiative-raised revenues for a purpose other than that suggested by the initiative, the risk is necessarily overshadowed by the financial responsibilities placed by Congress in the District government's elected officials, and the Mayor and Council have acted accordingly." (Citations and footnotes omitted. Emphasis added.)

In other words, the Court of Appeals embraced the Board's analysis that a "nonbinding policy statement" regarding the use of initiative-generated revenues is perfectly permissible under the law.

The proposed Lottery Expansion Initiative complies with the criteria the Court of Appeals has provided. It contains recommendations - "a non-binding policy statement" - regarding the use of the revenues generated by VLT operations. But there is no directive or mandate that would encroach upon the authority of the Council and the Congress to appropriate and allocate District revenues.

Regarding the other tests the proposed Lottery Expansion Initiative must pass in order to be considered a proper subject for a ballot initiative, I will address these points briefly and can elaborate in response to questions the Board may have.

First, the proposed Initiative is proper because it does not negate or limit a Council act, and specifically does not negate or limit the authority of the Council and the Congress over the District's budget and appropriations process. The Council can act at any time on the types of lottery games, including VLT operations, that it may wish to address, and it has not done so.

Second, the proposed Initiative is proper because it does not discriminate in violation of the Human Rights Act. Quite to the contrary, the economic development project associated with the proposed Initiative fosters the equal-opportunity intent and purposes of the Human Rights Act by guaranteeing contracting opportunities for D.C.certified Local, Small, and Disadvantaged Business Enterprises.

Third, the proposed Initiative is proper because it is drafted in the proper legislative form and the Initiative proposers filed the necessary Initiative Committee organization documents and their initial Receipts and Expenditures Report with the Office of Campaign Finance on April 22nd, the same day the proposed Initiative was filed with the Board. We have worked with the Board's General Counsel to identify and correct minor technical drafting errors in the legislative text prior to final publication.

II. Whether the Short Title, Summary Statement, and Legislative Text Accurately Describe the Measure As The "Lottery Expansion Initiative".

The proposed Initiative is presented as the "Lottery Expansion Initiative", and the Legislative Text is drafted as an amendment to the D.C. Lottery Law. The Short Title, Summary Statement, and Legislative Text accurately describe Video Lottery Terminal operations as a new type of lottery game, well within the scope of the D.C. Lottery Law and D.C. Lottery operations. But because our proposal has been portrayed quite differently - and quite erroneously - in the news media, I want to provide the Board with detailed information about VLT operations.

VLTs are not what we generally think of as "slots" - and the Washington Post was wrong in labeling them as such in its May 8th news report. The key distinction between VLTs and "slots" (slot machines) is that players of VLT games play against the pool of all other players, rather than playing against the "house" or the machine. With Las Vegasstyle slots, players win through an element of skill in "beating the house" or the preprogrammed performance of the machines. With VLTs, winners are chosen at random with no element of skill involved. This is why courts in other jurisdictions have held that VLT operations are electronic lottery games, similar to the Keno lottery game launched in the District a year ago.

The courts have recognized this important distinction between a lottery gaming system and a traditional gaming system ("slots"). For example, a group of plaintiffs challenged a New York State decision to authorize VLTs at certain racetracks, arguing that it violated the state "constitutional `lottery' exception." The decision of the New York State Supreme Court for Albany County in that case is particularly instructive.5

The Court noted that the state regulations defined a VLT as a game "in which the results are randomly and immediately drawn from the video lottery central system" and required that VLTs "shall be linked electronically to allow players to compete against other players for a chance to purchase winning video lottery tickets." Upholding the New York law, the Court wrote:

"While the outward appearance of a VLT vis-a-vis slot machine is similar, the internal workings, method and limit of draw/payout and link up of competitive players distinguish the VLT. The Court finds this to be within the definition of `lottery' and substantially similar to the Instant scratch off tickets available daily 24/7 throughout New York." Emphasis added.

The VLT operations set forth in the proposed Initiative are the same as those the New York court determined to be "within the definition of `lottery'."

III. Scope of the Initiative-Related Economic Development Project.

At this point, and with the Board's indulgence, I would like to take a few moments to describe the full scope of the economic development project related to the proposed Initiative.

The proposed VLT facility will be one part of a $510-million development we have called "Capital Horizon." It is to be located on a 14-acre tract of land along New York Avenue N.E., between Montana Avenue and Bladensburg Road. At present, this site is occupied by a hodgepodge of unattractive, no-growth operations offering no benefits for the area. Current operations include a tire-recycling plant, auto junkyard, gas station, car wash, fast-food outlets, auto towing yard, and several auto repair shops.

Capital Horizon, which will be developed by a team of local and national investors, will bring an exciting new family-oriented entertainment center to New York Avenue. For more than 20 years, city officials - including myself, when I was on the City Council - have recognized the potential for New York Avenue to become a driving force in the city's economic development plan. Capital Horizon would be a major leap forward in achieving this goal. And, unlike many other developments in blighted areas of the city, it would be accomplished entirely with private funds.

As shown on the architectural renderings attached, Capital Horizon will contain more than one million square feet and will include:

  • A 600-800-suite hotel, occupying approximately 44% of the space,
  • The VLT facility, at approximately 15% of the space,
  • Underground parking sufficient to accommodate patrons of the center's facilities, and
  • Restaurants, a food court, retail shops, a multiplex movie theater, special events showroom, banquet facility, health spa, bowling alley, and a Kids Zone children's arcade.

It will provide a broad array of recreation and shopping opportunities for citizens of the city and surrounding region, and can become a magnet for tourists and an attraction for the large conventions the city is trying to bring to Washington.

When Capital Horizon is in full operation, we project that it will generate more than 1,000 new jobs, a significant benefit in light of the fact that the District's unemployment rate has been stuck for many months at nearly 7%, with more than 20,000 job-seekers out of work. The construction phase of the project also will create hundreds of new construction jobs.

To assure that the majority of jobs and contracts go to District residents and D.C.certified Local, Small, and Disadvantaged Business Enterprises, Capital Horizon developers are already entering into Memoranda of Understanding with D.C. business organizations, pledging to work toward the goal of awarding 50% of the dollar value of contracts to LSDBEs. This is the same standard that D.C. law mandates for contractors with the D.C. Government.

Regarding new revenues for the city, we estimate that the VLT Usage Fees, once the facility is in full operation, will generate approximately $190 million annually, and Capital Horizon will generate as much as $24 million in additional revenues from property taxes, employee income taxes, and the sales, parking, restaurant, and hotel room taxes. The VLT operation is an essential element of the project in order to make it financially feasible to develop.

During the past two months, my colleagues and I have presented the proposal to key city leaders, including the D.C. Chamber of Commerce, the D.C. Ibero-American Chamber of Commerce, the Minority Business Coalition, the Hotel and Restaurant Workers Union, and several Advisory Neighborhood Commissioners in Ward 5 where the project is located. We have received enthusiastic and favorable responses.

We have also discussed the project with the Executive Branch and members of the City Council to keep them informed, but without requesting any actions or commitments on their part.

This concludes my prepared statement. I will be happy to respond to the Board's questions.

Capital Horizon architectural renderings and site plan.

1. The Law to Legalize Lotteries, Daily Numbers Games, and Bingo and Raffles for Charitable Purposes in the District of Columbia, effective March 10, 1981 (D.C. Law 3-172; D.C. Official Code § 3-1301 et seq.)

2. D.C. Code § 1-204.101(a). s 441 A.2d 889 (D.C. 1981)

3. 441 a.2nd 889 (D.C. 1981)

4. 601 A.2nd 3 (D.C., 1991)

5. Dalton et al. v. Pataki et al. and Karr v. Pataki et al., July 17, 2003.

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