Pennsylvania's New Slot Law

"Politics is the art of the compromise."

- Anonymous

Legalizing gambling is not the same as decriminalizing it. When a state's lawmakers decide to make gaming legal, they never repeal the state's criminal anti-gambling statutes.

Instead, the legislature creates a licensing system for operators and suppliers. A license has such great commercial value because it allows the holder to do something that would otherwise send that person to jail.

Lawmakers have to decide what forms of gaming will be allowed and how many licenses will be issued. Since licenses are valuable because they are rare, legislatures want the state to get paid the maximum possible. They also have to determine who gets the licenses. This is usually done by creating an administrative body that evaluates applicants, issues the licenses, and then watches over the operation.

But, because politics is behind the entire system, administrators often have little choice. It has become common, for example, for legislatures to require that licenses for slot machines be granted to struggling racetracks. As recently as 15 years ago, the fight was over bringing in casinos. Today, it has become more narrow: How many slot machines will be authorized, and will they be limited to racetracks?

The fight in Pennsylvania was typical. Even before casinos were legalized for Atlantic City, politicians and business interests in the Keystone State were looking at riverboat casinos.

Economics was the main driving force. The western part of the state, including Pittsburgh, seemed to be stuck in the rust belt. The eastern part was seen as even worse off: Billy Joel's hit song made Allentown synonymous with a town with no jobs and no hope.

The economic recovery, especially the boom in Philadelphia and Pittsburgh, slowed the casino movement. Horse racing interests, powerful political players for decades, demanded slot machines if this new competition were allowed.

Still, Pennsylvania legislators never liked seeing billions of dollars flow from the pockets of their residents into the casinos of New Jersey. In 1999, the state Legislature and Gov. Tom Ridge again almost legalized riverboat casinos. But by that time, an additional actor had appeared: the anti-gambling movement. Small but vocal, it scared the politicians.

Even though the state constitution permitted lawmakers to authorize casinos on their own, Gov. Ridge announced that he would veto any expansion of gambling that was not approved by the voters. So, a strange, nonbinding referendum was proposed.

Politics then got even more involved. The two parties, in vicious fights, for example for mayor of Philadelphia, tried to predict whether putting a proposal for casinos on the same ballot would help or hurt their chances in these other races. State legislators who had earlier proposed legislation to legalize casinos declared the state Legislature did not have the power to pass these bills. The riverboat casino proposal became so mired down that it was dropped.

Pennsylvania faces racinos in two neighboring states, West Virginia and Delaware, and casinos in a third and fourth, New York and New Jersey. When Maryland legalizes racinos, as it surely will, Pennsylvania will be completely surrounded by states with slot machines, except for the small area where it touches Ohio and Lake Erie.

By November 2002, the question of whether slot machines would be legalized was decided. Both candidates for governor supported the idea of racinos. Ed Rendell won and immediately announced that his top priority was to lower property taxes by allowing slot machines at tracks, with a high tax.

The Legislature eventually decided to allow tracks, and 10 others also, to have up to 61,000 slot machines. These will be in casinos inside hotel resorts and standing alone.

Because the Pennsylvania slot machine legislation was the result of years of political fights, it is not a model of what gaming regulation should look like. Worse, the last minute political compromise between Democratic Gov. Ed Rendell and the Republican-controlled Legislature led to a deal being made over the July Fourth weekend and a bill rushed through, without extensive hearings and time for review, and signed the next day.

Blatant political compromises have been written into the law. In other states, commissions are appointed by the governor and confirmed by the state senate. Decisions involving licenses are then made by a majority of commissioners. In Pennsylvania, the four leaders of the Democratic and Republican parties in the House and Senate each appoint one member of a new seven-person gaming control board. The governor appoints the other three.

To ensure that one party never gets the upper hand, at least when it comes to granting lucrative licenses to operate or supply slot machines, the law contains a complicated system of voting. Licenses can be issued or denied only by a "majority vote consisting of at least one gubernatorial appointee and the four legislative appointees." Yet, suspending or revoking licenses requires only "a majority vote of all the members appointed to the board."

Board members have been given short and inconsistent terms. The four named by top Republican and Democratic legislative leaders serve for only two years, while the three appointed by the governor serve three years.

The most interesting provision allows legislators and other public officials to own up to 1 percent of a slot operator. This is no small potatoes, as the Allentown Morning Call showed: "The market value of Penn National Gaming's two racetracks is $1.3 billion. A 1 percent cap would allow a public official to own up to $13.3 million worth of the company." Amazingly, this too was a compromise, because the Senate had proposed a cap of 5 percent.

The law even anticipates gaming board members having financial conflicts of interest. "A member shall disclose the nature of his disqualifying interest, disqualify himself and abstain from voting in a proceeding in which his or her impartiality may be reasonably questioned, including, but not limited to, instances where he or she knows that they possess a substantial financial interest in the subject matter of the proceeding."

What about the complicated voting requirements? They become even more complicated: "In such circumstances in which it is a legislative appointee member who has disqualified himself or herself, the qualified majority shall consist of the remaining three legislative appointees and at least two gubernatorial appointees."

All of this comes from the two parties not trusting each other, and the fact that the Republicans control the Legislature while the governor is a Democrat. But laws are supposed to look beyond the next election.

The new Pennsylvania Race Horse Development and Gaming Act is a permanent solution to a temporary political problem. ♠

Professor I. Nelson Rose is recognized as one of the world's leading authorities on gambling law. His website is www.GamblingAndTheLaw.com.