Consolidate State Gaming Regulation Into One Agency

Texas should consolidate the state s gaming activities into a single state agency, the Texas Gaming Commission.


Background
The State of Texas regulates three games of chance: pari- mutuel wagering on horses and dogs, bingo and the state lottery. Although bingo has been regulated for some time, pari-mutuel wagering and the state lottery are relatively new state responsibilities.

Each game is regulated by a separate agency, and while each agency has some unique responsibilities, they perform some similar functions. Their differences can be understood by looking first at each agency s legal responsibilities.

Bingo is regulated by the Texas Alcoholic Beverage Commission (TABC). The lot tery is regulated by a division of the Comptroller of Public Accounts; and the Texas Racing Commission (TxRC) regulates the majority of pari-mutuel wagering, with the Comptroller maintaining some tax collecting and auditing responsibilities.

The TxRC s principal responsibilities are:
Awarding licenses for pari-mutuel racetracks;
Adopting rules and regulations for pari-mutuel racing and wagering;
Administering and enforcing horse racing, greyhound racing and pari-mutuel wagering law and rules;
Regulating and supervising each race conducted and the persons who participate in those races and
Adjudicating disciplinary matters.

The Comptroller collects the pari-mutuel tax, and both the TxRC and the Comptroller also conduct audits on each racetrack before each racing season begins. Since the agencies operate independently of one another, duplication of audit procedures can occur. For instance, the TxRC and Comptroller test the totalisator system which calculates, records and displays pari-mutuel wagering information to ensure that the computer hardware and software are recording wagers in accordance with both agencies rules.

The lottery is a division of the Comptroller s office with the responsibility for licensing and regulation of retailers, marketing and enforcement/security.

Bingo is a division within the TABC. The Bingo Enabling Act requires TABC to license bingo conductors, lessors, manufacturers and distributors to ensure that bingo games are conducted fairly by qualified entities that are orga nized or exist for charitable purposes.

Currently, the State Office of Administrative Hearings handles hearings for the TxRC and TABC. Although no hearings have been held at the lottery division, the Comptroller holds administrative hearings on matters regarding the taxes it administers and will eventually hold hearings on lottery license revocation actions and other matters.

All of the agencies discussed above perform four major functions: licensing, enforcement/security, auditing and tax reporting. To p erform these functions, each agency needs administrative support, including the processing of travel vouchers, data processing and office space.

A review of other states reveals that the regulation of pari-mutuel wagering, bingo and lottery are often combined in some form. In Connecticut, the Division of Revenue (tax department) regulates lottery and racing. There is one division for both gaming fu nctions. The division has seven units to administer the following: lottery, gambling, licensing and integrity , security, personnel, administration and planning and research. Lottery oversees game design, advertising and distribution of tickets. The gambling unit handles greyhound racing, off-track betting parlors, bingo and Native American casino gambling. Licens ing and integrity unit issues all occupational licenses for the lottery and gambling units and conducts audits on pari-mutuel wagering facilities. Security oversees enforcement for both lottery and gambling. Planning and research provides legal counsel, he arings for lottery and gambling and long-term planning.

Although Connecticut has a smaller operation, state officials believe their centralization of gaming functions has prompted better communications among the industries and less duplication of services. Additionally, resources have been used more efficiently . 1 If a smaller state benefits from consolidation, it is not unreasonable to assume that Texas also could.

Recently, Colorado also decided to incorporate their pari-mutuel wagering agency into the a gency handling the lottery operations. Since this was implemented so recently, it is difficult to evaluate how well it is working. However, the basis for making this change included the cross-utilization of resources and consolidation of similar functions. 2


Recommendation
Effective January 1, 1995, all functions and responsibilities for pari-mutuel wagering, lottery and bingo should be consolidated and transferred to the Texas Racing Commission (TxRC) and the agency renamed the Texas Gaming Commission (TxGC).

For the gaming currently legalized in Texas (and any future legalized games), a consolidated agency is necessary to provide staff services and handle administrative duties. Since the TxRC members have experience in regulating pari-mutuel wagering, it is re commended that these members carry out their terms as commissioners of the newly consolidated agency.

Currently, there are eight commission members: two are veterinarians, two have knowledge of or experience with greyhound racing, two have knowledge of or experience with horse racing, and the remaining two the Comptroller of Public Accounts and the chair of the Public Safety Commission are voting ex officio members. Under this recommendation, all current commission members would carry out their ter ms of office. A new commission composition would be phased in as each current member s term of office expires. The ultimate composition of the commission would consist of seven members: one veterinarian with experience treating large animals, one veterinar ian with experience treating small animals, four general gubernatorial appointees and, in an ex-officio capacity, the DPS chair. The Comptroller would no longer serve on the commission as of the effective date of the act, which will be January 1, 1995.

State law should require these consolidated functions be performed at the same site as soon as is financially feasible. The statute would also direct the TxGC to consolidate administrative functions such as answering inquiries, collecting fees and processi ng licenses and renewals to the fullest extent possible.

The TxGC would need one agency director. Although the statute should not set out a specific organizational structure, the agency could consist of the following divisions: lottery, racing, bingo, security/enforcement, licensing and administration. This orga nizational separation would ensure that the unique qualities of each game would be adequately addressed.

For example, funds of the lottery should continue to be accounted for as an enterprise fund o perated similar to a business in that it should be self-supporting. By maintaining it as a separate division while devoting a portion of its functions to the centralized administrative staff, it would be easier to ensure the necessary self-sufficiency of t he lottery.

On the other hand, racing is for the most part a private venture regulated by the state. A separate division to handle the unique aspects of racing should ensure the necessary oversight. Bingo also would be best served by a separate division of its own. Because of the inherent differences of these games, separate divisions would be appropriate. The Department of Public Safety would continue its current role with regard to preventing criminal activity, and would be responsible for all criminal investigations related to gaming functions. The hearing process for the TxGC should be handled by the State Office of Administrative Hearings.


Implications
Centralizing the licensing and enforcement functions should result in more efficient use of equipment and personnel. As indicated in Breaking the Mold , a 1978 Sunset Advisory Commission staff report indicated that centralized licensing resulted in lower cost per license stemming from the consolidation of mailing, record keeping, enforcement and purchasing.

Proponents of centralization point out the duplication of effort with so many independent entities. For instance, both the Racing Commission and Comptroller test the totalisator system. Consolidation of all Comptroller responsibilities related to pa ri-mutuel wagering with the TxGC would help centralize responsibility for the licensing and regulation of similar areas. Greater consistency in policy and standards could also be achieved.

Opponents of a consolidated gaming agency contend that pari-mutuel wagering on racing, lottery and bingo are all different. While true, they are also similar. For instance, the dollars spent on these games are all considered to be money available for pleas ure and entertainment activities by the general public. Pari-mutuel wagering and lottery both try to maintain high standards for security and regulation. Lottery, bingo and pari-mutuel wagering in Texas are all forms of legalized gambling.

Additionally, by having a separate security/enforcement division, it is possible to cross-train personnel and achieve higher compliance. 3 This would reduce travel expenses.

One state agency would also promote uniform statewide regulatory practices and reduce duplication. And, if the Texas Legislature authorizes other gaming activit ies in the future, placing these functions in one agency should prompt additional efficiencies. More efficient use can be made of personnel. Additionally, with more experience in fee collections, it would be possible to improve internal controls such as ma king sure funds are deposited in line with the requirements of the TxRC and the Comptroller.


Fiscal Impact
It is not possible to quantify all the savings to the state and the public achieved by consolidation, especially if reduced costs would subsequentl y result in reducing fees paid by the regulated entities. However, if total expenditures in these three areas could be reduced by only 1.5 percent, annual savings would reach $180,952. Consolidation is likely to reduce the amount of necessary office space and common areas (such as break rooms and lobbies). By consolidating separate licensing functions, it is anticipated that less personnel and equipment will be required.

Enforcement costs should be reduced by transferring to the Department of Public Safety the responsibility for the criminal investigations and by cross-training personnel to manage the agency s enforcement activities. The initial training cost should be more than offset by the elimination of unnecessary positions. Consolidation may also make it possible to achieve savings by reducing the salaries or the number of top management personnel in the current operations.



Endnotes
1 Telephone interviews with Rick Orluk, Executive Assistant, Division of Special Revenue, State of Connecticut, November 11, 1992 and November 17, 1992.
2 Telephone interview with Renee Ramirez, Director, Colorado Racing Commission, State of Colorado, November 12, 1992.
3 Comptroller of Public Accounts, Breaking the Mold: New Ways to Govern Texas, 1991, p. GG 9.