Gaming issues left unfinished

John Wilen

Thursday, Oct. 22, 1998 | 11:10 a.m.

When Congress adjourned Wednesday and members headed home to campaign for next month's elections, they left a lot of gaming-related business unfinished.

One of the year's most prominent issues -- the debate over whether or how to ban Internet gambling -- was left unresolved. Two bills that would have definitively banned gambling online bogged down in the House and expired as Congress left Washington.

One bill, sponsored by Sen. Jon Kyl, R-Ariz., passed the Senate 90-10 in June. But the Kyl bill stalled in the House, as did a separate bill sponsored by Rep. Bill McCollum, R-Fla.

Both bills would have imposed criminal penalties on Internet gamblers and on operators of Internet gambling sites. It remains unclear how either proposed law would have prohibited the operation of off-shore Internet gambling sites.

The bills' deaths were no surprise. During a gaming conference in Las Vegas last month, Internet gaming experts said neither bill was expected to pass by session's end.

But their failure is seen as a temporary aberration, the result more of bad timing than of a lack of support.

"It'll be back," said Frank Fahrenkopf Jr., president and chief executive of the American Gaming Association. "Time just ran out."

"I think it's a reprieve, clearly not a victory," said Anthony Cabot, a Las Vegas lawyer who specializes in Internet gambling. "I fully suspect that the bills will be reintroduced next year. ... They're likely to be passed in the next session."

Indeed, Jean Neal, chief of staff for Nevada Sen. Richard Bryan, said an Internet gambling ban will be one of the first bills introduced next session.

"It's going to be one of the first priorities," said Neal.

Observers say there is sufficient support in both houses to pass a ban.

Congress also failed in its last session to resolve a simmering dispute over Indian gambling.

Procedural moves by Nevada Sen. Harry Reid killed two bills favorable to Indian gaming interests early this month. One would have set minimum federal standards for the operation of Indian casinos, a measure seen by tribes as a means of circumventing rules requiring them to negotiate gaming agreements with their home states. The other would have approved a Sacramento-area Indian casino over the heads of California state officials.

But a measure sought by gaming-state legislators that would have banned Interior Secretary Bruce Babbitt from arbitrating disputes between tribes and states for one year was weakened at the end of the session when negotiators shortened the ban to six months.

A previous ban on Interior department involvement in state-tribe disputes expired Sept. 30.

Under the National Indian Gaming Regulatory Act (NIGRA), tribes can only offer gaming if they negotiate all the details of the gambling operations with their home states. The act originally allowed tribes to sue states that did not negotiate in "good faith." But that provision was negated by the U.S. Supreme Court in a lawsuit involving the Seminole tribe of Florida, leaving what Fahrenkopf calls a power void.

The tribes turned to Interior Secretary Bruce Babbitt to fill that void. Babbitt announced he would grant federal approval in cases where tribes and states could not reach agreement. This irritated state governments, who fear a loss of sovereignty, and gaming state member of Congress, who fear the financial impact on their states of Indian gambling.

The ban passed this week staves off Department of Interior involvement for a while, but essentially just buys time. Observers hope a resolution definitively settling the dispute will result from ongoing discussions between tribes, state governors and attorneys general.

Neal doubts a compromise will be easily reached.

"Until there is some give on that by the tribes, the governors feel they're bound by state law," said Neal.

In the meantime, expect both sides to offer competing bills.

"I expect there will be quite a bit of Indian Gaming legislation introduced in the next Congress," said Fahrenkopf.

Also this year, a bill that would have reformed the nation's bankruptcy laws failed to pass, leaving open the possibility that future versions will contain language blocking casinos from collecting debts from bankrupt patrons.

Early versions of bankruptcy reform legislation containing such prohibitions were killed by gaming interests. But because bankruptcy reform failed to pass this session, it must be re-introduced in a future session. And that, observers say, opens the possibility that consumer groups and gambling foes will again try to make it difficult for casinos to collect from their bankrupt customers.

Andy Vermilye, Bryan's legislative director, said gaming interests will try to push the most recent version of bankruptcy reform legislation through Congress under accelerated fast track rules.

A California lawsuit in which a woman claims she should not be required to pay gambling debts run up on credit cards could further complicate bankruptcy reform.

If the woman wins her suit -- expected to be heard early next year -- credit card companies will likely agitate for new laws to protect their interests, said Vermilye.

Another issue likely to haunt gaming interests in future Congresses is the gambling loss tax deduction. A high-profile proposal offered early this year by Sen. Dan Coats, R-Ind., would have eliminated the deduction and used the money to pay for private school scholarships.

The Coats proposal was killed, but the idea of eliminating the gambling loss tax deduction to pay for pet programs is almost certain to resurface, said Fahrenkopf.

"We are now ... sort of on the radar screen," said Fahrenkopf. "We may very well see it again."

"They're always looking for revenue sources," said Vermilye. "Once it's on the table, it is hard to make it disappear."

An issue the gaming industry thought it had won has lately resurfaced and may require legislation by a future Congress, Fahrenkopf said.

When Congress passed Internal Revenue Service reform legislation in June, gaming interests pushed through an amendment intended to prevent casino workers from being taxed for the free meals they are regularly provided. But the gaming industry says the IRS is trying to circumvent the intent of the law by proposing rules requiring casinos to demonstrate eligibility for the exemption on an employee-by-employee and meal-by-meal basis.

Industry representatives, including Fahrenkopf, are fighting the proposed rules. But if they are implemented, there may be a further role for Congress.

"It may be necessary to introduce some more legislation," Fahrenkopf said.

At the end of the session, Congress did pass a bill beneficial to the gaming industry. As part of the budget package, Congress passed a Bryan-sponsored amendment that allows jackpot winners to collect their money in one lump sum, if wanted, rather than as a series of payments spread out over time.

The bill abolishes the tax consequences of collecting jackpots all at once, and allows gaming companies to write off big jackpots at one time, rather than over several years.