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COMMONWEALTH OF PENNSYLVANIA

HOUSE OF REPRESENTATIVES

HOUSE GAMING OVERSIGHT COMMITTEE

* * * * * * * * * *

BEFORE: DANTE SANTONI, JR, Chairman

Curt Schroder, Representative

Gary Day, Representative

Paul Clymer, Representative

James Wansacz, Representative

Joseph F. Brennan, Representative

HEARING: Thursday, May 14, 2009

Commencing at 10:02 a.m.

LOCATION: McFarland Student Union Building

Kutztown University

Room 218

Kutztown, PA 19530

WITNESSES: Sal DeBunda, Michael Ballezzi,

Michael Allen, Colonel Frank Pawlowski,

Major John Lutz, Dr. Art Scott,

Dr. John C. Cavanaugh, Kay McKenna,

Kathleen M. Shaw, Ahmad Al-Hiyari,

Kelly Schaffer

Reporter: Susan Koons

Any reproduction of this transcript

is prohibited without authorization

by the certifying agency


2

I N D E X 1

2

OPENING REMARKS 3

By Chairman Santoni 3 - 4 4

STATEMENT 5

By Representative Schroder 4 - 6 6

By Chairman Santoni 6 - 7 7

TESTIMONY 8

By Mr. DeBunda, Mr. Ballezzi & Mr. Allen 8 - 52 9

By Colonel Pawlowski and Major Lutz 53 - 86 10

By Dr. Scott 86 - 103 11

By Dr. Cavanaugh 103 - 122 12

By Ms. McKenna 122 - 134 13

By Dr. Shaw 134 - 141 14

By Mr. Al-Hiyari 141 - 157 15

By Mrs. Schaffer 157 - 170 16

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P R O C E E D I N G S 1

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CHAIRMAN: 3

Okay. Good morning. I’m Representative 4

Dante Santoni and I’m the Chairman of the House Gaming 5

Oversight Committee. I want to call this hearing to 6

order and welcome all of you. First of all, I want to 7

thank Kutztown University and Dr. Cevallos for their 8

hospitality in providing the venue. It’s a beautiful 9

building and those of us in Berks County are very 10

proud of the tradition and support and what they do 11

here at Kutztown University and for our students 12

throughout the region and for our communities, for 13

that matter. 14

Before we get started, I wanted to have 15

the Representatives introduce themselves and where 16

they’re from. Starting at my far left, Representative 17

Brennan? 18

REPRESENTATIVE BRENNAN: 19

Thank you, Mr. Chairman. Representative 20

Brennan, Lehigh and Northampton Counties. 21

REPRESENTATIVE WANSACZ: 22

Jim Wansacz, Lackawanna, Luzerne, Wyoming 23

and Susquehanna Counties. 24

REPRESENTATIVE SCHRODER: 25


4

Representative Curt Schroder, Chester 1

County. 2

CHAIRMAN: 3

We expect some other members as we get 4

through the hearing. This is the third of four 5

hearings on House Bill 1317, Tuition Relief 6

Legislation, introduced by myself. What we wanted to 7

do today was just --- I’m going to offer some brief 8

remarks. And welcome, as I said, welcome all of you. 9

Let Chairman Schroder offer some and then we’ll get 10

started with the hearing. So at this time, I would 11

like to introduce Republican Chairman, Curt Schroder. 12


Thank you, Chairman Santoni. I, too, am 14

pleased to be here at Kutztown University and 15

appreciate the University hosting this hearing today. 16

As Chairman Santoni has said, this is our third 17

hearing on the video poker legislation. I commend the 18

Chairman for holding these hearings. They have been 19

informative. I think we have all learned a number of 20

things during this process. I expect to learn more 21

today as well as at our final hearing to come in 22

Harrisburg. 23

I will say, however, that this is three 24

hearings more than we have had on the topics that I 25


5

really feel the Oversight Committee should be holding 1

hearings on, and that is the current rather sorry 2

state of gaming, legalized gaming in the Commonwealth 3

and the auspices of the Pennsylvania Gaming Control 4

Board. I’m not going to go through the long litany of 5

missteps and problems that have arisen along the way 6

during the licensing process and the many mistakes 7

that have been made. Suffice it to say that we have a 8

new incoming Chair of the Gaming Control Board and I 9

think this provides an excellent opportunity to, you 10

know, review the practices of the past and see where 11

the new Chair intends to take the Board. So I would 12

certainly encourage us to go down that road and hold 13

those hearings on the many proposals that are out 14

there in order to clean up and clear up gaming in our 15

Commonwealth. 16

I have a lot of concerns about this video 17

poker legislation. Video poker has been identified as 18

the most addictive form of gambling out there. A 19

report by Bob Green of the Department of Psychiatry 20

and Human Behavior from Brown University School of 21

Medicine backs up the assertions in much of the 22

literature that video gaming is the crack cocaine of 23

gambling and goes on to cite about how quickly 24

addictive this form of gambling is. 25


6

We will certainly hear from a number of 1

testifiers today. I do note that, you know, in one 2

instance we are hearing from someone who will testify 3

before this Committee for a third time. And I would 4

only suggest, Mr. Chairman and members of the 5

Committee, that I’m not really sure what there is to 6

be gained from testimony before the Committee of the 7

third time from particular individuals or even 8

instances of multiple testimony. But I would only 9

suggest that perhaps, the most efficient use of the 10

Committee’s time, we could accept the written 11

testimony in those instances and then just ask any 12

questions that we might want to ask. So I just submit 13

that for your consideration. And I would like to, 14

once again, thank Kutztown University for hosting this 15

and the Chair for holding this hearing today. 16

CHAIRMAN: 17

Just a brief response on the bringing 18

back of certain testifiers. I think that the 19

legislation deals seriously with --- I think there’s 20

three components, three players, if you will, on, you 21

know, legislations that we’re going to asking a whole 22

lot of Department of Education, Department of Revenue 23

and the Pennsylvania State Police. And the reason 24

we’re bringing him back, quite frankly, is while we’ve 25


7

been traveling through the state, first hearing in 1

Harrisburg, second hearing in the western part of the 2

state in Westmoreland, and today’s hearing in the 3

eastern part of the state, is to let those people hear 4

what those agencies have to say that are going to have 5

a significant impact with that legislation. 6

And also, because there has been some 7

questions that have not been answered at some of the 8

other hearings. For instance, Secretary Stetler at 9

the Westmoreland hearing did not give his testimony 10

again, but responded to some other questions that had 11

been brought in the previous meeting and they will and 12

will certainly look forward to any other questions 13

that might come up. And I just heard this request, 14

especially from the Chairman, and we’re more than 15

willing to move the hearing quicker, so if any of the 16

testifiers as we move forward, from those three 17

departments are willing to move quicker and give a 18

brief overview of their testimony and then go right to 19

questions, that’s certainly fine with me as Chairman. 20

Okay. Let’s get started. First to 21

testify from the Pennsylvania Thoroughbred Horsemen’s 22

Association, Mr. Sal DeBunda, First Vice-President and 23

General Counsel. Mr. DeBunda, if you could just 24

identify the other gentlemen that are with you and 25


8

then proceed with your testimony, we’d appreciate it. 1

Thank you. 2

MR. DEBUNDA: 3

Thank you very much. To my left is Mike 4

Ballezzi, who's the Executive Director of the 5

Pennsylvania Thoroughbred Horsemen’s Association. To 6

my right is Michael Allen. He’s a lawyer partner with 7

my firm and we’re Counsel to the Pennsylvania 8

Thoroughbred Horsemen’s Association. And good morning 9

to all of you and thank you for this opportunity. 10

As it indicates, my name is Sal DeBunda. 11

I’m First Vice-President and General Counsel of the 12

Pennsylvania Thoroughbred Horsemen’s Association. 13

I’ve also been a horse owner in the Commonwealth of 14

Pennsylvania for over 20 years at least, not only in 15

the Commonwealth, but throughout the United States. 16

The Pennsylvania Thoroughbred Horsemen’s Association 17

is a statewide organization representing horse owners 18

and trainers at Philadelphia Park Racetrack, a group 19

that has about 4,000 members strong. 20

I want to thank you for this opportunity 21

to testify today before the House Gaming Oversight 22

Committee on Bill HB --- House Bill 1317. As we 23

understand it, this legislation would authorize the 24

expansion of gaming in the Commonwealth of 25


9

Pennsylvania. This proposed legislation, as we 1

understand it, would legalize video lottery machines 2

at bars, restaurants and private social clubs that are 3

licensed by the Liquor Control Board. The 4

Pennsylvania Thoroughbred Horsemen’s Association and 5

our membership are extremely concerned about the 6

potential for this legislation to adversely impact the 7

horseracing industry and the progress that has been 8

made under House Bill Act 71, which legalized slot 9

machines in the Commonwealth. 10

Before I get into our specific concerns 11

with House Bill 1317, I would like to take a step back 12

and review the underlying intent and goal of the 13

Commonwealth in enacting Act 71. The full title of 14

the legislation was, in fact, the Pennsylvania Race 15

Horse Development and Gaming Act. In adopting this 16

legislation, the Legislature specifically sought to 17

enhance the horse racing industry through limited 18

gaming at racetracks and a set number of stand-alone 19

facilities. This was a clear recognition of the 20

amazing contributions and positive future 21

contributions that the horseracing industry makes to 22

the economy of Pennsylvania. 23

Specifically, the Act stated that it 24

would benefit the Commonwealth to, one, enhance live 25


10

horse racing, breeding programs, entertainment and 1

employment in the Commonwealth. Two, positively 2

assist the Commonwealth horse racing industry, support 3

programs intended to foster and promote horse breeding 4

and improve the living and working conditions of 5

personnel who work and reside in and around the stable 6

and backside areas of racetracks. Three, enhance the 7

further development of the tourism market throughout 8

the Commonwealth, including, but not limited to, 9

year-round recreational and tourism locations in this 10

Commonwealth. And finally, to provide a significant 11

source of new revenue to the Commonwealth to support 12

property tax relief, wage tax reductions, economic 13

development opportunities and other similar 14

initiatives. 15

Thanks to the Act and the legislature 16

that crafted it, Pennsylvania is in the midst of a 17

revival of the horse racing and breeding industry. 18

Our concern with the proposed legislation in House 19

Bill 1317, legalizing video lottery machines at bars 20

and other establishments licensed by the Liquor 21

Control Board is that it will siphon funding away from 22

our industry, funding that is now just beginning to 23

have real and tangible impact on the industry. 24

Under Act 71, a percentage of gross 25


11

terminal revenues go to the Race Horse Development 1

Fund, which supports an array of programs that 2

underwrite various aspects of thoroughbred and harness 3

racing in Pennsylvania. Eighty (80) percent of those 4

revenues, per the statute, go to a fund designated to 5

increase the amount of purses in the horseracing 6

industry. Sixteen (16) percent is allocated to a 7

breeders’ fund to provide the incentives for the 8

breeding of Pennsylvania thoroughbred and standardbred 9

horses. The final four percent is allocated to the 10

horsemen’s healthcare and pension fund. 11

One of the questions I am often asked by 12

legislators and the general public is whether the 13

gaming law is having the intended impact on the 14

horseracing industry. And the answer is a resounding 15

yes. Prior to the enactment of Act 71, the 16

horseracing industry in Pennsylvania was, to use a 17

metaphor, a patient on life support. The horseracing 18

industry in Pennsylvania was dying a slow but 19

seemingly certain death. The small purses, this is 20

the amount allocated to the horse owners, jockeys and 21

breeders, were driving the betters horses, horse 22

owners, trainers and jockeys to neighboring states, 23

like Delaware, West Virginia, New York. Had it not 24

been for the adoption of the gaming law, I believe the 25


12

majority of our racetracks in the state would now be 1

closed and thousands of jobs lost. Otherwise, at the 2

time that we actually looked at this legislation, 3

we’re talking about 35,000 jobs in the Commonwealth 4

that were affected by the racing industry. 5

Fortunately, that is not the case. On 6

the contrary, our industry has seen a major 7

resurgence. Indeed, as we now, in my opinion, are 8

vying with Kentucky, California, New York and Florida 9

in terms of the overall economic health of our horse 10

racing industry. That's quite an accomplishment from 11

where we were just a few years ago. 12

Act 71 and its dedicated funding to the 13

horse racing industry has allowed us to rebuild the 14

infrastructure of the racing industry in Pennsylvania. 15

I would like to provide you with some examples how 16

that’s occurred. 17

First, improved purses have brought 18

renewed interest from owners and trainers to race in 19

Pennsylvania. As a result, we are seeing higher 20

quality horses racing in our state, which makes for 21

larger fields, improved competition and a better 22

product for our race fans. These increased purses 23

also are one of the best means for dispersing the 24

beneficial impact of slots gaming throughout the 25


13

Commonwealth as racing industry impacts other sectors 1

of the Pennsylvania economy, particularly in the 2

agriculture sector. Owners and trainers who reside 3

throughout the Commonwealth are buying more pasture 4

land, renovating their stables, purchasing new 5

equipment, hiring additional help, purchasing 6

additional horses, creating an increased demand for 7

feed and veterinarian services and other agricultural 8

products. This increase in purses, in addition to 9

saving horseracing in the long term, is having a 10

stimulating impact on the Pennsylvania economy and all 11

those who interact with the horse racing industry. 12

Second, we're seeing an incredible 13

resurgence in Pennsylvania horse breedings. Indeed, 14

by many accounts, Pennsylvania has one of the top 15

breeding programs in the country. Thanks to Act 71 16

and the established allocation to the Pennsylvania 17

breeders, there are now major incentives provided to 18

owners and breeders of Pennsylvania bred thoroughbred 19

and standardbred horses. For example, the Kentucky 20

Derby and Preakness winner Real Quiet is now standing 21

at stud in Pennsylvania. 22

I’m going to divert from my text for a 23

minute and point out to you that up on the screen, 24

you’ll see a mare, which I own, Crashing Thunder, and 25


14

her new baby, which was born ten days ago. Okay? The 1

stallion of that baby is Real Quiet. It’s the first 2

time in my 20 years that I’ve ever bred a horse to a 3

Pennsylvania stallion. And that’s because of the fact 4

that now it pays for me to be able to do that. This 5

is the fifth baby that this mare has had in her life. 6

The other four were bred to Kentucky stallions. So I 7

had to ship the horse to Kentucky, pay the vanning 8

expense, pay the expense to keep it down. And all 9

that money was going out of the Commonwealth of 10

Pennsylvania. This year I was able to keep that mare 11

here, not have to spend that money outside the state 12

and was able to keep it here. So the horse is, as I 13

said, is by Real Quiet and I’m considering the name 14

Real Loud for the horse. 15

Back to my text, if I can. Unless you 16

are very familiar with the racing industry, you may 17

not know this. But it is virtually unheard of to pull 18

a Kentucky Derby winner out of Kentucky and this is 19

the first time that Pennsylvania has ever done that. 20

Real Quiet is no isolated case. We have seen a major 21

upswing in horse breeding here in Pennsylvania. 22

Indeed, we saw a close to 30 percent increase in the 23

number of mares bred in Pennsylvania in 2008. That 24

number is even more impressive when you consider that 25


15

nationwide the number of mares bred over the same 1

period dropped by 7.7 percent. This upswing in 2

Pennsylvania breeding would never have been possible 3

without Act 71 and the incentives it provides for 4

Pennsylvania horse breeders. By the way, that horse 5

you see up there is also my horse. It’s a year old 6

horse to the same mare. I believe we are only now 7

beginning to see the positive impacts that the 8

breeding incentives will have on the overall 9

Pennsylvania agricultural economy. 10

Third, as we're seeing many new people 11

begin to get involved in the horse racing business, 12

thanks to the attraction of larger purses, individuals 13

are realizing that if they make the investment, they 14

will see the returns. Similarly, trainers are 15

expanding and building upon their existing businesses, 16

thanks to the larger purses. We are also luring 17

owners from other states such as Maryland, New York 18

and New Jersey to Pennsylvania, individuals who, in 19

turn, are making an investment in Pennsylvania and our 20

economy. Again, we’re seeing trainers that have never 21

raced in Pennsylvania now come here. These are 22

famous, well-known national trainers who are now 23

racing their horses in Pennsylvania as a result of 24

this. 25


16

This brings me to my fourth point of 1

accomplishments that we've been able to achieve under 2

Act 71. It is a program that I and the membership of 3

the Pennsylvania Thoroughbred Horsemen’s Association 4

are very proud of. Thanks to the increased purses and 5

increased revenues to the industry, our organization 6

last year launched the nation’s first horse rescue 7

program, Turning for Home. This program has become a 8

national model for racetracks and horsemen’s 9

associations around the country who calls us on a 10

regular basis for information and guidance on 11

establishing their own rescue programs. And the 12

program will soon be featured on HBO’s Real Sports 13

with Bryant Gumbel. In addition, the House has passed 14

Resolution 199 honoring Turning for Home and its 15

accomplishments. We thank you for that. 16

Under the program, Turning for Home takes 17

retired or injured horses and through partnerships 18

with non-profit horse retirement programs around the 19

country, finds new careers for them as pleasure, show 20

or riding horses. This ensures that any horse that 21

races at Philadelphia Park will never be in danger of 22

going to the unconscionable horse slaughters. Act 71 23

made this program possible because it allowed us to 24

raise the necessary funds from our members. Thanks to 25


17

increased purses, we are able to assess our horsemen 1

$10 per start and jockeys $10 per win and $5 for each 2

second place win. This allows us to raise roughly 3

$15,000 per month for the placement of horses in this 4

program. In addition, our association and the 5

Philadelphia Park Racetrack contribute a combined 6

$100,000 per year to the program. To date, we have 7

already saved over 200 horses from potential slaughter 8

since the program began just last May in 2008. This 9

program would not have been possible without Act 71. 10

We have also witnessed a fifth major 11

benefit to our association as a result of Act 71. At 12

Philadelphia Park, the owner and operator of the 13

racetrack is investing $25 to $30 million in backside 14

improvements at the racetrack. The old dilapidated 15

barns that house the horses of our members are being 16

replaced with a total of 36 new barns. And there’s a 17

picture of one of them up there of these. With 18

improved air circulation, structural integrity and 19

improved living conditions. We are seeing roadway 20

improvements. The dorms that house many of our 21

caretakers are being refurbished with new air 22

conditioning units and windows, greatly improving the 23

standard of living. That’s an example of the 24

dormitories that’s shown up there. 25


18

At the same time, the owner of 1

Philadelphia Park is constructing a brand new casino 2

from the ground up, with new restaurants, 3

entertainment options and employment opportunities for 4

Pennsylvania residents. For our part, this time next 5

year, the racetrack will also a have a newly 6

refurbished grandstand. I’m not sure if you’ve been 7

near Philadelphia Park recently, but the grandstand 8

has been taken over a lot by the slots and we will now 9

have a complete grandstand back once the new casino is 10

built. 11

And we have received a promise from the 12

operators that they will work with our organization to 13

plan and host more than half a dozen special events at 14

the racetrack next year designed to draw in new 15

customers and rebuild the racing industry’s fan base. 16

This investment by the operator would never have 17

happened without the introduction of slot machines. 18

But a reduction in revenue at casinos 19

could reduce or eliminate these commitments as well as 20

investments in future expansion plans at other 21

casinos. I’m sure that you’re familiar if you’ve been 22

following it that there are plans to expand these 23

facilities beyond the casinos with hotels and all of 24

that. These are all different phases. That’s all 25


19

based on the fact there will be the additional 1

revenue. If that revenue is reduced, this expansion 2

goes away, those phases will never happen because it’s 3

key to those that that happen. 4

Finally, Act 71 has resulted in a major 5

investment in the health and pensions of those 6

involved in our industry. For the first time in the 7

history of the sport, our members are receiving basic 8

health insurance that includes eye and dental 9

coverage. They are receiving death benefits and money 10

is being allocated to pensions for our members when 11

they retire from the industry. This provides a sense 12

of financial security for individuals who participate 13

and partake in the horse racing industry that would 14

have never been possible without Act 71. 15

Again, a little history here --- this was 16

a transient business. Many of the people who work at 17

the racetrack move from state to state. They nearly 18

had no healthcare. They had no pension or anything 19

like that. Pennsylvania became a little bit unusual 20

in the fact that we’re really --- our racetracks, 21

especially the thoroughbred track are year-round. So 22

people tended to become permanent residents of the 23

state, but yet, there were still never any programs 24

for healthcare or pensions and things like that. 25


20

Other states mandated it by statute. We never did 1

that in the Commonwealth. When this opportunity came 2

up, we as a horsemen’s organization pushed for that to 3

happen. And that’s why part of the funds are used for 4

health and pensions benefits for the employees. 5

As you can see, in the two and a half 6

years since the first casino in Pennsylvania opened in 7

November 2006, we have witnessed a remarkable 8

transformation in the horse racing and breeding 9

industry in Pennsylvania that has had profound impacts 10

on the agricultural sector and other aspects of the 11

Pennsylvania economy. Yet, we are just in the early 12

stages of the rebirth of our industry, with many 13

challenges and opportunities still ahead of us. But 14

if we make wise decisions and continue to invest in 15

our industry, there is no reason why Pennsylvania 16

horse racing industry cannot become the economic 17

driver that it is in Kentucky. I believe that we are 18

headed in the right direction to make Pennsylvania the 19

premier horse racing state in the country, but we need 20

to maintain the promise of Act 71 to achieve that 21

goal. 22

In the view of the Pennsylvania 23

Thoroughbred Horsemen’s Association, further expansion 24

of gaming through legalization of video poker and 25


21

other 1

so-called video lottery machines will jeopardize the 2

remarkable progress that we have made over the past 3

two and a half years. Under House Bill 1317, each of 4

the state’s 11,000 bars and restaurants and 3,000 5

private social clubs with liquor licenses would be 6

allowed to install up to five video lottery machines. 7

That creates the potential for another 70,000 machines 8

in the Commonwealth. Currently, there is somewhere 9

about 18,800 slot machines operating in the 10

Commonwealth at the existing casinos. 11

Even if only half of the eligible bars, 12

restaurants and social clubs opt to install the new 13

lottery machines, we are still looking at an 14

additional 35,000 machines in Pennsylvania. That 15

would be nearly triple the number of machines 16

currently in operation today, which would clearly 17

dilute the market and reduce the revenues to the 18

existing machines and casinos. That, in turn, will 19

harm the progress made in the horseracing industry. 20

By siphoning revenues away from existing 21

casinos and the dedicated funding to our industry, 22

that these revenues represent, video lottery terminals 23

will adversely impact our purses, our breeding 24

incentives, our ability to attract new people to the 25


22

industry, funding of the horse rescue programs and our 1

funding of health and pension benefits for our 2

members. It will not only negatively impact the 3

racing industry, but it will also have a detrimental 4

impact on the monies available for property tax 5

relief. So in a sense, you’d be taking from Peter to 6

give it to Paul. 7

While funding for higher education is 8

certainly a laudable and worthy goal, this proposal 9

threatens the remarkable progress we have made in 10

breathing new life into the horse racing industry in 11

Pennsylvania and the positive impacts on the state’s 12

economy that has accompanied that progress. 13

I would like to close by thanking you, 14

Chairman Santoni, and the members of the House Gaming 15

Oversight Committee for the opportunity to share the 16

views of the Pennsylvania Thoroughbred Horsemen’s 17

Association and our members. With that, I look 18

forward to answering any questions that you may have. 19

CHAIRMAN: 20

Thank you, Mr. DeBunda for your 21

testimony. Now, before we go to questions, I want to 22

recognize one of our colleagues who actually 23

represents the area that we’re sitting in here at 24

Kutztown University, Representative Gary Day. 25


23

Welcome. Now, to questions, Chairman Schroder? 1


Thank you, Mr. Chairman. Mr. DeBunda, 3

towards the end of your testimony, you specifically 4

referenced your concerns with video poker, video 5

lottery terminals diluting the market and siphoning 6

revenues into the existing slots casinos that your 7

industry benefits from. Do you have any actual 8

statistics or are you aware of the experience of any 9

other states that bring in video poker after it has 10

operated licensed casinos? 11

MR. DEBUNDA: 12

I’m not sure that there is any experience 13

where that’s happened. I’m not sure there’s a state 14

that has both video poker in taverns and, at least I’m 15

not aware of it, and also in casinos. 16


Well, you might be interested to know 18

that West Virginia did just that. They had a mature 19

casino industry and later on, I believe in around 20

2002, they introduced video lottery terminals into 21

approximately 1,600 liquor establishments and they 22

have a total of 8,164 video lottery terminals. And 23

according to a publication, Gaming Industry Observer 24

of March 9th of this year, 2009, they concluded 25


24

that --- let me find the exact words here --- it says 1

the accompanying chart plainly shows West Virginia’s 2

limited video lottery sucked the growth out of the 3

state’s very own gaming industry. And –--. 4

MR. DEBUNDA: 5

They only have two casinos in West 6

Virginia. We have ten or more here. 7


Yeah. That’s true. They do have --- 9

they actually have, I think, four casinos in West 10

Virginia according to the information that I have here 11

and this comes from Spectrum Gaming, the organization 12

that’s involved with the annual gaming congress that 13

some have attended. So according to this information 14

on West Virginia, it appears to me that your fears 15

that you just testified to are, you know, well founded 16

and have actual real life experience that we can turn 17

to and look at as a way to predict what the impact 18

will be on existing slots revenues that, as you 19

mentioned, fund our property tax relief programs, as 20

well as some other areas of state governed interest, 21

as well as your horse breeding industry. 22

And which also just backs up one of my 23

concerns, other very big concerns is that when the 24

licensees see this kind of threat that they thought 25


25

would not be there under Act 71, that they will, in 1

fact, sue and demand the $50,000,000 license fee back 2

from the Commonwealth. So I just wanted to comment on 3

your testimony because I think that in West Virginia 4

there is ample evidence to suggest that we could have 5

the exact problems here if we get into the video 6

poker, video lottery terminal business. 7

MR. DEBUNDA: 8

Thank you for bringing that information 9

with you. 10

CHAIRMAN: 11

Representative Wansacz? 12


Thank you, Chairman Santoni. First off, 14

I would just like to applaud Representative Santoni 15

for making this --- for bringing this hearing to 16

Kutztown University. As you know, the goal here is to 17

make college more affordable. And I want to thank you 18

guys for testifying about your concerns. I think that 19

is the purpose of these hearings throughout the state 20

is to listen to people and see how we can maybe accept 21

that ability. But I remember when we passed the 22

Gaming Act. We heard from many people from this 23

realm, including the horse industry. As you said, you 24

were on a dying thing until we passed gaming law. 25


26

If you look around right now, college is 1

unaffordable and it’s only getting worse. So as a 2

State Legislature, we have to do something to try to 3

make it more affordable. Otherwise, we’re going to 4

have many, many people continuing to leave the state 5

in order for better jobs. So we have to do something 6

and it’s our job to look at it. 7

Just as we try to help you out, you guys 8

got 12 percent of the revenue, which last year in 9

2008, ended up at about $200,000,000. So I mean, I 10

know your grief. I can understand where you’re going 11

with this. So what I would hope is that we can all 12

try to work together to try to make college more 13

affordable because that is the intent. Now, would you 14

support that I be able to try and make college more 15

affordable? 16

MR. DEBUNDA: 17

Obviously, as I said, there is a very 18

laudable goal and I have children and I’ve had to pay 19

for college. So I’m aware of the issue here that 20

you're raising. And I think that we want --- 21

education as a very important part of the growth of 22

our economy. I think that what I would suggest is 23

that there are other alternatives that may be 24

available that would not actually directly compete 25


27

with the casino. You already have licensed facilities 1

for gaming in Pennsylvania. We have the casinos. 2

They have them in Delaware; they have them in West 3

Virginia. Most of what people are doing is trying to 4

find other opportunities within those organized 5

casinos to basically raise additional revenues. 6

You may have read this, Delaware now is 7

going to be having sports betting in their facilities. 8

That’s a result of the fact that Pennsylvania has done 9

so well with its casinos, they're creating 10

competition. So I think there’s abilities to use the 11

same facilities you have, and expand the opportunities 12

there rather than creating potentially another --- 13

now, we only used half. 14

If all the institutions, you know, put in 15

five, you have basically, you know, an unbelievable 16

number of slot machines throughout the Commonwealth 17

plus the casinos. And I don’t think you can support 18

them and the growth you are going to see from those 19

when that happens. So I think there has to be a 20

balance that’s there. But in our opinion at least, 21

opening up all these places with liquor licenses to 22

have slot machines is not the way to go. That’s our 23

feeling. 24

I think that there a --- the goal can be 25


28

achieved, I think, if the Legislature works at half 1

the --- also, again this property tax relief in here, 2

but this industry is going to grow. And I think if 3

the growth occurs there will be opportunities to maybe 4

fund both of those things out of the same sources, as 5

long as you expand the opportunities at those 6

particular casinos. And that’s our opinion. 7


You know, that’s always easy to say until 9

you start talking numbers. Then, I guess you would 10

say if this industry continues to grow like it is, 11

would you be willing to take less than 12 percent is 12

an issue? 13

MR. DEBUNDA: 14

The answer to that would be no because 15

we’re trying to maintain the program that we have. 16

Don’t forget, that 12 percent does not go only to 17

purses. It goes to ---. 18


I’m aware of what it goes to. It goes to 20

the healthcare --- I have the breakdowns. 21

MR. DEBUNDA: 22

But it also ---. 23


So what I’m trying to say to you, it’s 25


29

easy to say that, it’s a hard decision now to try to 1

come up with the money. When we look at it, we’re 2

going to need about a billion dollars a year, over the 3

next year, just to allow our students in Pennsylvania 4

who graduate from a Pennsylvania high school and want 5

to go to a Pennsylvania school to come up with that. 6

That’s a billion dollars. That’s tough to come up 7

with, especially when we’re facing a $3 billion 8

deficit just here alone in Pennsylvania. Now, you 9

talk about jobs created. There's a ton of jobs 10

created by college graduates and a ton of job created 11

at the universities throughout the state. 12

MR. DEBUNDA: 13

Let me explain something to you so you 14

have the 12 percent and why my answer is no. We don’t 15

take 12 percent of the entire industry. Our max is 16

based on 12 percent of Philadelphia Park. So for 17

example, when the standalones in Philadelphia open, 18

they will compete with Philadelphia Park. We will not 19

get 12 percent of what happens at these standalones. 20

We will get 12 percent of Philadelphia Park. But to 21

make it a level playing field, all of the casinos will 22

contribute to that 12 percent so that we won’t get 12 23

percent of all of them. We're going to only get 12 24

percent with Philadelphia Park today or four years 25


30

from now even when the rest of them are built. So 1

we’re not getting it based on everything. 2

So there will be contributions from those 3

and Philadelphia Park’s contribution will go down. 4

Philadelphia Park’s contribution will go down, but our 5

number will basically still be only what Philadelphia 6

Park generates and that is likely to go down in the 7

future because of competition. So that’s my reason. 8

If we were getting 12 percent of everything, I think 9

we could work with that. We’re only getting 12 10

percent of what Philadelphia Park does. People at 11

Penn National are only getting 12 percent of what that 12

casino does, not 12 percent of everything. 13


Well, I’m familiar with that I have 15

Mohegan Sun in my area and I see what they’re doing. 16

But our concern is we do need to find a way to make 17

college more affordable. And I understand --- and 18

being in the Legislature nine years, I constantly 19

hear, yeah, it’s a great cause. Just take the money 20

from somewhere else. Well, we need to come up with a 21

way to try to do this. 22

For nine years, we’ve been trying to make 23

college more affordable. The money is not there. So 24

we’re looking --- and I’m not sure if this is the 25


31

perfect answer, if it’s not the perfect answer --- 1

but, I applaud it for at least thinking outside the 2

box to try and make it more affordable. And what I’m 3

asking is, if you guys have better ideas, maybe come 4

to the table with those suggestions. Let us know and, 5

you know, otherwise then if you fought it, maybe we 6

should reconsider putting in some of that money or to 7

be going towards making college more affordable. 8

MR. DEBUNDA: 9

Well, my operator friends wouldn’t want 10

to hear this, but as I suggested to you, their 11

contribution to go down is more open. There may be 12

some room there, okay, for some of that money. But I 13

don’t want to be here suggesting --- I’m not on the 14

Legislature. I don’t want to be here suggesting to 15

you, but their contribution will go down as more of 16

the slot parlors open at the various institutions. 17


Now, as I indicate --- 19

MR. BALLEZZI: 20

Excuse me. May I interrupt? 21


Yeah, please. 23

MR. BALLEZZI: 24

Michael Ballezzi. We have in place ---. 25


32

CHAIRMAN: 1

Could you please get up to the 2

microphone, sir? 3

MR. BALLEZZI: 4

We have in place currently the 5

infrastructure necessary to expand gaming and what 6

your bill suggests is the expansion of gaming. At the 7

current racetracks and standalones, that 8

infrastructure is already in place to expand gaming. 9

All we need is the legislation, and by that I mean 10

table games, card games, et cetera. It would be, in 11

my opinion, more prudent to go in that direction where 12

you still have it under control, you have the 13

infrastructure, you have all the policing in effect, 14

you have both locations that are already been 15

satisfied, many of the geographic as well as union and 16

community and necessities. They are in place. 17

You have the perfect opportunity, then, 18

to carve aside for education part of that revenue 19

through expanded table games. And that’s a 20

consideration that I think you should look at very 21

seriously, rather than go into a whole new area that’s 22

really foreign that would be in competition directly 23

with our industry, which would be in competition with 24

Act 71, and as the Representative indicated, it would, 25


33

in a sense, be like West Virginia and gut much of our 1

Act. 2

And so that’s a consideration and it’s a 3

solution. If you’re going to expand gaming, expand it 4

in an area where you can now control it, which you do, 5

and which you will have direct benefit to not only our 6

industry, but to education. And I think that’s a good 7

suggestion. 8


Well, I can tell you, I support table 10

games, but we’re going to have to do that at a much 11

lower tax rate. We’re not going to, obviously, do it 12

at the 55 percent that we have right now because it’s 13

much more labor intensive. We’re going to talk about 14

creating 10,000 jobs when you do that. But also a 15

concern is a part of this is just like the horseracing 16

industry, which struggled for many years, before the 17

pass of gaming, our bars and our taverns and our small 18

mom and pops which also employ, in my guess, it would 19

be over 35,000 people in Pennsylvania are hurting 20

right now are struggling as well. 21

And so we really need to look at how do 22

we help them as well. So what I’m asking for, just 23

like as you guys came to us and said we need help, 24

they’ve come to us and said we need help as well. And 25


34

so many students throughout Pennsylvania have come to 1

us and said please make college more affordable. And 2

if you look at the statistics, if you project out the 3

cost of college at the current rate of inflation now, 4

there’s not many people in this room that are going to 5

be able to afford a college education if we don’t do 6

something soon. And that’s why we have to start 7

thinking outside of the box to come up with revenue 8

sources. Thank you, Mr. Chairman. 9

CHAIRMAN: 10

Thank you, Representative Wansacz. Just 11

a gentle and respectful warning please, members of the 12

audience, please don’t yell out while people are 13

questioning or answering questions. It’s a gentle and 14

respectful warning. Representative Day has a 15

question. 16

REPRESENTATIVE DAY: 17

Thank you, Mr. Chairman. First of all, I 18

want to thank you for bringing us here to wonderful 19

Kutztown University. I’d like to welcome everyone 20

here to Kutztown University and thank the University 21

for hosting this. If anyone is considering higher 22

education, this is a wonderful opportunity right here 23

in Pennsylvania and we’re in one of the most beautiful 24

parts of our Commonwealth. 25


35

Thank you for your testimony today. I 1

have a couple quick questions. For those new to the 2

argument that we’re talking about here today or the 3

issue, Act 71 was the legislation that allowed slot 4

machines in Pennsylvania; is that correct? 5

MR. DEBUNDA: 6

Yeah. At racetracks and certain 7

standalones that were included. 8


Okay. And now we’re considering --- 10

we’re having a hearing on a piece of legislation that 11

would expand the industry’s activity into what would 12

be video poker as what is being commonly referred to 13

into other venues, such as bars and hotels in our 14

Commonwealth; is that correct? 15

MR. DEBUNDA: 16

I’m not sure I understood your question. 17

Can you ---? 18


What we’re talking about here today is an 20

expansion of gambling in which way? 21

MR. DEBUNDA: 22

It would allow five machines per location 23

that has a liquor license. 24



36

And give a couple examples of what those 1

would be. 2

MR. DEBUNDA: 3

They could be taverns, they could be 4

sports bars that have liquor licenses, they could be a 5

Bennigan's that has a liquor license, it could be 6

social clubs that have a liquor license. 7


I am a new State Representative, so I 9

wasn’t here to vote on Act 71, but I do have some 10

questions. When the Commonwealth of Pennsylvania 11

allowed the slot machines in Pennsylvania last year 12

through Act 71, did you say the racetracks’ business 13

models were strengthened? 14

MR. DEBUNDA: 15

As a result of Act 71? Yes. You’ve seen 16

a complete --- you go to Penn National that basically 17

started from scratch and built a whole new casino and 18

racetrack there. 19


That’s really my next question. Did 21

Pennsylvania racetracks invest in Pennsylvania based 22

on the understanding that Act 71 was going to be the 23

extent of gambling in Pennsylvania? 24

MR. DEBUNDA: 25


37

They did it after the Act was passed. 1

Until it was passed, they did not do that. 2


After the Act was passed, racetrack ---. 4

MR. DEBUNDA: 5

There’s two parts of it. One is that 6

they were mandated primarily to do some backside 7

improvements, which are mandated in the statute. They 8

did that. In fact, Philadelphia Park exceeded the 9

obligation there. They also are now building 10

racetrack facilities, upgrading those and they’re also 11

building the casinos. I would say that Philadelphia 12

Park alone has spent over $350 million. They’re still 13

spending it in upgrading their facilities. 14


So in the case of Philadelphia Park, they 16

agreed and supported the mandates, as well as went 17

beyond the mandates --- excuse me --- they agreed and 18

supported as well as went beyond the mandates of 19

investment in the Commonwealth of Pennsylvania based 20

on Act 71 was going to be the extent of gambling? 21

MR. BALLEZZI: 22

May I make a comment on that? 23


Sure. 25


38

MR. BALLEZZI: 1

There’s no question that the operators 2

would not have agreed under any circumstances to spend 3

the amount of revenue that they’re spending, nor would 4

they have agreed to be taxed at the rate they are if 5

they felt within two years or three years they were 6

going to have the considerable competition that this 7

bill suggests. It doesn’t make economic sense to 8

invest $300 or $400 million into a facility, which 9

within two or three years may have competitions which 10

they cannot withstand. Particularly, you have to pay 11

attention to the amount of the tax that the operators 12

are paying. And I think you’re right on point, 13

Representative, when you understand that this 14

competition from this many video machines throughout 15

the state will have a devastating impact, not only to 16

the horse industry, but on the operation of the 17

casinos themselves. There’s no question about that. 18


And you’re answer is that’s really what 20

I’m trying to understand from you from testimony about 21

your position or your industry’s position, as you know 22

it, as far as the Commonwealth of Pennsylvania 23

represented itself, our government in, you know, as 24

Act 71 was going to be it. I don’t remember hearing 25


39

any conversation at the time from the outside and not 1

being a State Representative of, you know, any type of 2

expansion of gambling. So I’m a little bit concerned 3

at the business position that the Commonwealth puts 4

itself by offering one thing and --- you said two or 5

three years, but this is a year later, less than a 6

year? 7

MR. BALLEZZI: 8

Well, for some. 9


For some. 11

MR. BALLEZZI: 12

Well, but on that point, gaming in bars 13

and taverns were considered at the time of Act 71 and 14

was rejected. There’s no question that we had a 15

debate, the House had a debate, legislation amendments 16

to be included in the bill for the tavern owners were 17

considered and they were rejected at the time and 18

because the expansion, first of all, would have been 19

too wide, and second of all, we could not have gotten 20

operators to put up the amount of money necessary if 21

we had the dilution of gaming as that Act had 22

suggested. 23


One of my last --- well, the last 25


40

question of this line is, did anyone in Pennsylvania 1

government --- the Governor, the staff, anyone in 2

administration, any elected officials, did anyone 3

represent to you, you know, the fact that we may be 4

going beyond Act 71? 5

MR. DEBUNDA: 6

As Mr. Ballezzi said, it was certainly 7

proposed by the lobbyists and people who were 8

supporting the, you know, taverns, but it was rejected 9

at that time. It was not suggested that they would 10

bring it up again in the near future. 11


When you’re dealing with government, it’s 13

hard to say who you’re actually negotiating with 14

sometimes, whether it's members of the Legislature who 15

are passing law, or the Governor who is the executive 16

and represents our government here. I’m trying to 17

understand, was it represented to you during that 18

negotiation --- I’m glad you brought that up. I 19

wasn’t aware of that --- and during that negotiation, 20

did anyone bring up, hey, listen, we’re going to come 21

back for another bite of the apple and try to get this 22

again after we make this deal and you guys agree to 23

it? 24

MR. BALLEZZI: 25


41

Oh, to the contrary. To the contrary. 1

The initial gaming that was to be considered in the 2

future were table games. The exact proposal that I 3

suggested earlier, that we would look at the slot 4

machines in their totality, give it several years to 5

have it mature, look at their revenue stream, look at 6

its impact on the community in terms of crime, et 7

cetera, and then perhaps, look at its direct effect to 8

the Commonwealth in areas outside of the racing 9

industry, in fact, for property taxes. And then to 10

come back and look at the possible expansion in that 11

respect. But expansion outside the infrastructure, 12

that would have been outright rejected. 13


Part of me wants to ask you your personal 15

feeling on dealing with a government that shifts, you 16

know, its position, but I’m going to leave you off the 17

hook on that question there right now. The State of 18

Maryland is currently looking at taking over Pimlico 19

Racetrack, which was the host of the Preakness stakes, 20

one of the three legs of the Triple Crown. Government 21

constantly coming in and looking to take over things, 22

we do it in certain cases where we develop our last 23

resort for the government or we do things that the 24

private sector is not willing to do when it’s good for 25


42

the community. How do you feel about that whole issue 1

of the State of Maryland taking over a racetrack like 2

Pimlico? 3

MR. DEBUNDA: 4

Well, they had great difficulty. In 5

fact, after this Act 71 was passed, I guess a horseman 6

from Maryland called me and he wanted to know whether 7

they could make Laurel a part of the Commonwealth of 8

Pennsylvania because he was very pleased with what had 9

been done here. 10


Laurel’s another racetrack, right? 12

MR. DEBUNDA: 13

Yes. And the problem is that they have 14

had the same issues that we had in the Commonwealth 15

prior to the concerns about having slot machines and 16

the effect on the community and all that other 17

activity as well. And they have not been able to get 18

their act together and get it done. And that’s --- 19

plus, and this is maybe something I shouldn’t say, but 20

the owner of Pimlico is not well liked. Mr. DeFrancis 21

is not well liked in the Commonwealth and that’s, I 22

think, part of the inability to get that passed as 23

effective. 24

But now, what happened was Mr. DeFrancis 25


43

then brought in a partner, Mr. Stronach, Frank, who 1

came in and bought the track and a lot of other 2

tracks, and he’s recently filed for bankruptcy. That 3

has created an issue with whether or not the Preakness 4

will stay in Maryland, which is a very important 5

element of their racing. So that’s where all of this 6

going. 7

We don’t have those problems here. We 8

also, we have just the opposite effect. The 9

Pennsylvania Derby has gone from basically $250,000 to 10

$1,000,000 the last and to $2,000,000 now. So we’re 11

seeing an expansion of that, and we’re now attracting 12

some of the same horses that would have run in those 13

kinds of races. And so we’re going the opposite way 14

with that. So I don’t see any problem here if this 15

continues, if the funding continues, that we’re going 16

to have that kind of problem. 17

Maryland has just not been able to get 18

their act together in terms of coming up with 19

legislation that will --- where to put the slots, 20

whether to put them at the racetracks, et cetera. And 21

I don’t believe that government should get involved in 22

taking over racetracks. 23

MR. BALLEZZI: 24

Just briefly, you created in Act 71 an 25


44

opportunity for free enterprise to really take over 1

their industry and have it grow. This is a success. 2

The Legislature in Pennsylvania has created a success 3

in an industry. To now take that success, look at it, 4

and then reject it or in any way diminish it, doesn’t 5

seem prudent. It’s successful. It’s working. The 6

facts are there. In a very short time, we’ve turned 7

around our industry, so much so that our premier 8

event, the Pennsylvania Derby, is probably going to be 9

one of the most successful derbies in the country in a 10

not too distant future, including The Kentucky Derby, 11

The Preakness, et cetera. That’s a success and you 12

gentlemen created that success. So we’re hoping that 13

we’ll maintain it and not diminish it. 14

MR. DEBUNDA: 15

And the other thing is that we have --- 16

just to expand a little bit on what we’re talking 17

about doing in the future, there’s other 18

opportunities. The standardbred industry has the 19

largest sale in the world in Pennsylvania, Hanover 20

Shoe Farms. It’s the premier sale of standardbreds. 21

Pennsylvania has no sale of thoroughbreds. They have 22

a small little one now that’s come in since Act 71. 23

You have to go to Timonium, to Florida, Kentucky, 24

California, Texas. They have horse sales. There is 25


45

no horse sale of thoroughbreds in the Commonwealth. 1

There also is in Maryland, a wonderful training 2

facility that exists. 3

Now, the reason I mention that, as a 4

result of Act 71, I personally have been meeting with 5

the Berks Equine Council, Berks County Equine Council 6

and Madeline Feudman (phonetic) and Kathy Herbein and 7

those people and we’ve met with Senator O’Pake about 8

it. We’ve met with Al Boscov about it, about doing 9

two things in Berks County as a result of this. One 10

is to actually start having horse sales here in Berks 11

County to bring horsemen here to put their horses 12

here. When you have a sale, you have to bring the 13

horses here. You have to put them on a farm. You 14

have to buy feed. You have to do those things. 15

There’s been discussion about using the facilities in 16

Berks County to do that. You make it a mecca for 17

horse sales in Pennsylvania of Pennsylvania bred. 18

The second this is to maybe put a 19

training center here in Berks County. That’s been 20

discussed. We’ve had those discussions. Now, Mr. 21

Boscov got a little busy recently with having to rebuy 22

his company, so that’s distracted him a little bit. 23

The economy has not helped. But those kind of 24

discussions are going on. If this competition occurs 25


46

and takes that away, that will never happen in the 1

Commonwealth of Pennsylvania. 2


I appreciate your comments. I was just 4

trying to point to the fact that the racetrack in 5

Maryland is falling on financial issues. You’re here 6

today to say you believe the same may happen with 7

competition and we may be starting on that path. So 8

I’m worried about that a little bit. I’m also 9

reserving any comments on gambling in particular. The 10

focus of my questions today is about the business 11

relationship between the Commonwealth of Pennsylvania 12

allowing an activity and industry in the Commonwealth 13

and then changing within a year for some folks that 14

have invested millions of dollars, changing after 15

that. 16

MR. DEBUNDA: 17

And we're very surprised and disappointed 18

by that. 19


And I appreciate that. And I think most 21

people would understand that. I want to just make one 22

more comment, Mr. Chairman, and I’m sorry to take so 23

much time of your Committee meeting. My familiarity 24

with Pimlico and some of the reason why it seems like 25


47

I understand the industry a little bit more than maybe 1

a newer person is because I had a family member that 2

spent quite an amount of time at a racetrack. And you 3

know, it’s not all positive. I don’t purport myself 4

to be someone who is a hundred percent behind, you 5

know, gambling in Pennsylvania. But I do want to say 6

the Commonwealth of Pennsylvania has represented 7

itself in one way, and I think we should remain 8

steadfast so that more businesses look at us, more 9

industries look at us with being consistent that when 10

we make a deal, we stick with it. Thank you, Mr. 11

Chairman. 12

CHAIRMAN: 13

And you’re welcome. We’re behind 14

schedule. I want to be respectful of all testifiers' 15

time. So I just have a couple comments and brief 16

questions. Well, first of all thank you for your 17

testimony and thank you for your endorsement of Act 18

71, pointing out the good things that have come out of 19

that Act. I know that too often we hear anecdotal 20

evidence of how terrible it is what we've done in 21

passing that legislation back in 2004. But thank you 22

for the effect that it had on your industry, 23

horseracing, the effect that it had on agriculture, 24

the effect that it had on economic development in our 25


48

communities and in our state, and the effect that it 1

had in somewhat reducing our school property taxes, 2

not as much as we want, but we still have a number of 3

larger facilities that we can get online, so that 4

property tax help will be furthered by those openings. 5

So thank you for your endorsement of Act 71. 6

Do you --- and I don’t even know if you 7

can answer this question --- is there when casinos 8

open at your facility, at your racetrack, do you know 9

people that go over and play the slots and come over 10

and bet on the horse races, do you have any idea of 11

the numbers of people that do both? 12

MR. DEBUNDA: 13

Well, I can tell you that the experiences 14

that I’ve observed is that a couple, a husband and 15

wife, would come and they both don’t have the same 16

desire. One can go and bet the horses and one can go 17

and bet on the slot machines. And we see that happen 18

often. The interesting statistic, and I think that 19

the Representative from the Commonwealth was here, 20

when days of live racing occur, the handle on the 21

slots goes up. So there is definitely a contributing 22

factor that when you have live racing coupled with the 23

slot machines, the handle is higher than it is on the 24

days that we do not have live racing on the slot 25


49

machines. So it think that that is a definite impact 1

of having the facilities together. 2

So I don’t have the actual numbers, but I 3

think it supports the proposition that does occur 4

because, again, typically on a couple, if the one 5

member of the family wants to go to the slots and 6

there’s no racing, the person may say I don’t feel 7

like going. If there’s something for the other person 8

to do, they may both go and that may actually increase 9

the handle that day. 10

MR. BALLEZZI: 11

You may want to reference the report 12

presented by Melinda Tucker of the Gaming Board if 13

she’s here. They conducted a survey by polling 14

various racetracks that have casinos and it showed 15

that on race days the handle was substantially higher 16

on the casino side. And that’s a published report 17

that I’m sure your Committee can get a copy of. 18

CHAIRMAN: 19

We’ll take a look at that. Thank you. 20

MR. DEBUNDA: 21

Since we’re talking about reports, I just 22

may suggest they’ve never done it in the Commonwealth 23

of Pennsylvania, but New Jersey actually did it for 24

Rutgers. And their industry is much smaller than 25


50

ours, their horseracing industry, they don’t operate 1

the whole year around and they have a lot less tracks. 2

The contribution to the economy there was $1.1 billion 3

from just the horseracing industry in New Jersey. I 4

think we’ll probably triple that number in the 5

Commonwealth. And you may want to look at that report 6

also if you can get your hands on it. If not, we can 7

supply it to you. 8

CHAIRMAN: 9

Thank you. The other issue is we’re 10

talking about the expansion of gaming and that’s, in 11

my opinion, debatable. We had a gentleman, a director 12

of the gaming lab, Mr. Michael Cruz, that testified at 13

our first hearing in Harrisburg, that talked about 14

what the differences are between the slot machines and 15

what’s being proposed for the video lottery terminal 16

with regards to House Bill 1317. So we --- I know 17

some people mention that, talk about the expansion of 18

gaming, but there’s opinions out there, people that 19

know the machines a lot better than, I think, any of 20

us do, that know the inner workings that say that they 21

are very different. And casinos, to my knowledge, 22

have not come out in opposition to House Bill 1317. 23

So I just wanted to put that on the record also. 24

And finally, I do want to just reiterate 25


51

what my colleague from Lackawanna stated about the 1

importance of educating our kids and having them come 2

out of college without a huge debt. There’s a reason 3

that we brought this hearing to Kutztown University 4

today and there’s a reason that we brought the hearing 5

to Westmoreland last week to the Westmoreland County 6

Community College. There is a potentially $3 billion 7

deficit in our budget for this coming year. When the 8

Senate Republicans passed Senate Bill 850, that did 9

even more cuts and less money coming back to our 10

communities for education, which means higher property 11

taxes. 12

So we are looking at a way --- in an 13

atmosphere that there’s no stomach for any cuts. I 14

don’t think anybody wants to do that. And looking at 15

an industry that is out there and we’ll hear later on 16

as to the impact of that from the State Police. And 17

we’re looking generating revenue to help kids go to 18

college, help their parents so that when they come out 19

of college, those kids, the first thing that they’re 20

not looking at is a huge debt that they have to pay as 21

they start their lives in the real world, if you will. 22

So I just want to thank you for your testimony and I 23

appreciate you coming out to Kutztown today. Thank 24

you. 25


52

MR. DEBUNDA: 1

Thank you for the opportunity. And I 2

want to pick up on we --- our members live here in the 3

Commonwealth. We’re concerned about everything here, 4

including education. We offered to be part of the 5

dialogue and part of the solution in talking to you 6

about the needs you have. So we do very much 7

appreciate being part of that dialogue. 8

CHAIRMAN: 9

Okay. Thank you. The next testifier 10

from the Pennsylvania State Police, Colonel Frank E. 11

Pawlowski, Commissioner, and Major John Lutz who is 12

the Director of the Bureau of Liquor Control 13

Enforcement. Gentlemen, when you’re ready. 14

COLONEL PAWLOWSKI: 15

Good morning, Mr. Chairman. 16

CHAIRMAN: 17

You need to speak pretty close to the 18

microphone. 19


Good morning, Mr. Chairman. I have 21

prepared testimony and to your pleasure I’d like it 22

read into the record. Good morning, Chairman Santoni 23

and distinguished members of this Committee. My name 24

is Colonel Frank Pawlowski, Commissioner of the 25


53

Pennsylvania State Police. With me today is Major 1

John Lutz, Director of the Bureau of Liquor Control 2

Enforcement. I would like to extend my thanks to the 3

Committee, to the House of Representatives Gaming 4

Oversight Committee, particularly Representatives 5

Santoni and Curt Schroder for the opportunity to 6

participate in these hearings. Prior to answering 7

your questions, I have a short opening statement that 8

provides a quick overview on the issue of illegal 9

video gambling devices in Pennsylvania. 10

The State Police have estimated that 11

approximately 17,000 or more illegal video gambling 12

devices are currently in operation throughout the 13

state. These devices generally consist of two types 14

of machines, video poker and video slot. The slot 15

machines being more popular statewide. The vast 16

majority of these machines are located inside licensed 17

liquor establishments. Most of these illegal machines 18

are owned by vending machine companies who, in 19

addition to the illegal devices, also provide other 20

legal machines such as cigarette machines, juke boxes 21

and pool tables. There are literally hundreds of 22

vendors located throughout Pennsylvania engaged in 23

this business. 24

The outcome in playing illegal video 25


54

gambling devices is based entirely on chance. There 1

is no skill involved. The percentage of winning 2

combinations is preset via a circuit board inside each 3

machine and generally ranges from 25 to 80 percent. 4

Players have no idea the payout percentage set for any 5

particular machine. If a player wins, the manager or 6

bartender is responsible for paying out the winnings. 7

The credits on the machine are then knocked off or 8

played off. The proprietor also prepares a payout 9

slip to keep track of the winnings paid out. 10

An employee of the vendor usually visits 11

each establishment on a weekly or biweekly basis to 12

empty the machine, at which time the proprietor is 13

reimbursed for payouts. Most machines are equipped 14

with internal counting devices, which serve as a means 15

for the vendors to verify the winnings. After payouts 16

are reimbursed, the profits are split between the 17

vendor and proprietor based upon their business 18

agreement. Often the split is 50/50, although it can 19

range from 60/40 percent for either side. 20

Conservatively, one machine receiving an average 21

amount of play can generate $600 or more in profits 22

per week, which would then be split between the vendor 23

and proprietor. Machines receiving heavy play will 24

generate much more. 25


55

In practice, a bar or club having four or 1

five machines could make several thousand dollars per 2

week. The big winner is the vendor who, depending on 3

the size of his territory, can make well into the 4

millions of dollars per year in untaxed revenue 5

through this criminal enterprise. 6

While these machines are labeled For 7

Amusement Only, the Bureau has never observed a 8

machine in a licensed establishment that was not used 9

for gambling purposes. We are sometimes asked why 10

these machines continue to flourish particularly in 11

certain reasons in Pennsylvania. The first reason is 12

that investigations into illegal video gambling 13

devices tend to be resource intensive, from the 14

undercover operation used to observe payoffs, the 15

obtaining search warrants and transporting and 16

inspecting machines for knock-off and internal 17

accounting devices. 18

Furthermore, the vast majority of 19

enforcement action taken by the Bureau of Liquor 20

Control Enforcement are conducted through the 21

Administrative Law Judge, where the penalties are 22

relatively light and provide little or no deterrent 23

for the licensed establishment. Finally, most 24

district attorneys, with their offices already busy 25


56

prosecuting more serious crime, are unwilling to 1

prosecute illegal video gambling devices criminally. 2

Even when a significant criminal case is made against 3

a vendor, the penalties are usually relatively light. 4

That said, in fairness to the men and 5

women in our Bureau of Liquor Control Enforcement, I 6

would like to clear up one misconception regarding 7

illegal video gambling devices. The Bureau of Liquor 8

Control Enforcement has not turned a blind eye towards 9

this violation and consistently has, and continues to 10

take appropriate enforcement action when illegal 11

machines are observed. Towards that end, in 2008 the 12

Bureau initiated 48 criminal prosecutions, issued 174 13

administrative citations and seized 537 illegal video 14

gambling devices from licensed establishments in the 15

Commonwealth. 16

Furthermore, the Bureau is currently in 17

possession of over 2,600 illegal video gambling 18

devices being stored in property rooms across the 19

state, either in conjunction with active 20

investigations or awaiting a court order authorizing 21

destruction, at an overall cost in excess of $100,000 22

per year. Unfortunately, our experience has shown 23

that illegal machines are usually replaced very 24

quickly after they are seized, by either the same 25


57

vendor or a competing vendor. 1

The State Police believe House Bill 1317 2

sets forth an effective plan to provide regulation to 3

an underground industry that heretofore has flourished 4

in Pennsylvania. With the additional enforcement 5

provisions of this legislation and the legal 6

alternative it offers to licensed establishments and 7

their patrons, we believe it will result in the 8

removal of illegal machines in Pennsylvania and an end 9

to the criminal enterprise that currently exists. 10

I’ll now answer any of your questions and Major Lutz 11

is head of the Bureau of Liquor Control Enforcement is 12

also available to respond to any of the questions that 13

you have regarding his operation. 14

CHAIRMAN: 15

Thank you very much, Colonel, for your 16

testimony. First questions are from Representative 17

Schroder. 18


Thank you, Mr. Pawlowski and Major Lutz. 20

Welcome and thank you for your testimony. I note, 21

Commissioner Pawlowski, your testimony is in one 22

particular area and I’m going to ask questions that 23

are marginally consistent with what Major Lutz 24

presented at the previous hearing that was held. I 25


58

could not make that hearing and I only read Major 1

Lutz’s testimony for the first time last night. And I 2

want to ask questions about this issue of the vendors. 3

I was, frankly, taken back and taken back 4

by your testimony, Commissioner, at the activity of 5

the vendors. I understand the police, the State 6

Police and local police position that there’s so many 7

bars that have these illegal machines and 8

investigations are so labor intensive. You have to 9

catch them in the act. The penalties are so small 10

that they are just back doing it anyway. And I can, 11

while maybe not, you know, approve, but I can 12

understand the reluctance for, you know, the zeal to 13

really go after this when you have loads of other 14

things on your plate. I get it. I do get that. 15

But what I don’t understand is it seems 16

to me you have this illegal criminal enterprise as was 17

Major --- you both called it criminal enterprise of 18

these vendors who in essence, as I see it, act as the 19

dealers or perhaps, actually, as a cartel, where they 20

go in to the bars. They’re the only ones who have 21

access to the machines. They open the machines. They 22

give the tavern owner his or her take. And then, they 23

take their 50 percent or 40 percent, whatever it is. 24

And by your own testimony, they’re making millions of 25


59

dollars a year tax-free. In other words, they’re 1

frauding the IRS, the federal government, the 2

Department of Revenue here in Pennsylvania and making 3

a lot of illegal problems. 4

My question is this. It seems to me that 5

this whole enterprise could be shut down quite easily 6

or much more easily by just going after the vendors. 7

And even if the Administrative Law Judge penalties are 8

not very severe and strict as you’ve noted, when a 9

prosecution is fraud, is this information turned over 10

to the IRS and the Department of Revenue? That’s my 11

first question. 12


Yes, Representative, it is. We do 14

conduct investigations against vendors. And just as 15

our regular investigations in the bars when we come 16

across a machine is complex, it’s compounded in 17

investigating a vendor operation. The surveillance is 18

much longer. To put a case together is much more 19

complex and it’s extremely manpower intensive. But we 20

still pursue these cases. In a number of cases we 21

often do refer the cases to the Internal Revenue 22

Service, and it’s up to them to proceed. Sometimes 23

they do, sometimes they have other priorities. 24

But we do make these cases, attempt to 25


60

make these cases. As I mentioned, they are extremely 1

difficult to make. The time, often valuable grand 2

jury time, the grand juries have the power around the 3

state, and sometimes drug enterprises and other 4

violent crimes take an awful lot of time in grand 5

juries. So it’s a matter of prioritization on the 6

part of the district attorneys to get us into grand 7

juries. 8

Nevertheless, we do do that. And we find 9

some type of prosecution that the more you do make 10

cases, there are plea bargains. Last year out in 11

Allegheny County a vendor paid a $100,000 fine on the 12

spot after pleading guilty to improper organization, 13

both personally and as a vendor. And when these 14

vendors come under scrutiny and are investigated, the 15

competition steps in. We made get his warehouse, shut 16

down his operation. But immediately, because this 17

business is so lucrative, the competition steps up, 18

offers their services and we continue to chase the 19

other people. 20


You said that this information does get 22

reported to the IRS? 23


Yes. 25


61


What about the Pennsylvania Department of 2

Revenue? 3


Depending on the nature of the case, yes, 5

we would report it to the Department of Revenue. 6


Are you aware of what the IRS and the 8

Department of Revenue has done with this information 9

once it’s reported to them? Have they brought 10

actions, obtain convictions for, you know, tax fraud, 11

tax avoidance, that sort of thing? 12


Sometimes they will pursue it and make a 14

tax case. It depends on the people involved. I know 15

sometimes when organized crime is involved, that gets 16

their attention. Other times, it’s a matter of 17

priorities with the Internal Revenue Service. And the 18

case is never fully investigated. It’s just a matter 19

of priorities with that organization as well. 20


Yeah. As I said, I can appreciate the 22

concern about priorities and I do understand the 23

police have and I'm sure you have bigger fish to fry 24

and public safety and whatnot has top priorities. But 25


62

it does seem to me that when you refer and you bring 1

testimony to this ongoing criminal enterprise, and 2

that’s your words, not mine, that this is something to 3

be taken seriously. And just as --- you know, just as 4

Al Capone didn’t go to jail for the murders he 5

committed or sanctioned, he went to jail for tax 6

avoidance or tax fraud if I remember correctly, as 7

have many others in organized crime or elsewhere. 8

It seems to me the way to deal with this 9

from a law enforcement prosecutorial point of view is 10

to, you know, crack down on the vendor side of this 11

equation. You dry up the vendors and force them to 12

pay, you know, back taxes and penalties and get 13

convictions that way. You know, they're not going to 14

continue to engage in this activity and therefore, the 15

bars will not have any source or supply to get these 16

machines. And I guess that’s the part I’m still 17

grappling with as to why either state police, local 18

police or various tax agencies such as the IRS or 19

Department of Revenue have not taken that aspect of it 20

more seriously. 21

But I will say this. I intend to follow 22

up on that very issue in contacting the Attorney 23

General, United States attorneys, the IRS and the 24

Department of Revenue, sending them copies of your 25


63

testimony and asking them --- you know, daring them to 1

not do anything about it basically. Because I think 2

once this is before them in this fashion, I don’t see 3

how they can ignore it. So I appreciate your 4

testimony today. I think that’s all my questions for 5

now. Thank you. 6


Representative, let me just add 8

something. I’m not going to speak for the Internal 9

Revenue Service, but knowing past history, when you 10

have an investigation like this, you’re bringing in 11

forensic accountants, you’re bringing in agents there 12

that have a accounting and white collar crime 13

background and they get bogged down in this. And as 14

you well know, I think the resources of the federal 15

government are limited to a certain degree as powerful 16

as they may be. And I think of what’s happened on 17

Wall Street the last few years, you go back to other 18

major violations of a crime. This is where the 19

resources have been directed. 20

CHAIRMAN: 21

Representative Brennan? 22


Thank you, Mr. Chairman. Thank you, 24

Commissioner and Major, for your testimony here today. 25


64

Just a couple of questions and I promise to be brief. 1

It’s just kind of eye opening. You estimate 17,000 2

currently illegal poker or slot machines throughout 3

the Commonwealth and a prior testifier from 4

Thoroughbred Association said that, I believe, it's 5

true that we have some more slot parlors open. 6

There’s only 18,800 legal machines in existing slot 7

parlors. Do you have any projections --- I thought 8

you said a $600 figure on what you thought a machine 9

could generate in profit in a week. And then you do 10

then say it’s a conservative estimate. I’m not real 11

good at math, but we’re probably talking about a 12

fairly significant amount of money statewide that it 13

literally, as Chairman Schroder alluded to and is 14

currently untaxed, unreported and being used for 15

reasons that we have no oversay on how it’s being 16

used. Do you have an estimate on how much revenue 17

we’re losing right now? We’re, I guess, the slot 18

industry or horse industry, I mean, they’re losing 19

because these things are already covered throughout 20

the state? 21


We, as a police agency, we don’t have 23

that kind of information at our fingertips. Major 24

Lutz can speak about a number of specific cases that 25


65

are rather eye opening as to the amount of money. 1

That’s one of the reasons why the State Police go for 2

citizens, because we realize the fraud involved here, 3

the amount of money that’s going untaxed. It’s an 4

underground economy and people get hurt in this. And 5

as you state, there are opportunities to put this 6

money, these tax revenues to good use. But Major Lutz 7

deals with this day in and day out and he can tell you 8

a few cases there as far as an estimate value of what 9

we lose in the underground economy. The State Police, 10

we don’t have that and I’m unaware of any federal 11

studies or findings that may be out there. 12


And thank you very much. Major, I have 14

one question I was going to ask anyway. Maybe you can 15

tie them together. How many LC --- Liquor Control 16

Enforcement agents are there across the state? 17

MAJOR LUTZ: 18

Representative, my full compliment is 140 19

officers and 24 supervisors. 20


So about two per county, two and a 22

quarter per county? 23

MAJOR LUTZ: 24

Approximately. 25


66


What are their other responsibilities in 2

addition to looking into the issues like illegal video 3

poker? 4

MAJOR LUTZ: 5

All aspects of regulation and enforcement 6

with regards to licensed establishments in 7

Pennsylvania. So that would include everything from 8

nuisance bars, noise and disorderly operations, sales 9

to visibly intoxicated persons, sales to minors. We 10

also assist local police departments with problem 11

bars. We also provide assistance around the state 12

with large venue events, concerts, stadium events 13

where underage drinking may be occurring. 14


And you’re responsible for overseeing 16

every licensee in terms of enforcement of the code 17

throughout the Commonwealth with a compliment of 140 18

or so? 19

MAJOR LUTZ: 20

That’s correct, sir. 21


And in a typical, how would a complaint 23

on a video poker, typically, how would you hear a 24

complaint? Would someone call the local police 25


67

department? Would someone call the State Police? 1

Would someone call the D.A. and then they bring it to 2

your attention? Is that usually the --- if it’s other 3

than you’re investigating a particular vendor who you 4

just know has a history and is --- how would you 5

typically be notified of that? 6

MAJOR LUTZ: 7

A complaint can come in in a couple of 8

different ways. First of all, some of our complaints 9

are just observed when our officers are out inspecting 10

bars for other problems. So that’s a very common way 11

for us to observe machines. And in the course of that 12

investigation, obviously, if there are machines in a 13

bar or tavern, then we would take appropriate 14

enforcement action, which would also include, at that 15

point, trying to observe a payoff on the machine. The 16

other manner in which we can get a complaint is we get 17

a referral from either a municipal police department, 18

or occasionally we just get phone complaints on our 19

hotline in one of our district offices. 20


And again, I know that prior testifiers 22

have left and we have many more scheduled, but, I 23

mean, the fact of the matter is, agree or disagree 24

with the issue here, it is happening. And I guess, if 25


68

I’m on their side, I would argue this may be a step in 1

the right direction because we’re bringing it to some 2

kind of standardization. Again, they’re competing now 3

against an equal number of machines that are illegally 4

placed. So they're already losing revenue based on 5

that alone and certainly 141 officers, the time that 6

it takes to conduct the investigations, you couldn’t 7

do it. 8

MAJOR LUTZ: 9

That’s correct. I mean, it comes an 10

issue of prioritization and we try to focus on the 11

quality of life issues, quality of life complaints 12

with the bars, noise and disorderly operation and 13

nuisance bar. Obviously, if you’re a neighbor living 14

next to that bar, life is not very good. So those are 15

the things we try to prioritize. 16


Thank you very much. Thank you, Mr. 18

Chairman. 19

CHAIRMAN: 20

I would like to recognize another member 21

that joined us. Representative Paul Clymer is with us 22

and he has a question. 23

REPRESENTATIVE CLYMER: 24

Thank you, Mr. Chairman. And good 25


69

morning, Colonel Pawlowski and Major Lutz. Nice to 1

see you this morning. Here’s my concern that when we, 2

--- in the experiences that I have seen with this type 3

of gambling, whether it’s the slot machine or the 4

video poker machines, as it begins to spread, 5

certainly you get organized crime that now sees a good 6

way to step in and make money. And when you have 7

9,000 or 10,000 independent liquor license 8

establishments now getting up to five video poker 9

machines, isn’t that a concern to you? I mean, it’s 10

not business as usual. You’re going to have a lot 11

more work on your plate simply because of the 12

organized crime people are going to say this is 13

lucrative. This is some of the best deals that we 14

have seen. I don’t know how you’re going to control 15

all of that and yet assume the responsibility for the 16

casinos that are opening up. I mean, god knows we 17

have had our problems with those ever since they 18

became legitimized back in July of 2004. I mean, 19

we’re still seeing problems with that whole casino 20

operation. So my question is, doesn’t organized crime 21

present a problem for you? 22


Representative, you’re right, but what 24

the State Police likes about this legislation is that 25


70

for the first time we’re able to control these 1

machines. They’re tied into a central computer. 2

Right now with these machines, it's like the wild 3

west. I’ve referred to this in the past. There is 4

absolutely no regulation and no control. It’s totally 5

under the control of the vendors and the bar owners 6

there that take these machines in. The payout is 7

totally unregulated. They’re not tied in. This 8

legislation, one, ties into the computers to a central 9

operating system where it can be monitored so we can 10

monitor it there. And we’re seeing that when it’s 11

centrally monitored, that makes our job --- will make 12

our job a little easier. 13

Secondly, the fact that the legislation 14

allows for serious ramifications for violations of the 15

law. We finally have that stick that we can use to 16

bring these licensed establishments to voluntary 17

compliance. Up to this point in time, there really 18

has not been a motivating force for them to voluntary 19

comply, to comply voluntarily, I should say. What 20

happens is, is that we grab a machine that goes out 21

and within the next couple hours there’s a new machine 22

in there, knowing that the fine that they face is easy 23

to handle, often paid by the vendors as a cost of 24

doing business. 25


71


I only submit that we have had that same 2

centralized computer service for the casinos that are 3

online. And there are seven casinos online, two more 4

coming very shortly. And we still had problems. A 5

lot of them deals with the Pennsylvania Gaming Control 6

Board. But nevertheless, my point is there are still 7

unsettled questions that are out there, and as members 8

of the Pennsylvania State Police, you know more than 9

ever as anyone that when they did --- the Bureau of 10

Enforcement investigation has not done their job as 11

properly as they should have because they could never 12

get that information, that closed information that’s 13

only available to law enforcement agencies. We’ve had 14

this battle within the General Assembly. What I’m 15

saying, even though your telling me that this new 16

centralized computer is going to track all the dollars 17

that are being paid in the machines, I submit to you, 18

there’s still going to be a lot more problems. 19

And the other issue that I have is that 20

the buying and selling of the licenses of these 8,000 21

or 9,000 machines or liquor license establishments 22

doesn’t say that they can be limited, to my 23

understanding, to two or three. I think you’re going 24

to see organizations come in there and buying and 25


72

selling these licenses because they’re going to become 1

very profitable. So how are you going to track who 2

has this license. You have people coming into the 3

City of Philadelphia maybe from some foreign country 4

buying 100 of these liquor licenses and putting these 5

establishes up since I don’t see a referendum to allow 6

anyone the opportunity to make a statement whether 7

they want these in their cities in the first place. 8

That’s another issue. But my concern is that there 9

are many unintended consequences that we’re going to 10

experience and then it’s going to be too late. Then, 11

we’re going to try and say, well, how do we solve 12

them? And then we already have the casino problems on 13

our backs and now we have this. So it’s not your 14

bill. I’m only trying to point out some of the major 15

problems that we’re going to be confronted with. 16


Thank you, Representative. With regard 18

to your first observation, the problems experienced by 19

the Liquor Control Board in their formative years with 20

its sharing of information, that’s a separate problem 21

well within the operation of the slot machines onsite. 22

I can tell you right now that the operation of these 23

slot machines is extremely well controlled. There is 24

absolutely no evidence of the influence of organized 25


73

crime on those machines. The gaming sites are safe 1

sites and the profits that these gaming sites have 2

brought to Pennsylvania speaks for themselves. 3

From the crime standpoint, I’m proud of 4

the work the Pennsylvania State Police has done on 5

these sites. They’re safe sites, obviously, and the 6

citizens of Pennsylvania enjoy going to them now. So 7

the machines themselves, we think there is integrity 8

in the machines and the patrol of those machines and 9

we expect that integrity to transfer over to the 10

Department of Revenue and their oversight in these 11

machines. 12

As far as the issuance of licenses, the 13

licenses are already issued through the Liquor Control 14

Board and it would be the Department of Revenue that 15

would have oversight as to how these machines are --- 16

who would get them. We would work with the Department 17

of Revenue to ensure that no parties that are unsuited 18

to possess these machines or oversee their operations 19

receive licenses. 20


Thank you, Mr. Chairman. 22

CHAIRMAN: 23

Representative Day? 24



74

Thank you, Commissioner, for joining us 1

today. I appreciate your testimony. I have a couple 2

quick questions. Do you have any statistics about the 3

impact on crime, crime statistics as a result of 4

gambling, you know, whether it’s an increase in 5

arrests or anything that --- can you share with us the 6

impact of gambling on crime? 7


Unfortunately, the uniform crime reports 9

that all law enforcement uses nationally to gauge 10

crime rates does not allow the breakdown of crimes as 11

to motive or the reason behind it. You’ll just see 12

the number of thefts, the number of homicides, the 13

number of robberies and the like. So we don’t have 14

hard and fast figures like that. In Pennsylvania as 15

in anywhere, I see anecdotal information. Sad stories 16

of people that get involved in embezzlement. And 17

that’s just categorized as a theft by our records, but 18

when the tale truly comes out at the end, you ask for 19

the motive and this person was taking trips to 20

Atlantic City or something like that. Those stories 21

do exist. They’re out there. They do exist. We do 22

not really keep, though, statistics regarding 23

individuals that may be in bars that are overindulging 24

in the slot machines there. That information will 25


75

come to our attention. Major Lutz mentioned the 1

hotline. Every so often we’ll get a call from a wife 2

or a spouse with concerns that my husband’s spending 3

too much time in the bar on the slot machines. Can 4

you do something about it? So we take that. But 5

unfortunately, from a law enforcement standpoint, we 6

don’t have those statistics. I’m sure there are some 7

academics out there that have done studies that might 8

be of some help. 9


I don’t know you that well, but you’ve 11

been an officer or trooper for how long? 12


Thirty-one (31) years, sir. 14


Thirty-one (31) years and you bring your 16

experience to the table and when you say, you know, 17

you hear sad stories and you use –-- I was thinking 18

about some other crimes, but it does sometimes, a lot 19

of times, tie back to money problems and money 20

problems are because of gambling. So I appreciate you 21

sharing that with me. 22

Why wouldn’t the Pennsylvania State 23

Police or its Commissioner take the position to 24

support an increase in penalties or staffing to 25


76

address this issue? Why wouldn’t you take that 1

position as opposed to this as a solution? 2


We have taken that position all along in 4

that we do need more staffing. But then again, Major 5

Lutz says there’s prioritization. And Major Lutz and 6

I sit down and we discuss the priorities for Liquor 7

Control Enforcement, we see this happen in the 8

communities, quality of life, college campuses. 9

That’s one of the things that I sat down with members 10

of the Legislature and voiced my concern that when 11

college students come back to town after a summer of 12

whatever they’re doing, their conduct sort of gets out 13

of control. So what we’ve done is put a lot of State 14

Police and Liquor Control Enforcement resources to 15

college towns to try to get some reform in the streets 16

like that. 17

We do work --- unfortunately there hasn’t 18

been a political will or any other support to increase 19

the penalties to get some legislation to declare these 20

machines per se. This is something that, I guess, I'm 21

going to have to say is just generally accepted. 22

There’s other priorities out there, especially in the 23

last few years, the gun violence that the cities are 24

facing, the gangs and the like. Gambling just doesn’t 25


77

get traction. It just doesn’t get traction. 1

We can get the attention of Legislators’, 2

District Attorneys when we can tie it to organized 3

crime and make it sexy for lack of a better term. But 4

the day-to-day things, this is something that exists 5

in Pennsylvania, has existed for as long as I’ve been 6

a state trooper. That’s not to say it’s right, but 7

it’s been out there. And we continue to enforce it 8

where we can and that’s why we can --- when this 9

legislation was --- when it was crafted, they sat down 10

with us and said what do you need to make you more 11

efficient to make this proposal even more manageable 12

and they listened to us. And we talked about 13

different ---. 14


Who’s they? I’m sorry. It’s kind of 16

another question. 17


Okay. 19


Who’s they? 21


It’s the Governor’s Office there that sat 23

down and crafted the beginning stages of this 24

legislation. The Governor came up with the idea and 25


78

they sat down and asked, what do you need? And all 1

our needs made it into this bill, pretty much so, the 2

forfeiture, the enhanced penalties. And they’re the 3

things that we asked for and we got it. So we’re 4

pleased in that regard. 5


Well, I’m glad to hear that. And that 7

was some of the thoughts that I had also as I was 8

curious as to how it was crafted, whether your office, 9

your staff were involved in that. So I’m glad that 10

you answered that question for me also. And let’s 11

talk about that process a little bit more. How did 12

the Governor, his staff, whoever was in charge of this 13

type of legislation came to you and said ---? I used 14

to be the assistant to the Mayor of Allentown, third 15

largest city compliment of over 200 officers and many 16

times we had an issue that impacted the police 17

department or crime or whatever, I would go to talk to 18

the police chief. And it was kind of a negotiation 19

where I tried to stay back away from becoming a police 20

officer and telling them what to do, used his 21

experience and his staff to formulate positions. Do 22

you feel like the Governor did that? 23


Yes. But this started out as an 25


79

initiative for education, to fund education in these 1

difficult times. So once you get that idea on the 2

table, then they bring the other partners in, the 3

Secretary of the Department of Education, Internal 4

Revenue's brought in and then you were brought in 5

essentially at the same time. And each agency was 6

asked to review the proposal, come out with your 7

thoughts and then over the next few weeks and months, 8

there was a free exchange of ideas and concerns. How 9

can we fund education? 10

There’s certainly concerns about the 11

impact on the existing gaming industry. There are 12

concerns on law enforcement as well as revenue, the 13

impact on the lottery. These were all things that 14

were thought through and the legislation that’s before 15

us today is our best attempt to advance this 16

opportunity for education. And these hearings are 17

important that these are excellent opportunities to 18

get the whole issue vetted. I like the opportunity to 19

come out here and explain the problems that we’re 20

facing with illegal video machines. We haven’t had a 21

venue like this for as long as --- maybe when Attorney 22

General Preate developed these problems years ago. 23

But this thing is an active part of the common 24

discussion and this is a great opportunity for the 25


80

State Police to get out and voice our concerns. 1


Thank you, Mr. Commissioner. I’m really 3

glad that you’re making this testimony because it’s 4

exactly in line with the questions that I had for you. 5

I’m in a position where most of these people on this 6

agenda are proponents of this bill. So it puts me in 7

a position where I have to ask questions to try to 8

find out more. It makes me look like I’m totally 9

against it. I’m really not. I’m trying to understand 10

and utilize --- we have a Pennsylvania State Police 11

Commissioner before us, utilize your expertise and try 12

to answer some of --- all of our questions. 13

With that, I have a couple other hard 14

questions for you. And they’re not meant in any way 15

to impugn upon your experience or your professionalism 16

at all. But they’re questions that I believe that I 17

need to ask for people in my district, as well as the 18

Commonwealth of Pennsylvania. 19

You had mentioned that the first --- you 20

know, the first initiative was a feel good, perfect, 21

good idea. How do we fund education? The others turn 22

to expansion or a legalization of current gambling in 23

Pennsylvania, is the nicest way I can put it, as the 24

means to the end to fund education. I am not someone 25


81

that would look to just what are we doing, and the 1

means don’t matter how we get them. 2

So I don’t support that part of what was 3

said about it. And other people, not just members, 4

but other people have said that. I think you have to 5

look at the results, look at the tales that are 6

created. You know better than I do of the tales that 7

are --- and the Major knows better than I do, the 8

tales that are created by gambling. With that said, 9

the means, would the Pennsylvania State Police or its 10

Commissioner feel the same way about the legalization 11

of marijuana? 12


No. 14


Heroin? 16


No. 18


Why? 20


Two different things. Two different 22

things. I think that there’s plenty of medical data 23

out there regarding marijuana and heroin and the 24

pervasiveness with problems that drug abuse affects 25


82

the society. And I’m dead set against it. It’s 1

pretty well established. And I think there is a 2

distinct difference between the appetite America has 3

for legal drugs and the appetite America has for 4

gaming. 5


I have to think about that. I look at 7

illegal drugs that are illegal for use except when 8

some of the drugs are legal by a doctor, you know, who 9

can prescribe them. But illegal drugs sometimes are a 10

gateway into other things that you’re dealing with and 11

your organization is dealing with. Many people 12

believe that gambling does also. I’m not going to get 13

into a long, long questioning. That’s more probably 14

for our social professionals to answer, but I 15

appreciate your answer and I appreciate your time here 16

today. Thank you, Mr. Chairman. 17

CHAIRMAN: 18

I have been very laxed in allowing 19

members to stray from what we’re talking about. I’m 20

going to start ringing the gong. I don’t want to 21

muzzle anybody’s questions or muzzle any of the 22

debate, but questions about how a Bill becomes a law 23

are not appropriate for this committee. So I’m going 24

to ask my members again, gently and respectfully, to 25


83

stay with the issue at hand. With that, 1

Representative Wansacz has a question. 2


Thank you, Chairman Santoni. And Major 4

and Colonel, thank you for testifying today. You 5

really did format amongst a nice --- it's almost 6

impossible with the number of people that you have to 7

enforce all of these machines that are out there, 8

there's no mistake. And I was finding it kind of 9

ironic you have these proposals out there, Senate Bill 10

850, and colleagues of mine want to pass it to cut 11

more of your funding, so they’re going to ask you to 12

go ahead and how can you not do this, and cut more of 13

your funding and say, well, we didn’t cut your funding 14

more, you can go ahead and force these illegal 15

machines. Well, I always find that pretty interesting 16

whenever that takes place. My question is, under this 17

specific Bill, would it --- one of the concerns that I 18

have is the way its set up now is through a central 19

computer that we run like the state lottery. Would it 20

be better off if we were to license vendors and have 21

them go through background checks, kind of like what 22

we do for the gaming, and have them go off and then 23

contract with the liquor license establishment? Would 24

that not help you guys a little bit more, because that 25


84

would kind of --- these vendors that are in there 1

would self-police maybe some of these illegal vendors 2

because they would want the take, would that help? 3


Yes, it would. I guess for simplicities 5

sake, if you’re dealing with one vendor for the whole 6

state, probably not the best business model, but it 7

would be simple for us because we’re only talking 8

about one background, one person to go to when there’s 9

questions. I think the selection of the vendors and 10

that whole chemistry better answered by Secretary 11

Specter. I’m dealing with the Pennsylvania State 12

Police to do background investigations and the like 13

there. But as far as creating the business model, I 14

don’t have a business major. That’s why I became a 15

cop, I guess. And I think that the Secretary of 16

Revenue would be best to discuss how they reach the 17

decision as to how many vendors. And I’m not quite 18

sure that decision’s been reached yet. Part of the 19

testimony over the past few weeks, as well as up to 20

next week will flesh out that issue. 21


Thank you. 23

CHAIRMAN: 24

Representative Clymer has another 25


85

question. 1


I just have a follow-up question 3

concerning that the previous Legislator had mentioned 4

about legal problems. I’m not going to go in that 5

direction, but I do need to tell you that addiction to 6

gambling is a serious, serious matter. This is a 7

report from CNN, the Time partnership with CNN and 8

this is what they had come up with as a result of it. 9

Investigating the issue down in South Carolina, but 10

much of the --- and I’m quoting from this report --- 11

but, much of the new resistance has focused on video 12

gambling, which experts have called the crack cocaine 13

of wagering because of its quick and deep hold on 14

players. Now gentlemen, to say that somehow you can 15

control these video poker machines, which are the 16

crack cocaine of gambling that you’re going to create 17

enormous addition across Pennsylvania. The Morning 18

Call just said that when the Las Vegas Sands opens up 19

in Bethlehem, 40,000 gamblers, my word. We’re talking 20

a very serious operation here. All I’m saying is that 21

there are going to be many unintended consequences. I 22

know you’re here to present the position of the 23

administration. You don’t have to respond if you 24

don’t want to, but let’s at least realize what we’re 25


86

looking at. Let’s be realistic and pragmatic about 1

the issue. Thank you, Mr. Chairman. 2

CHAIRMAN: 3

You’re welcome. Just a couple points. 4

Number one, we’ve heard that argument on crack cocaine 5

addiction. Jim Pathas, who testified at our first 6

Harrisburg hearing, this is just for the record, of 7

the Compulsive Gamblers Group in Pennsylvania in his 8

testimony, he’s not supportive of this legislation, 9

indicated that there’s no correlation, that there’s no 10

studies out there that suggest that there’s a 11

correlation, I should say. Colonel Pawlowski and 12

Major Lutz, thank you for your testimony. I do 13

appreciate and respect what the State Police do. I am 14

sure, I am sure, I'm positive that if this legislation 15

gave you more work and gave you more grief and gave 16

you more problems, then you wouldn’t be supportive of 17

it. So I do appreciate your time and I’ll see you 18

soon. Thank you very much. 19


Thanks for having us. 21

CHAIRMAN: 22

Our next testifier is a community college 23

president from Northampton Community College, Dr. Art 24

Scott, who is here present. Dr. Scott, when you’re 25


87

ready. 1

DR. SCOTT: 2

Good morning. Thank you for the 3

opportunity to speak with you about the proposed 4

Tuition Relief Act. My name is Art Scott and I'm 5

currently the president of Northampton Community 6

College, where I spent the last 33 years of my 7

professional career. During that time period, I have 8

developed a strong passion for providing accessible, 9

affordable higher education, a belief in the 10

transformative value of that education and an 11

unwavering commitment to the notion that, as a nation, 12

we need to shift the dialog away from access --- I’m 13

sorry, away from access to higher education being used 14

as a personal benefit to a conversation that 15

acknowledges that access to higher education is 16

critical to our nation’s well being. 17

A report released this month by the 18

Brookings Institute entitled Transforming America’s 19

Community Colleges: A Federal Policy Proposal to 20

Expand Opportunity and Promote Economic Prosperity, 21

asserts that, and I quote, the link between national 22

educational attainment and national economic 23

well-being has never been clearer. Throughout the 24

20th century and the 21st, countries with higher rates 25


88

of school enrollment have achieved higher levels of 1

per capita income. 2

President Obama recently called for a new 3

national goal that by 2020, America will once again 4

have the highest proportion of college graduates in 5

the world. President Obama made that call, the 6

Brookings Institute study contends, to acknowledge a 7

hard truth. And again I quote, as a nation we have 8

lost more than a century-long advantage in post 9

secondary education attainment and are at risk of 10

falling farther behind. Stagnating educational 11

achievements threatens our nation’s ability to meet 12

critical workforce needs, ensure rising standards of 13

living for future generations, and close the racial 14

and economic gaps that for too long have marred our 15

economy and our democracy. 16

At the current time, according to the 17

Brookings report, America is no longer the most highly 18

educated nation in the world, with at least ten other 19

nations surpassing our educational attainment levels. 20

Will the proposed Tuition Relief Act change all that? 21

No. But I would argue, it’s a wonderful start and we 22

have to start somewhere. 23

Two years ago, Ralph Puerta, the 24

president of the Saucon Valley School Board, forwarded 25


89

to me an article that was written by Tamim Ansary 1

entitled What Community Colleges Mean to Democracy. 2

Mr. Ansary took on the issue of whether our country is 3

drifting away from being a land of equal opportunity 4

by pointing out that data show that a high achieving 5

child from a poor family has less of a chance of 6

graduating from college than a low achieving child 7

from a wealthy family. Our society should never 8

accept an uneven playing field when it comes to 9

education. Educational opportunity for all should be 10

a moral imperative in this country. 11

We all know that affordability is a 12

critical factor in maximizing access to higher 13

education. Yet the College Board’s Rethinking Student 14

Aid Panel notes that community college students are 15

allocated less financial aid than their four-year 16

college counterparts and that the rules surrounding 17

financial aid further limit its usefulness. That’s an 18

interesting public policy issue if, for no other fact, 19

than annually community college enrollment is 20

increasing at over twice the rate of that at four-year 21

colleges. 22

Northampton Community College is the 23

fastest growing community college in Pennsylvania on a 24

percentage basis for the past five years. Our 25


90

enrollment has increased 82 percent since the fall of 1

2000. And the total number of minority students we 2

serve has more than doubled since the fall of 2003, 3

giving us the distinction of having the highest number 4

and the highest percentage of minority students in our 5

region. 6

We are currently a participant in the 7

Lumina Foundation’s Achieve the Dream Initiative, a 8

project that requires us to take a very close look at 9

graduation and persistence data by gender, race, 10

ethnicity and socio-economic groupings. One of the 11

interesting early findings coming out of the data 12

review has to do with Pell Grant recipients. When we 13

looked at persistence rate for all students in the 14

2003-’04 academic year, we found that fall to spring 15

retention rates were higher for Pell Grant recipients 16

than for the general student population. Eighty-one 17

(81) percent of Pell Grant recipients were retained 18

from fall to spring compared to a 68 percent retention 19

rate for the entire student population. That 20

increased retention rate held for the fall of ’03 to 21

fall of ’04 when Pell recipients were retained at 56 22

percent compared to 48 percent of the whole. 23

Easing the financial burdens of students 24

and their families allows them to focus on the 25


91

important learning that needs to occur in college and 1

hopefully, as the Achieve the Dream data would 2

suggest, to persist at higher rates. That is my hope 3

for the Tuition Relief program, that it will keep 4

higher education accessible in these tough economic 5

times, that students will persist in their dreams of a 6

college education and that this Commonwealth will be 7

better off because of it, since nearly 90 percent of 8

community college and SSHE graduates stay in the 9

state. 10

Measuring Up 2008, the National Report 11

Card on Higher Education notes that students and their 12

families in the lowest and lower middle income groups 13

on average have to devote up to 44 percent of their 14

annual income to attend community colleges even after 15

receiving financial aid. Existing financial aid 16

programs are not sufficient for community college 17

students. 18

In this Commonwealth, of our 14 19

communities colleges 47.5 of full-time students 20

receive no financial aid, 65 percent of part-time 21

students receive no financial aid, 12,640 students 22

were dropped this last fall for non-payment. 23

Pennsylvania’s community college students currently 24

receive only 4.4 percent of the total value of all of 25


92

the Pennsylvania Higher Education Assistance Agency, 1

PHEAA grants or $19 million compared to the $91 2

million the PASSHE university receives, $119 million 3

state related and $159 million to private colleges and 4

universities. 5

At Northampton Community College in ’07 6

and ’08 only 32 percent of our student body received 7

some form of financial aid. This past fall, of the 8

registered students, 16 percent were dropped for not 9

being able to make payment on their tuition bills. 10

More alarmingly, perhaps, the amount of loan 11

indebtedness our students are taking on is growing 12

exponentially. In ’07-’08, 2091 students took out 13

loans for $6.7 million. One year and only a 3 percent 14

tuition increase later, borrowing increased by 30 15

percent, while the number of students borrowing money 16

actually increased by less than 5 percent. 17

The Tuition Relief Act will help address 18

some of this imbalance by making it possible for more 19

middle income students to receive aid, for part-time 20

students to receive grants, for those pursuing 21

short-term skill based certificate programs to receive 22

financial support and by establishing more reasonable 23

application deadlines so that adult students are not 24

penalized. 25


93

Last year, the College Board published a 1

report, Winning the Skills Race and Strengthening 2

America’s Middle Class. The report begins with the 3

following statement, and again I quote, American 4

community colleges are the nation’s most overlooked 5

asset. As the United States confronts the challenges 6

of globalization, two-year institutions are 7

indispensable to America's future. They are the Ellis 8

Island of American higher education, the crossroads at 9

which K through 12 education meets colleges and 10

universities and the institutions that give many 11

students the tools to navigate the modern world, end 12

of quote. 13

Allow us to give students the tools to 14

navigate the modern world by helping them attend 15

either a community college or a SSHE institution 16

through the Tuition Relief Program. This program will 17

help thousands of students who make the cost-conscious 18

decision to attend a community college or a 19

state-owned university. It will not deny the students 20

to make other choices. Financial assistance will 21

continue to be available to them through private 22

scholarships and through PHEAA. 23

There’s a statement in the Brookings 24

Institute report that really resonates with me because 25


94

it explains the frustration I have sometimes felt over 1

the past six years as president when dealing with the 2

political situation in the Commonwealth. I’d like to 3

quote it for you now, lacking vocal advocates, 4

powerful roles in state governing structures, and 5

often casts solely as job-training providers, the 6

two-year sector is often the loser in battles waged 7

over scarce resources, especially when competing with 8

flagship universities. I’m asking you not to let us 9

lose this battle. Our Commonwealth and our country 10

cannot afford that kind of loss. Thank you. 11

CHAIRMAN: 12

Thank you, Dr. Scott, for your testimony. 13

For questions, we’ll start with Chairman Schroder. 14


Thank you, Mr. Chairman. Mr. Chairman, 16

I’d just like to make a comment. I didn’t attempt to 17

interrupt, of course, I certainly have the utmost 18

respect for your needs as Chairman to give control the 19

flow and have a very organized committee meeting. I 20

did just want to make a comment, Representative 21

Santoni, about your response to Chairman Clymer’s line 22

of questioning with regards to Mr. Pathis who 23

testified before us is saying that he’s not seeing any 24

reports indicating a connection or justifying the idea 25


95

that video poker is the so-called crack cocaine of 1

gambling. I don’t know what Mr. Pathis has read or 2

has not read, but I think the report I cited earlier 3

by Robert Green and Mark Zimmerman of the Brown 4

University School of Medicine, it’s an early 2000, 5

around 2001, 2002 report, I think clearly does lead to 6

that conclusion and I will make that report available 7

to members of the Committee after this hearing. 8

And I also just wanted to mention that I 9

do believe the process by which this legislation has 10

come to being is important for people to know and 11

realize and understand. Certainly, it is the 12

administration that is behind this effort to put more 13

gambling in our neighborhoods and our communities, put 14

them closer to our front doors, our homes, our 15

churches, our businesses. And while that may be an 16

uncomfortable fact, it is the fact. And I do believe 17

it’s important to point that kind of thing out. So 18

with that, I appreciate the time to make that comment. 19

And I’ll turn it back over to you. 20

CHAIRMAN: 21

Representative Brennan, question? 22


Thank you, Mr. Chairman. Welcome, Dr. 24

Scott. Good to see you. Northampton Community 25


96

College as well as Lehigh Community College, we're 1

fortunate in Lehigh Valley to have two fine community 2

colleges that have gone above and beyond. I know 3

recently there have been initiatives about holding 4

tuition rates, freezing, et cetera. And you guys have 5

done a lot of belt tightening, understanding the 6

economy, trying to keep the opportunity there for 7

those less privileged that can’t afford to start off 8

in a four-year institute or aren’t sure what they want 9

to do, in providing a valuable cost effective 10

alternative. 11

And I’m proud that the South Bethlehem 12

campus, which is flourishing and growing, ironically 13

enough in the shadows of the Sands which will be 14

opening in a few short weeks. But I just want to 15

thank you for taking the time to come and testify in 16

front of the Committee and allow the members of the 17

Committee to hear what’s going on out there in terms 18

of the indebtedness that the students here are 19

undertaking. The facts speak for themselves. 20

I applaud you for coming. You’ve done a 21

great job back home in my district in the entire 22

Lehigh Valley. And again, whether this is the 23

mechanism or whether there's another mechanism, we as 24

a General Assembly really do need to understand and 25


97

take care of this problem if it continues to grow, the 1

cost of secondary education. Thank you, Dr. Scott. 2


CHAIRMAN: 4

Representative Clymer? 5


Thank you, Mr. Chairman. And Dr. Scott, 7

thank you for your testimony and for your good work at 8

the Northampton Community College. Just a few 9

questions. How many students are enrolled at 10

Northampton Community College? 11

DR. SCOTT: 12

Just over 35,000 students taking credit 13

and non-credit. Fall semester or just credit was 14

10,200. 15


And what is the cost for a year’s tuition 17

for ---? 18

DR. SCOTT: 19

A year’s tuition for in-county is just 20

over $3,000. $3,030 for 30 credits. 21


So you have a pretty good --- that’s a 23

pretty good bargain for the education that they 24

receive and for the skilled teachers and the academic 25


98

atmosphere that is there. Would you not agree? 1

DR. SCOTT: 2

We agree. Bt the challenge even at our 3

low cost for many families is significant. We gave 4

out over $15 million of aid last year. 5


And let me get to my question. Are you 7

aware that disproportionately that the less educated, 8

the poor and the disadvantaged are the ones who will 9

go to these video poker machines and spend their 10

money? And when they have that mixed with alcohol, 11

because who’s going to know whether or not they get a 12

free drink, now they’re there spending their money, 13

the very people that you want to help. I mean, who do 14

you think this money is going to come from? $1.1 15

billion is what the Governor expects in a year’s time. 16

$1.1 billion from the Pennsylvania economy, half of it 17

going then for this tuition. Doesn’t that trouble you 18

a little bit that there might be people who are 19

spending money that they can ill afford to spend into 20

those machines, simply because we want to provide the 21

tuition tax relief. Yeah. So I mean, I support any 22

measure that we can provide to provide that money, but 23

not through the gaming apparatus. 24

DR. SCOTT: 25


99

There’s a comment I would make, sir, is 1

that I’m troubled by the lack of education for many of 2

our citizens. And I would suggest that if we have an 3

educated populace that many industries will benefit, 4

and that is a very large concern for this Commonwealth 5

and for our country. Too many people are uneducated 6

and to function well in this global economy, we need 7

an educated populace. That’s my concern. I 8

understand the issues that you’re addressing, but my 9

concern is making education affordable. 10


And my concern is that we have families 12

that can function and neighborhoods that are safe 13

because that is how we grow into having the very issue 14

that you just articulated, where you want to have an 15

educated populace. We all do, and we could go back to 16

elementary education and the need for reading and we 17

could tackle all of those issues. But I’m telling 18

you, if you don’t have the family structure, if you 19

don’t have the solid neighborhoods, I don’t know how 20

you can pass a magic wand and expect that we’re going 21

to have all of the things that you are articulating. 22

We certainly have invested a lot of money into 23

education. And my concern is that this video poker 24

machine operation we’re putting over 50,000 to 60,000 25


100

of these addictive machines into our society and 1

drawing out $1.1 billion, there’s got to be a lot of 2

serious downsided, unintended consequences, and that’s 3

my concern. And thank you, Mr. Chairman. 4

CHAIRMAN: 5

Thank you, Mr. Chairman, and we do 6

appreciate your passion and I have a deep respect for 7

you. And as Education Chairman, we look forward to an 8

alternative coming out of your office. Thank you very 9

much. Next questioner is Representative Day. 10


Hi, Dr. Scott. Thanks for coming today. 12

I appreciate it. I must admit, though, I’m a little 13

surprised to see you here for this issue and I’ve got 14

a couple questions for you. I’m a new member and we 15

just met the other night at that event that we saw 16

each other. I am a member of the Community College 17

caucus, so if you or anyone else is wondering about my 18

support for your efforts, you can ask your good friend 19

Don Snyder about my commitment and mission to what 20

you’re doing. I’m a little concerned that I look to a 21

person in your position to look at the entire issue. 22

I understand why you would be here. It’s a funding 23

source of, you know, your life’s work. And you almost 24

have to be supportive of any funding that you can get. 25


101

I understand that. I actually applaud and understand 1

that part of it. But I have to ask you, is there any 2

support or funding from any source, any person or 3

entity that you would not accept for your mission? 4

DR. SCOTT: 5

Absolutely. 6


Like, what would they be? 8

DR. SCOTT: 9

Something illegal. 10


Okay. Anything else? Anything that you 12

would not accept from a particular entity or anything 13

like that besides illegal activity? 14

DR. SCOTT: 15

I’m sure I --- we try to run a very 16

upstanding, open, transparent organization and there 17

are times that whether it’s a donor or someone else 18

who's involved in conduct that we can’t identify with, 19

sure. If you go back, though, to my comments, my 20

comments are centered around the importance of making 21

education accessible and affordable. That’s the --- 22

you asked me about as a leader, as a leader in this 23

industry, that’s what I need to speak to. And the 24

benefits of having more people go to college and be 25


102

prepared for today’s jobs is what my role is and what 1

I devoted my life to, to make sure that we’re there. 2


That being said, you are in support of 4

this legislation? 5

DR. SCOTT: 6

Yes, I am. 7


Your community college, you know, serves 9

the student population in Lehigh Valley and beyond 10

very well. As Representative Clymer mentioned, the 11

cost, the educational value that you can get at a 12

community college is --- I guess I shouldn’t say 13

unparalleled because we have a lot of friends in the 14

education industry, but it’s a very good value. I’m 15

curious, do you know, does the college offer any 16

services for gambling addiction? And I know you might 17

not be prepared with that, and that’s fine. But I’m 18

just curious if you do have any personal knowledge of 19

that? 20

DR. SCOTT: 21

I do not. 22


Okay. Any Gambler's Anonymous or 24

anything like that meeting on campus or anything like 25


103

that among the student population or anything? 1

DR. SCOTT: 2

Again, if it’s happened, I’m not aware of 3

it. 4


Okay. Thank you. And I really don’t 6

expect you to have it, but I was just curious if you 7

did. And that’s really all. Thank you, Mr. Chairman. 8

I appreciate it. And thank you, Dr. Scott. 9

DR. SCOTT: 10

Thank you. 11

CHAIRMAN: 12

Dr. Scott, thank you for your testimony. 13

We appreciate the hard work, terrific work you do in 14

your community. And we look forward to working with 15

you on this Legislation as we move forward. 16

DR. SCOTT: 17

Thank you. 18

CHAIRMAN: 19

Our next testifier is Dr. John C. 20

Cavanaugh. Dr. Cavanaugh is the Chancellor of the 21

Pennsylvania State System of Higher Education. 22

Welcome, Dr. Cavanaugh. And when you're ready, you 23

may begin. 24

DR. CAVANAUGH: 25


104

Thank you and good afternoon, Mr. 1

Chairman. Good afternoon, Mr. Chair, and members of 2

the Committee. Thank you for the opportunity to 3

participate in this important discussion. You already 4

have heard from two PASSHE university presidents --- 5

Dr. David Stolz from Bloomsburg University and Dr. 6

Tony Atwater from Indiana University of 7

Pennsylvania at your previous meetings, and you will 8

hear from a third, Dr. Williams Ruud from Shippensburg 9

when you meet again next week. 10

I’d also like to take this opportunity to 11

thank Dr. Javier Cevallos, who's the President here at 12

Kutztown, for hosting us today. They do a wonderful 13

job, as you know, as all of our institutions do in the 14

PASSHE System of providing a good quality education at 15

an affordable cost. I’d also like to compliment Dr. 16

Scott and all of his colleague presidents at the 17

community college. We have forged wonderful 18

relationships between our two respective systems and 19

are absolutely the front line of holding down costs 20

and making a high quality education affordable to the 21

citizens of the Commonwealth. 22

We have appreciated the opportunity to 23

discuss the proposed Tuition Relief Act and its 24

potential impact on our students. We also have 25


105

appreciated the chance to provide you with important 1

background information on the role of the state system 2

that we play, not only in the Commonwealth’s higher 3

education community, but also in its economic health. 4

I would like to first review with you our 5

cost saving and tuition management history to 6

demonstrate our commitment to providing the most 7

affordable, highest quality educational experience at 8

the back in the Commonwealth. We are the public 9

university system and that places an extra burden on 10

us to be responsible stewards. 11

PASSHE has employed a variety of cost 12

containment efforts that over the last decade have 13

helped reduce expenditures by $200 million across the 14

system. These efforts have included strategic 15

sourcing, which has helped lower the cost of 16

purchasing such things as office supplies, books and 17

library supplies, banking, investment and audit 18

services, IT hardware and software and natural gas. 19

Since 2004, PASSHE universities have 20

reduced their energy consumption per square foot by 21

roughly 17 percent, resulting in a cumulative cost 22

savings of $25 million. All of the universities are 23

pursuing additional energy savings through the use of 24

the Energy Services Companies. These projects are 25


106

expected to produce an annual savings of $10 million. 1

PASSHE universities also have realized about $9 2

million in avoided costs over the last decade through 3

aggressive procurement of energy on the wholesale 4

market, an approach that has since been adopted by the 5

State Department of General Services. Major changes 6

to PASSHE’s healthcare plan negotiated in 2004–’05 7

also have produced significant savings. 8

I emphasize these because without these 9

cost saving initiatives, we would not have been able 10

to keep our recent tuition increases below the rate of 11

inflation as we have in each of the past four years. 12

The cautionary note is that we have reached the limit 13

of cost reductions that can be realized through these 14

steps. 15

We remain very concerned that despite our 16

best efforts, and our outstanding record in reducing 17

and eliminating costs, the price of attending college 18

is out of reach for many potential students and their 19

families as you also heard from Dr. Scott. Many of 20

our graduates have accumulated debt that could take 21

years to pay off. It is a situation that needs to be 22

addressed. 23

It is for these reasons the Governor has 24

targeted his Tuition Relief plan to students who 25


107

attend our universities, which would produce the most 1

significant and cost effective benefit to the 2

Commonwealth as well as community colleges. We also 3

are very encouraged that the issue of tuition relief 4

has been given such a prominent place in the budget 5

discussions this year. 6

The Pennsylvania State System of Higher 7

Education educates more than 112,000 regular 8

credit-earning students annually. Nearly 90 percent 9

of those students are Pennsylvania residents and when 10

those students graduate, more than four out of five 11

will remain in Pennsylvania to take their first job or 12

to continue their education. There are currently more 13

than 405,000 PASSHE university alumni living in 14

Pennsylvania, not counting the nearly 23,000 we 15

recently added as members of this year’s graduating 16

class. 17

Many of our students are the first in 18

their families to attend college, and it is not 19

unusual for their families to struggle to afford even 20

our relatively low-cost universities. A high 21

percentage of our students hold jobs during the school 22

year, which impacts their ability to carry a full 23

course load as documented in national research 24

studies. Some drop out of school for one or two 25


108

semesters so that they can earn money to continue and 1

avoid taking out loans. 2

In prior hearings, you have heard 3

comparisons of graduation rates across various sectors 4

of higher education. But you have not heard the 5

factors that contribute to the need to extend 6

attendance beyond the more familiar four-year period. 7

I just shared two of the most significant factors. We 8

have worked hard to help students graduate in a timely 9

manner. As documented in national studies, the 10

primary reason students take longer than four years to 11

earn a degree is financial. Still, I can report today 12

that our efforts to get students through our degree 13

programs have borne fruit. Since 2001, our student 14

retention and graduation rates have both increased and 15

are well above the national average for similar 16

institutions. Second year retention rates have also 17

increased for all students, most significantly for 18

African American and Latino Students. 19

Our success has been Pennsylvania’s 20

success. PASSHE’s enrollment has increased for 12 21

consecutive years. We expect that growth to continue, 22

and are prepared for it. Our System can continue to 23

grow to meet the Commonwealth’s increased demand for 24

higher education. 25


109

PASSHE educates the largest number of 1

classroom teachers in the Commonwealth, helping to 2

ensure our K-12 schools have highly qualified teachers 3

who will help prepare the next generation of 4

Pennsylvania citizens. 5

Our universities have continually adapted 6

their academic programs to meet Pennsylvania’s most 7

pressing workforce needs, including in the fields of 8

healthcare, especially nursing, information technology 9

and in a variety of math and science-related fields. 10

The number of graduates in these high priority areas 11

has been steadily increasing as we have helped provide 12

Pennsylvania employers with the skilled graduates they 13

need. 14

PASSHE universities also are important 15

providers of workforce development programs offered 16

through a variety of state programs, including WedNET 17

and Customized Job Training, and in partnership with 18

private employers. In 2007-’08, the latest year for 19

which we have final numbers, we had more than 80,000 20

enrollments, and by that I mean the number of classes 21

multiplied by the number of students, and in many 22

cases enrollees take more than one course, in 23

non-credit professional development and workforce 24

development programs. That’s in addition to our other 25


110

credit-taking students. 1

The courses cover everything from the 2

basic skills an individual might need to obtain a new 3

job to the training required of workers to continue 4

their professional certification. Funding for many of 5

these programs comes from the state, for which we and 6

the participants are extremely grateful. 7

I want to specifically thank Governor 8

Rendell for raising the issue and caring about the 9

educational needs of students in the Commonwealth. 10

Few Governors tackle this issue and he has done us all 11

a great service by doing so. The future economy of 12

Pennsylvania depends on increasing the educational 13

level of our citizens. We need a way to help our 14

people get that education. Secretary Arne Duncan 15

recently made that point when he said we’re going to 16

have to educate our way out of this economic decline. 17

The Tuition Relief Act would benefit 18

thousands of our students immediately and the 19

Commonwealth in the long term, by providing incentive 20

to many young people and other adults to receive a 21

college education. I would hope you would seriously 22

consider this vital investment in our students and in 23

Pennsylvania. 24

Thank you for the opportunity to share 25


111

these highlights of our success and the reasons why 1

PASSHE is such a vital part of the Commonwealth. 2

Let’s not have to look at potential students and 3

explain why we’re not doing all we can to help them 4

get the education they deserve and the Commonwealth 5

needs. Thank you very much, Mr. Chairman, for your 6

time today. 7

CHAIRMAN: 8

Thank you, Dr. Cavanaugh for your 9

testimony. For questions, Chairman Schroder? 10


Thank you, Chancellor Cavanaugh. Good 12

afternoon. I just want to start by saying that I’m a 13

graduate of the State System for Higher Education and 14

proud of that fact. And I’m very supportive of and 15

appreciate the educational opportunities that exist in 16

the State System of Higher Education and the great job 17

that you do. I also can appreciate the attention you 18

have given in your testimony to the cost saving and 19

cost production efforts in recent history of the State 20

System. They are to be commended. 21

I guess the issue that I would bring up 22

here and take issue with one part of your testimony, 23

if I may, is you, if I understand your testimony, you 24

justified the Governor’s decision to only offer 25


112

tuition relief to students of the State System as well 1

as our community colleges, based on the fact that, as 2

you said, it would produce the most significant and 3

cost effective benefit to the Commonwealth based upon 4

the cost reduction and cost control efforts that you 5

outline in your testimony. 6

That’s the part I take issue with, I 7

guess, with all due respect. What would you say to a 8

student --- take my niece for example, who just 9

finished up her freshman year at a private college in 10

Pennsylvania, and almost went, was this close to going 11

to one of our State System schools, but made a choice 12

to go to the other school simply because of, what you 13

might call the intangible factors. And we’ll just 14

leave it at that. 15

It’s nothing against the State System 16

university, but thought that it was a better fit, you 17

know, for whatever reason that we don’t need to go 18

into. But as I see the way this is structured, what 19

you’re saying to students in her situation is sorry, 20

you made the wrong choice because you chose to go to 21

another university, even though you come from a family 22

of modest needs that would, you know, fit within the 23

income criteria of this plan, we can’t help you. What 24

is your response to that, which has been, you know, 25


113

kind of brought up by a number of witnesses and 1

members alike? 2

DR. CAVANAUGH: 3

Well, I think there is a second part to 4

my comment in addition to the cost savings. As I 5

pointed out, we've kept or tuition increase either at 6

or below the inflation rate for the last four years, 7

for which we’ve been nationally cited So I think it’s 8

a combination, no just of the cost reduction, but our 9

very active effort to keep the price down. So I think 10

that’s a distinction between the State System and 11

other sectors of our education and that’s been well 12

documented. 13

I think as others have pointed out. 14

There are opportunities for students who make a 15

different choice, PHEAA. Pennsylvania has long been 16

known as providing a very high level of support for 17

students who make that choice. And that option will 18

continue. I think that the recognition of ours and 19

community college’s very active efforts to hold our 20

tuitions down, I think, is part of the issue. And I 21

think, you know, as long as those opportunities are 22

there for students to get support through PHEAA and 23

private gifts and private scholarships, those options 24

will remain. 25


114


And your attempts at, you know, 2

controlling tuition and all of that you’ve done with 3

that are to be commendable. I don’t take issue with 4

that at all and I commend you for it. I would just go 5

back to my original point, however, is that kind of 6

thing is not within the student’s control. Okay? And 7

I just have one problem with, you know, in essence, 8

telling them and suggesting that sorry, you’re not 9

eligible because you didn’t go to one of our community 10

colleges. 11

But to move on to another issue, as 12

Chancellor, are you aware, and I’ll just say generally 13

aware, of the policies that the various universities 14

within the system adopt to govern and manage their 15

campus and college loans? 16

DR. CAVANAUGH: 17

In general. 18


In general? Do all of the universities 20

have fairly similar policies? Do they differ 21

drastically from school to school? 22

DR. CAVANAUGH: 23

That would depend upon the specific 24

issue. 25


115


Okay. 2

DR. CAVANAUGH: 3

But in general, they would be at the 4

highest level and it would be fairly similar. 5


Well, Kutztown University, where we are 7

visiting today and was gracious enough to host this 8

forum, this hearing, they have a policy for on campus 9

sales, fundraising and solicitation. It’s Kutztown 10

University policy, 1995 Item 631. And in Section D of 11

that policy, it states and I’ll summarize, it says 12

that raffles, lotteries, other forms of gambling, 13

cannot be conducted on campus. That’s a University 14

policy here at Kutztown that I don’t know for sure, 15

but I believe it is reasonable to assume that other 16

schools within the State System probably have the same 17

policy. 18

I guess my question to you is, if that’s 19

the case, that’s certainly the case here in Kutztown, 20

how does that square with what you are asking us to do 21

today? I’m not talking the Tuition Relief part, but 22

we’re talking about the gambling part, the gambling 23

expansion part. And I do believe it’s gambling 24

expansion just based upon the sheer numbers. Without 25


116

getting into that issue, it seems to me there's a 1

disconnect here when the university has policies that 2

explicitly prohibit their students, you know, and 3

their organizations from engaging in that kind of 4

activity, yet here we are saying, well, we’re going to 5

help you pay for your college education with exactly 6

that type of activity. 7

DR. CAVANAUGH: 8

Well, first of all, I would simply point 9

out that we have not just policies about that, but 10

that we have other policies that prohibit certain 11

other kinds of activity like alcohol and things of 12

that sort that are perfectly legal in other parts of 13

the Commonwealth. In part, the logic behind that is 14

the age demographic of many of our students. Many of 15

our students are underage. And so that certainly is a 16

factor when we create policies like that. So I think, 17

you know, in general, we would want to take a --- we'd 18

take a look at what is the age demographic, what’s the 19

behavior involved and then try to come to a conclusion 20

as to what is the best way to deal with that 21

particular situation. 22


These policies would apply to, I believe, 24

not only students, but faculty, the university 25


117

administrators and everyone else would need to abide 1

by these policies with regard to campus life? 2

DR. CAVANAUGH: 3

Unless there was a specific exemption for 4

certain kinds of activity. 5


Okay. That’s all I have for right now. 7


CHAIRMAN: 9



Thank you for coming today. Appreciate 12

your time. To follow-up on the last set of questions, 13

would PASSHE allow these machines on campuses? 14

DR. CAVANAUGH: 15

I think we would have to take a look, 16

given my response to the previous question, with 17

underage individuals and things of that sort. That 18

would be something we would have to be very, very 19

cautious about, just like we are with alcohol and 20

other substances for whom some people are above the 21

age and others are not. So ---. 22


Are you aware of any educational classes, 24

course, programs, topics within courses that teach 25


118

people, probably in a financial management course or 1

financial side, that teach people about the losing 2

proposition of gambling, your students. 3

DR. CAVANAUGH: 4

Not to the specific point that you just 5

raised about the losing proposition of gambling, but 6

we do have courses and information certainly on 7

personal budgeting and finance and things of that 8

sort. 9


I’ll just take this opportunity to 11

request that you would try to see, if you could, if 12

that could be put into our colleges in the PASSHE 13

System, our universities and also credit cards also. 14

Sorry, to go off the topic there. Thank you for your 15

time and thank you for allowing me the time, Mr. 16

Chairman. 17

CHAIRMAN: 18



Thank you, Mr. Chairman. And Dr. 21

Cavanaugh, it’s good to see you again. 22

DR. CAVANAUGH: 23

It’s good to see you, too. 24



119

I appreciate the good work that you do 1

for our state universities. You certainly have 2

brought some expertise, you're a very talented person 3

and very dedicated and that is reflected in our 14 4

state universities, so it’s good to have you here. 5

I’m going to try to be brief, but I need to tell you 6

that there are some very gifted professors who have 7

written extensively on gambling. And it’s not a 8

question, but I’ll be glad to share those works with 9

you. 10

Three of them are Dr. John Kent of the 11

University of Illinois. His works have been published 12

in his Law Review of Arkansas and Law Review of Oregon 13

and the Law Review of Michigan. So these are serious 14

works and I want to share those with you along with 15

Professor Bill Thompson, a man who came from Las 16

Vegas, Nevada has done academic work, scholarly work 17

on the problems of gambling. And last but not least 18

is Professor Earl Grinols now at the University of 19

Baylor. So I can submit those works not only to you, 20

but to the Chairman and to other members of the 21

Committee. 22

Now, having shared that, here’s my 23

question. The National Gaming Impact Study 24

Commission, which was conceived under then President 25


120

Bill Clinton back in the 1990s had nine members, both 1

members who are for gambling and members who are 2

anti-gambling. And they went across the United States 3

and I think they spent a couple years at this task, 4

getting information from people like yourself in the 5

academia, from the clergy, from the professional 6

business people, from legislators, I mean, it was a 7

well done job by the Committee to get input from 8

everyone. I think even the people who are involved in 9

the betting industry. 10

After they had finished their public 11

hearings, the National Gaming Impact Study Commission 12

came up with a recommendation and recommendations. 13

But the one I want to mention, chapter three under 14

regulating gambling, section 3.6, the Commission 15

received testimony that convenience gambling, such as 16

electronic devices in neighborhoods such as video 17

poker machines, I put that in there, provides fewer 18

economic benefit and creates potentially greater 19

social pause by making gambling more available and 20

more accessible. Therefore, the Commission recommends 21

that states should not authorize any further 22

convenience gambling and should cease and rollback the 23

existing operations. 24

Now, that vote, as far as I know was a nine to 25


121

zero vote, both the pro and cons saying don’t do what 1

we’re about, at least it’s on our table, to vote for 2

these video poker machines. Do you have any thoughts 3

on that recommendation by this Committee that’s been 4

doing time ---? 5

DR. CAVANAUGH: 6

Well, not having read the report and not 7

knowing any of the rest of the context of that report, 8

all I can say is that I would want to have an 9

opportunity to do that. And like any other issue, one 10

has to take a look at the broad aspects of it and the 11

greater good and the broad context of the whole 12

decision. 13


Thank you. And I conclude that this 15

report from the Associated Press, it’s a few years 16

old, but it was in one of the papers here and it’s 17

available for those who would like to look at it. In 18

New Jersey, gaming is festering in every high school 19

and college in New Jersey, said Edward Looney, 20

Director of the New Jersey Council on Compulsive 21

Gambling. It’s absolutely epidemic. Just about any 22

college in the country has students who gamble at 23

racetracks, casinos and now video pokers. It’s a few 24

years old, but I’m sure that the content is very 25


122

viable and can be validated. So I share those 1

thoughts as we look at this issue in the future. 2

Thank you. Thank you, Mr. Chairman. 3

DR. CAVANAUGH: 4

Thank you. 5

CHAIRMAN: 6

You’re welcome. I just want to point out 7

very quickly, as sponsor of the Bill, there is no 8

intention in any way, shape or form to pit one group 9

of colleges against another. I know the State System 10

and the community colleges are included in the 11

legislation. And I think I can speak for everybody 12

and say that we’d love to be able to help everybody 13

that goes to college, no matter where they go. But 14

again, there’s a finite amount of dollars involved. 15

So this General Assembly will have to make a decision, 16

have a significant impact on a smaller group of 17

students, or have a small impact on a larger group of 18

students. So I believe that’s something that will be 19

decided when and if this Bill is debated and voted on 20

before the House. Dr. Cavanaugh, thank you so much 21

for your time. We appreciate it. 22

DR. CAVANAUGH: 23


CHAIRMAN: 25


123

Next testifier from League of Women 1

Voters, Kay McKenna. Please. Ladies and gentlemen, 2

please. My first comment on outburst was respectful 3

and the next one I’m going to have to ask you to 4

leave. League of Women Voters, Kay McKenna, please. 5

Thank you. 6

MS. MCKENNA: 7

Thank you, Mr. Chairman for allowing the 8

League to come and testify today and the rest of the 9

Committee of course, too. Despite the fact that we 10

think higher education is something that we should 11

consider a right and not a privilege in our 12

society ---. 13

CHAIRMAN: 14

Could you please --- the microphones 15

are --- 16

MS. MCKENNA: 17

Too far away? 18

CHAIRMAN: 19

--- not really sensitive, but if you 20

could get as close as possible so people can hear you. 21

MS. MCKENNA: 22

Okay. I was just saying despite the fact 23

that we think that higher education should be a right 24

and not a privilege for all who are qualified to have 25


124

it, we really disagree with the means proposed here 1

today. We’ve been opposed to the expansion of 2

gambling for several reasons, which I’d like to list. 3

We think it’s an inequitable way and therefore an 4

irresponsible way for the government to collect its 5

revenue. The government should collect it in a way 6

that everybody shares in the responsibility according 7

to their means. 8

The government is intentionally relying 9

on the seductive aspects of gambling that surely 10

result in people wagering way more than they can 11

afford, and therefore, damaging themselves, their 12

families and ultimately the larger community, which 13

often has to bear the cost of family support, 14

bankruptcies and even incarceration and theft for the 15

individuals who get addicted. 16

The government is using --- is urging 17

citizens to fund the government by a process that is 18

also damaging to citizens. But it, at the same time, 19

is in charge of monitoring gambling operations to keep 20

them honest. This is, at best, a real tight rope and 21

potential conflict of interest. And next, 22

economically, the enormous expansion of easy access to 23

gambling draws money away from other community 24

businesses. This is happening at a time of recession 25


125

when many businesses are suffering from a reduction in 1

income, as are many of the families who could easily 2

lose the rent or the mortgage payment in a visit to 3

one of these video poker machines. 4

Finally, I’d like to know how the 5

sponsors of the Bill would handle what I think is the 6

necessary return of the $50 million license fee to 7

casino license operators, which I think Act 71 8

requires if the state increases the maximum number of 9

licensed facilities? While the restaurants, pubs and 10

taverns aren’t casinos, they would be licensed 11

facilities for slot machines. That’s a lot of money 12

to return. It could do a lot for colleges. And so I 13

would respectfully ask you to enlighten me about that. 14

What are you going to do with that $50 million per 15

operator of casinos? Anybody whose able to tell me 16

about that? 17

CHAIRMAN: 18

Complete your testimony then we’ll have 19

to maybe talk about that at the end. 20

MS. MCKENNA: 21

Well, that is the end of my testimony and 22

I thank you for the time, but that’s a really serious 23

question of mine and of the league. 24

CHAIRMAN: 25


126

Representative Schroder? 1


Ms. McKenna, thank you for your 3

testimony. I just want to be sure, the position and 4

the League of Women Voters against the expansion of 5

gambling, this is not a new position that is exclusive 6

to issue; correct? 7

MS. MCKENNA: 8

No. This is not --- no. No. 9


It’s been a longstanding --- 11

MS. MCKENNA: 12

Yeah. 13


--- concern of the league’s that you have 15

these positions on? 16

MS. MCKENNA: 17

Yeah. After off-track betting, we were 18

opposed to all further expansion and we were opposed 19

to the passing of Act 71 as well as the way it was 20

passed. 21


So it’s been a consistent longstanding 23

position. 24

MS. MCKENNA: 25


127

That’s right and the reasons apply, as 1

stated here apply. 2


Very good. Thank you. 4

CHAIRMAN: 5



Thank you then, Mr. Chairman. And Kay, 8

good to see you again and thank you for your 9

testimony. I guess that’s something that will be 10

worked out in the courts. That’s in response to your 11

question that if these video poker machines are put in 12

place, the existing casinos may say that this is a 13

violation of Act 71 and there will be a lawsuit. And 14

so that’s something that I guess we’ll wait and see, 15

but it’s a very good question and one that it’s very 16

relative to the issue. 17

MS. MCKENNA: 18

Yeah. Well, it is because it’s such a 19

tremendous amount of money that would have to be paid 20

back and it would seem to be worthwhile to give, if 21

you’re going to give the money away, why not give that 22

to the colleges? 23


Well, you’ve raised a very good point 25


128

here and I guess it’s one that’s going to be under 1

consideration as this process on video poker machines 2

moves forward. 3

MS. MCKENNA: 4

Okay. Any other questions? 5

CHAIRMAN: 6

Yeah. Just a point really on the $50 7

million question that you asked, there’s of course 8

argument as to your point that we’ll have to go back, 9

and as I mentioned, I don’t know when you got here, 10

but one of the other testifiers I mentioned that a 11

gentleman by the name of Michael Cruz, who is the 12

director of The Gaming Lab, has testified in previous 13

hearings that the machines that are in the casinos 14

right now are totally different than the prospect of 15

what would be coming into the taverns and the bars. 16

The makeup of the inside and it’s very technical and 17

they indicated that that would not be expansion of 18

gaming according to them. In other states, for one, 19

Louisiana that had casinos and then instituted the 20

video lottery, video poker has not had any lawsuits 21

filed against them for trying expansion of gaming, and 22

they’ve testified to that. 23

MS. MCKENNA: 24

Well, I’m just referring to what I see on 25


129

page 37 and 38 of Act 71 and it just looks like ---. 1

CHAIRMAN: 2

The expansion of gaming? 3

MS. MCKENNA: 4

Yeah. 5

CHAIRMAN: 6

And that’s the debate. I do appreciate 7

your input. I know that the League does a great job 8

and has been opposed to any kind of gambling and I 9

understand that and respectfully disagree. And 10

because of the ---. 11

MS. MCKENNA: 12

Not to any kind. 13

CHAIRMAN: 14

Okay. I’m sorry. Just recently. And 15

again, I don’t know if you want to respond to this but 16

there’s been --- I talk about the economy being the 17

way it is and difficult times and The Meadows just 18

opened out in Washington County, 1,000 new jobs. 19

There’s the Sands is opening not too far north of here 20

where there’s a potential of another 1,000 jobs. So 21

and Pittsburgh and Philadelphia are in the process of 22

working and opening and the jobs that are associated 23

with that and the economic development associated with 24

that and the testifiers earlier indicated how well the 25


130

horse racing industry has done because of Act 71. So 1

I think that I understand some of the negatives, but I 2

think there’s been a lot of positives and they far 3

outweigh those negatives. So I don’t know if you want 4

to comment on that, you're certainly entitled to. 5

MS. MCKENNA: 6

Well, I think you can see that a lot of 7

the established casinos in New Jersey and Las Vegas 8

have lost a lot of money. And you know, competition, 9

we’re sort of reaching the saturation point in 10

gambling, it seems to me. And you’re just setting up 11

new --- as the Pennsylvania casinos took business away 12

from New Jersey casinos, so might the new proposed 13

kind of gambling take away from casinos. So it just 14

seems like bad planning from just a business point of 15

view. 16

CHAIRMAN: 17

Actually, I think that the people in 18

Pennsylvania actually stayed home instead of going to 19

New Jersey and spending their money there. 20

MS. MCKENNA: 21

That’s right. That’s right. 22

CHAIRMAN: 23

They kept that money in Pennsylvania. 24

And the eastern part of the state that were going to 25


131

Delaware, they're staying home and spending their 1

dollars here. Out in the west, instead of going to 2

West Virginia, they’re spending their dollars in 3

Pennsylvania. 4

MS. MCKENNA: 5

That’s right. 6

CHAIRMAN: 7

So we can utilize those for those 8

economic development. 9

MS. MCKENNA: 10

That’s right. But instead of going to 11

casinos, they may stay home and go around the corner 12

to a club or to a restaurant or to a tavern. And so 13

who knows. 14

CHAIRMAN: 15

That’s certainly their choice and 16

they ---. 17

MS. MCKENNA: 18

It’s the same mechanism. 19

CHAIRMAN: 20

Representative Brennan has a question. 21


Thank you, Mr. Chairman. Thank you for 23

your testimony, Ms. McKenna. Just a confirmation, 24

Representative Schroder asked or pointed out that the 25


132

League has been opposed to gaming and you said not 1

all. But was it after the off-track betting forward 2

you’ve been opposed to expansion. 3

MS. MCKENNA: 4

From the mid '80s, I’m not quite sure 5

when you established off-track betting, but I think it 6

was about --- maybe it was the late '80s --- 7


Late '80s. 9

MS. MCKENNA: 10

--- when you did that, I don’t know. And 11

in that case, we would have been opposed to that too. 12

But ---. 13


So the lottery and ---? 15

MS. MCKENNA: 16

Yeah. They were opposed to the lottery 17

also. 18


I just wanted to clarify because you said 20

something about after off-track betting you’ve been 21

opposed, but you essentially ---. 22

MS. MCKENNA: 23

Yeah. Well, I may be wrong about when 24

off-track betting came about. You know, if off-track 25


133

betting came about in the early '80s, then that would 1

be the case. If off-track betting came about in the 2

later '80s, you know, I’m not quite sure. 3


Thank you, Ms. McKenna. Thank you, Mr. 5

Chairman. 6

CHAIRMAN: 7



Thank you. Thank you for your testimony 10

today. I appreciate all of the work the League does. 11

I’m just going to give my praise of the work of the 12

League. In your comments you mentioned a very 13

interesting point that I’d like to either as a 14

question or ask you to try to provide at a later date 15

more data or information if you have it. Your fourth 16

bullet point, gambling draws money away from other 17

community businesses. Do you have any statistics that 18

back up that decline? 19

MS. MCKENNA: 20

Yeah. There have been studies done about 21

that and if you consult Professor William Thompson 22

mentioned before or Professor Earl Grinols, they have 23

material on that. Yeah. I believe they studied 24

businesses within a ten-mile radius of casinos and 25


134

they found decreased business, retail businesses. You 1

know, obviously, not law firms and so forth, but 2

retail businesses do tend to lose money and it seems 3

to me the most obvious thing is setting up competition 4

with the brand new casinos. 5


That’s just an interesting point that I’d 7

like to try to get those reports if it’s possible. So 8

Representative Clymer ---. 9

MS. MCKENNA: 10

I can see if I can find them or 11

Representative Clymer can probably find them, too. 12


That’s fine. Those are my comments. 14


CHAIRMAN: 16

Just appreciate your comments, 17

Representative Day. We have sent an invitation to Dr. 18

Grinols to testify at our next hearing. We have not 19

heard back from him, but we would like to certainly 20

put him on the agenda for his comments. 21

MS. MCKENNA: 22

Thank you. 23

CHAIRMAN: 24

Ms. McKenna, thank you so much for your 25


135

testimony. At this time we’re going to take a very 1

brief break. We would like to get started at one 2

o'clock. It is about 12:25. 3

MS. MCKENNA: 4

All right. Thank you for your time. 5

SHORT BREAK TAKEN 6

CHAIRMAN: 7

I’d like to reconvene the House Gaming 8

Oversight Committee here. Our next testifier from the 9

Pennsylvania Department of Education is Dr. Kathleen 10

M. Shaw, Deputy Secretary, Office of Postsecondary and 11

Higher Education. Dr. Shaw, welcome and go ahead with 12

your comments. 13

DR. SHAW: 14

Thank you very much. Thank you for the 15

opportunity to testify in front of you once again. I 16

will not read my testimony to you. I think you all 17

are familiar with the arguments that I make in my 18

testimony about the importance of the Tuition Relief 19

Act. I will just say a few things, though, to 20

summarize my thoughts. The first thing I’d like to 21

say is the emergency with regard to college 22

affordability that all of the college presidents have 23

been talking about is real. This is not something 24

that we’ve made up. This is not something that’s 25


136

unique to Pennsylvania. Although, it is particularly 1

acute in the State of Pennsylvania. 2

One in four Pennsylvanians do not have a 3

college degree. That rate of college attainment in 4

Pennsylvania is far lower than the college attainment 5

rate in our neighboring states. And it puts 6

Pennsylvania at a competitive disadvantage when we are 7

trying at this time, in the economy, to attract more 8

high-paying, high-wage jobs into the State of 9

Pennsylvania. 10

You heard last week, as a matter of fact, 11

from President Forrester of the Community College of 12

Beaver County, that in his area of the state, there 13

are many, many high wage jobs that are going unfilled 14

because we don’t have enough people in that area of 15

the state that have the level of skills and 16

educational credentials that high-wage industries 17

need. So that’s a problem that we really have to 18

address in Pennsylvania and the Tuition Relief Act 19

would be a major tool to move us forward in that 20

regard. 21

The other thing that I want to point out 22

is that spending this money on relieving students of 23

the burden of huge college loans is a very good 24

investment. For every $550 million that we would 25


137

spend, which is about how much it would cost per year 1

when this program is fully funded, the Commonwealth 2

families would be able to spend $3 billion that they 3

wouldn’t have been able to spend if they took out 4

loans. And they’ll be able to spend this money in the 5

Commonwealth. And they’ll be able to buy homes, 6

they’ll be able to finance their own children’s 7

college education and the benefits will be very far 8

reaching. 9

So we also know that private loans in the 10

past few years, and these are the most expensive loans 11

that students can take out because their interest rate 12

is very high have tripled. In fact, we know that 13

one-third of college students are now putting college 14

tuition on credit cards. Many credit cards, 15

especially for young people, have interest rates that 16

are up to 20 percent. 17

So I just want to close by saying that I 18

think when we think about the Tuition Relief Act, we 19

have to keep front and center the reason that the 20

Tuition Relief Act is on the table. And the reason is 21

that we need to find an avenue for our students to go 22

to college and not be burdened with the crippling debt 23

that they currently are incurring to get out of 24

college. And so, I guess I will close my testimony 25


138

there and take your questions. 1

CHAIRMAN: 2



Thank you, Mr. Chairman and Dr. Shaw it’s 5

always nice to see you here. I’ll probably be seeing 6

you next week at one of the meetings coming up. You 7

talked about the economic side. I just want to make 8

my point here and that is, when you have the kind of 9

gambling that we now have in Pennsylvania, the casino 10

gambling and now we’re considering the new poker 11

machines, there is an economic downside to it, not 12

only in the social costs, which I’m not going to 13

elaborate today, but I will get into that in the days 14

ahead. But when you take $1,000 and you put it into 15

the gambling operations, into the slot machine, there 16

is no sales tax. There’s no six percent sales tax. 17

You take that same $1,000 and you buy a refrigerator, 18

an oven or appliance or over a period of time, you go 19

to amusements and you go to restaurants, the state 20

gets a six percent sales tax. 21

So what I’m saying is while you can quote 22

these figures about the economics of sorts, I say that 23

this other economic factor has to be considered and 24

that’s the six percent sales tax, which we have been 25


139

losing and will continue. It does not help us to move 1

forward then financially when we don’t have those 2

dollars flowing into the coffers. Not to mention the 3

very fact that as I mentioned, I said I wouldn’t get 4

into it but I need to just to bring it up to your 5

attention and that is the least people who can afford 6

to go gambling are the people who don’t need to 7

gamble. And that’s called regress of taxation because 8

we’re taking money from people who should be using 9

that money to pay for food, for the mortgages, for 10

insurance and they’re trying to strike it rich because 11

of the advertising that’s being done by the gambling 12

operations, whether it’s a casino or a smaller --- 13

whether it’s the bar or restaurant. So that is a 14

consideration that I think we need to look at. 15

DR. SHAW: 16

I would say in response to that that I 17

don’t think that it’s possible to overestimate the 18

long-term effect that increasing the level of college 19

attainment can have on the State of Pennsylvania. 20

It’s not possible. I have been a student of and in 21

the field of higher education my entire life, and we 22

know that once you take a family that lives in poverty 23

and you give somebody in that family a college 24

education, when you lift that family out of poverty, 25


140

that family’s going to stay out of poverty generation 1

after generation after generation. 2

So the root cause of a lot of things in 3

this state, and in this country, with regard to 4

activities that we might not consider to be 5

particularly beneficial to society is due to the fact 6

that families don’t have the wherewithal to make a 7

living wage. The only avenue out of that situation is 8

to provide them with a way to have a college 9

education. And once we do that, we will see a lot of 10

activities like a lot of activities that land people 11

in jail, et cetera, will go down as a result of 12

increasing college attainment. We’ve seen that in 13

other states where college attainment has gone up and 14

the same thing would happen here in Pennsylvania. 15


Well, I agree to the point where you say 17

that if we can get young people to get a college 18

education, that is a step in the right direction. I 19

don’t think that’s debatable and we can all agree. I 20

think where your argument is flawed, is that the very 21

people that you’re trying to help are the ones who are 22

going to continue gambling. How in the world can you 23

say that people who are as involved in their money in 24

gambling, you have gambling addiction taking place, 25


141

very serious problem gambling, those people are going 1

to not be able to send their children to school or to 2

higher education because they are trapped now in 3

addiction? And if you study those who are involved, 4

who are gamblers, who are problems gamblers and 5

addicted, they don’t have another life. They don’t 6

care about whether their child goes on to higher 7

education or not. The point I’m making is that 8

they’ve created this mire where they’re stuck and they 9

can’t get out of it. They can’t move forward. That’s 10

the problem. And you’re saying well, the greater good 11

is that even though we have all these social problems 12

occurring, it doesn’t matter. We’ll just, you know, 13

provide them an education and that’s not reasonable. 14

DR. SHAW: 15

I’m not arguing that. I’m saying that 16

providing an education will reduce the level of social 17

problems that we see in the state. 18



CHAIRMAN: 21

Dr. Shaw, thank you so much for your 22

testimony and I think I’m going to let you off the 23

hook a little bit today --- 24

DR. SHAW: 25


142

All right. Thank you, sir. 1

CHAIRMAN: 2

--- in order to get back on schedule. We 3

look forward to working with you in the future. Our 4

next testifier from our community here in Berks County 5

is a parent, Ahmad Al-Hiyari. Mr. Al-Hiyari, when 6

you’re ready, you may start. And I understand your 7

son’s coming with you. You can introduce him when you 8

get up to the table. 9

MR. AL-HIYARI: 10

Good afternoon. 11

CHAIRMAN: 12

Just bring the microphone a little bit 13

closer, it’s not real sensitive, so we can hear you. 14

Thank you. 15

MR. AL-HIYARI: 16

Good afternoon. My name is Ahmad 17

Al-Hiyari. I live in Berks County and I am speaking 18

to you on behalf of parents across the state who want 19

to send their children to college. The Tuition Relief 20

Act is probably the smartest and most compassionate 21

piece of legislation I have ever seen because it’s an 22

investment in our children and in our future. 23

Though I realize the word gambling is 24

often equated with something bad, in this case it 25


143

means shaping the future and the destiny of a lot of 1

young men and women who otherwise may never have had 2

the chance to attend college. Think about it this 3

way. A 22-year old student graduates from college, 4

but the student does so with $60,000 to $80,000 in 5

debt. How do you expect him or her to contribute to 6

society and to the economy, and be productive, 7

especially in these uncertain times? When we talk 8

about a stimulus package, this would be one with a 9

guaranteed result that I’m sure we all agree on, the 10

opportunity to go to college, graduate and contribute 11

to the state's economy. 12

I have been in the United States of 13

America for over 30 years and I have worked hard every 14

single day to make a living. My dream was to get a 15

college degree, but unfortunately I was unable to do 16

so. I have only one son. His name is Adam. I have a 17

dream for him to have a better life than I have had in 18

this great country that we all love and cherish. 19

I know many of you are parents and would 20

want nothing but the best for your children. Please 21

think of Adam as one of your children and think of how 22

much you want your children to attend college. I stay 23

up at night thinking about how to come up with the 24

money and to make that dream come true for my child. 25


144

Adam is about to graduate from high 1

school and has already been accepted into West Chester 2

University to begin college this fall. If the Tuition 3

Relief Act passes, I will not have to lay awake at 4

night wondering how we will be able to afford his 5

tuition bills. More importantly, if the Tuition 6

Relief Act passes, my son will not have to lay awake 7

at night for years after he graduates wondering how he 8

will pay off years of loans with interest. Please, 9

please give Adam and the other thousands like him a 10

chance to realize their dream. 11

Remember, we live in the great State of 12

Pennsylvania. We can be the example for other states, 13

letting the rest of the country know how much 14

Pennsylvania cares for its children and their future. 15

We will be setting the example for how we can make 16

sure that our citizens are productive and able to 17

contribute to the economy through a college education. 18

Ladies and gentlemen, I believe that you 19

have no choice but to pass this Bill. I will never 20

understand how anyone could be against it or how 21

anyone could vote against my child being able to 22

achieving his dream. Thank you for allowing me to 23

present my testimony. 24

CHAIRMAN: 25


145

Thank you. We’re going to have some 1

questions, first by Representative Schroder. 2


Thank you. I appreciate your testimony 4

and I certainly wish Adam the best as you attend West 5

Chester University. It’s a great school down from 6

Chester County where I’m from as well, and they show 7

nothing but success there. 8

The only comment I would make, and I can 9

understand the, you know, heartfelt plea of a parent 10

who is in the position of having to struggle to figure 11

out how to fund a child’s education. I did not come 12

from a family who migrated to the United States in 13

recent history but the family I come from is from very 14

modest means. They could not afford to put me through 15

college, you know, either. 16

And the only comment I would, you know, 17

like to make is that whether anyone supports this 18

legislation or not has nothing to do with whether or 19

not Adam should be able to achieve his dream and his 20

father achieve your dream of having him attain a 21

college education. I know I borrowed my way through 22

college and law school for that matter, and I had 23

those years of loans to pay off with interest that you 24

referenced in your testimony. The only thing I will 25


146

say is I viewed those loans as an opportunity that I 1

would not have had to go to college, further my 2

education, and I was grateful for them. Would I have 3

rather had a debt-free education? Sure. I mean, 4

everyone would, I’m sure, if given that opportunity. 5

But I do believe we provide lots of opportunities 6

through various grants and loan programs here in the 7

Commonwealth of Pennsylvania and we should, in fact, 8

continue to do so. 9

And I think our only difference with 10

regard to this legislation is, you know, probably the 11

source of the funding and not the intent of what the 12

funding is, in fact, going for. So I do appreciate 13

your testimony. I do extend the best for you and your 14

family and for Adam as he embarks on his college 15

career. It’s an exciting time. And I’ll end by 16

wishing the very best with that. 17

MR. AL-HIYARI: 18

Sir, if I may respond to you. You 19

mentioned the fact that there’s an intent and a source 20

of --- the way I see it, it’s --- you know, to a 21

number of parents, it’s the issue here, it’s not the 22

fact where the money is coming from, as you mentioned. 23

The way I see it, it’s, as you know these days, it’s 24

very tough to get loans and if you are in a certain 25


147

income bracket, maybe you fall in the range of a 1

certain income bracket, maybe you don’t qualify to a 2

certain extent. In my case I did apply for the 3

federal loan and I received a letter that I'm not 4

eligible for what's called the Pell Grant. I’m not 5

really familiar with the detail of it, so I’m asking 6

other people to help me so. 7

But here is what I see. I mean, I’m not 8

the only one in that position. And I realize if you 9

think about it, we have to face reality, sir. 10

Everybody’s talking about gambling as being something 11

bad. And I understand the other gentlemen that on the 12

Committee had expressed their concern about, you know, 13

it creates all kinds of bad things in certain areas. 14

But you have to remember, let's tale a City like 15

Reading, just picture it this way. If you would have 16

in each section of that city, somebody from college, 17

do you know the impact it would have on other people 18

as far as preventing, you know, gambling or drugs or 19

alcohol addiction and so on. 20

So we really have to face reality in that 21

sense that it’s --- I think it is going to help not 22

just Adam, other thousands of people that maybe 23

yourselves, I’m sure you’re in a position to send your 24

children and it doesn’t really affect you as much as 25


148

most of the average person. And I honestly think it’s 1

a matter of looking at it, that it is a chance to give 2

all these children an opportunity. 3

CHAIRMAN: 4

Mr. Al-Hiyari, thank you so much for your 5

testimony. I’m sorry. Do you have a question? 6

Representative Clymer has a question. 7


Thank you, Mr. Chairman. Thank you, Mr. 9

Al-Hiyari for your good citizenship, coming here and 10

expressing your viewpoints and making your case known. 11

We certainly appreciate that. You’re being a good 12

citizen in that regard. Just a couple of things. You 13

mentioned the opportunities of our great nation, and 14

yes, I think when people come to the United States, 15

what they look at is economic freedom, religious 16

freedom, freedom to excel in our economy and provide 17

much better for their family because of the freedoms 18

that we have in our Constitution and Bill of Rights, I 19

don’t think they particularly look at what they’re 20

going to get for free, but how they government’s going 21

to help them through every course of action. 22

Although, we do need the government to 23

play a role in helping people. I want to make that 24

absolutely clear. But of course, the whole issue 25


149

deals with this thing on casino gambling, whether it’s 1

a benefit to society in the long run or has its down 2

sides. But also, I want to mention this is that the 3

casino gaming people also have their supporters. Just 4

think about this. There’s going to be a lot of rich 5

people if this bill passes because video poker 6

machines have to be manufactured and sold. So if 7

you’re looking at $50,000, $60,000 video poker 8

machines, there’s going to be a lot of money made by 9

those who make those machines. I think it’s over $300 10

to $400 million that’s going to be out there. 11

So those people who want this Bill to be 12

law are also looking at it from their own personal 13

viewpoint, like they can become very wealthy if 14

Pennsylvania passes this law. So you have a lot of 15

lobbying going on. A lot of pushing on this 16

legislation. So we need to put that in proper 17

context. We can’t ignore that. Otherwise, we’re not 18

dealing with this Bill in its totality. So I share 19

those thoughts and thank you for being here. Thank 20

you, Mr. Chairman. 21

MR. AL-HIYARI: 22

Mr. Chairman, if you’ll allow me to 23

respond at this time. Sir, you had mentioned that 24

when we come to the United States we are looking for 25


150

economic opportunities and freedom of speech and 1

freedom of religion, and that’s what makes this 2

country beautiful and unique than another place. The 3

only thing I have reservation that you have mentioned, 4

nobody’s here looking for a free ride. I want you to 5

be aware of this. I have worked very hard. I paid my 6

taxes to the penny. I have contributed to everything 7

you could imagine. I do some public and community 8

service when I can, so the whole idea if I’m looking 9

to get my child a free education, not in the sense I 10

want to get over the system and get over the 11

government. 12

What I’m looking for is a chance that may 13

otherwise be a different story. And to answer your 14

question as far as costing the 60,000 to 80,000 15

machines, I think you should look at it in a plus way. 16

We are --- here in Pennsylvania we are suffering 17

economically, sir. So to create --- unless we are 18

thinking we’re going to make it in China, that’s a 19

different story. 20


Well, let me just reiterate, I appreciate 22

your contribution to the society. I wasn’t talking 23

about you individually. I just mentioned that we 24

don’t want to be put in a position where people are 25


151

saying this is what they have in Pennsylvania, so 1

we're going to come because they give better 2

opportunity as far as paying for the tuition and their 3

doing it by legalizing video slot machines. That was 4

the crux of my point that I was making. The video 5

poker machines, they come from all over. I don’t know 6

if we have a manufacturer in Pennsylvania, but the 7

ones that I remember coming into the casinos came in 8

from Las Vegas, Nevada, there out in the western part 9

of the United States. But be assured from my whole 10

experience in dealing with this whole issue that they 11

are lobbying very heavily to get this issue passed, 12

this Bill passed because of the benefit, economic 13

benefit, it makes to them. And who knows, when other 14

groups are in there as well, looking to make a few 15

bucks off this whole operation in the name of tuition 16

relief. 17

MR. AL-HIYARI: 18

Maybe you have enough to --- maybe one of 19

your stipulations should be in order for the Bill to 20

pass, the machine should be manufactured here in 21

Pennsylvania. There’s a 400 of 500 ---. 22


That’s not a bad idea. That is not a bad 24

idea. We have a staff person here, Jen. Think about 25


152

it. I think you’ve come across something that we may 1

be able to agree on. 2

MR. AL-HIYARI: 3

Thank you so much. 4


Thank you, Mr. Chair. 6

CHAIRMAN: 7

You’re welcome. Representative Day? 8


Thank you. Thank you for coming before 10

us today. I’m a little –-- I’ve got a couple quick 11

questions. I’m a little --- I look at the agenda and 12

I understand why a lot of people are before us today. 13

I just want to ask you, how did you come by the 14

opportunity to speak to our Committee? 15

MR. AL-HIYARI: 16

As a matter of fact, when I went with my 17

son, we went on a tour to West Chester University, I 18

noticed there were Tuition Relief Act signs posted. 19

So I got very much interested and that’s how I came 20

across it. 21


Okay. Thank you. How do you make your 23

living? 24

MR. AL-HIYARI: 25


153

Sir, I work as an auditor for a local 1

company. 2


What kind of company? 4

MR. AL-HIYARI: 5

It’s Sunoco, Sunoco Oil Company. 6


And I’m sorry, I’m just curious, it’s 8

just a question that came to my mind, but I’m just 9

curious of the answer. Are you involved in any way in 10

any business that could benefit or profit from ---? 11

MR. AL-HIYARI: 12

Absolutely not. 13


Yeah. I just wanted to ask. 15

MR. AL-HIYARI: 16

No. No. I understand. You would have 17

noticed, you come up with the angle from previous 18

work. You’re very sharp, sir. But to answer your 19

question literally, my intention is pure as Adam’s 20

face. 21


I read your testimony before, during and 23

after while you were reading it and you define the 24

American dream as well as I’ve ever seen it being 25


154

stated that when you become a parent, whether you’re 1

born here or I would assume come to our country, 2

everyone feels that way about our country and it’s a 3

land of opportunity. But then, we become parents and 4

then the focus goes from us to our children. I have 5

three children. They’re younger. They’re not of 6

college age yet. However, I share your same concerns 7

that it becomes about their future more than you own. 8

I support you as a father in taking your time out 9

today to come before us. As a father, would you 10

recommend to your son Adam --- because usually what my 11

questions are about are about liens and about the way 12

we represented ourselves to an industry --- would you 13

recommend to your son Adam to spend any of his money 14

on gambling to this day? 15

MR. AL-HIYARI: 16

Absolutely not. And I mean, I believe in 17

the right things to do. And I can understand some of 18

your reservation as far as if the child is able to 19

save some money and not pay for college, he’s going to 20

have an extra buck to throw around. He knows who I am 21

and he would think twice before he does anything like 22

that. And I honestly believe that when it comes to 23

gambling --- and sir, going back to my previous 24

comment. Let’s face reality. If I may ask all the 25


155

gentlemen, when was the last time you were in Atlantic 1

City? 2


For me? 4

MR. AL-HIYARI: 5

For you, sir. 6


Oh, boy. I have gone. I’ve been there 8

and I would probably almost three years, two and a 9

half to three years. 10

MR. AL-HIYARI: 11

What’s you favorite casino, if I may? 12


I go wherever the group goes. I usually 14

go with a group and whatever is the --- so that’s. 15

And you know what, I should state, the format of the 16

hearing is really for us to ask questions. I don’t 17

want to ---. 18

MR. AL-HIYARI: 19

My apology. You know, I’m not trying to 20

wise off. 21


Yeah. And that’s for the Chairman to try 23

and keep control. 24

CHAIRMAN: 25


156

Thanks. I appreciate that. 1


One final question --- well, to follow 3

up, the reason why I asked you that is because I view 4

that our job here is to also look at the entire 5

community and to try to give our best judgment and 6

advice to our constituents and all Pennsylvanians. 7

Part of that is the losing proposition for individuals 8

in gambling and for government to endorse something by 9

allowing it to happen is an endorsement of government. 10

So the same way you wouldn’t tell your 11

son to go and do that, some of us have a hard time 12

permitting or through the permission of this activity, 13

having government have its stamp of approval on this 14

activity. We do not --- I do not object to the 15

funding and the ends that you’re trying to get to as 16

part of the American dream. My concerns are to really 17

--- the issue as my colleague on the other side, 18

Representative Brennan, is what the means are is what 19

we’re talking about and whether this is the means. 20

So that’s the point I’m trying to make. 21

It’s the same decision that you make for your son. We 22

have to try to make for all Pennsylvanian. And my 23

last question, or actually, how about a comment. I 24

appreciate your testimony. I appreciate the way you 25


157

laid out the American dream. Adam, the opportunity is 1

before you. No matter what happens, no matter what 2

government does, follow your dreams, do something that 3

you like to do and you’ll never work a day in your 4

life. Good luck to you. Thank you, Mr. Chairman. 5

CHAIRMAN: 6

You’re welcome. Mr. Al-Hiyari, I just 7

wanted to thank you again for coming today and 8

testifying. Quite honestly, your testimony and you 9

are the reason that we introduced this legislation. 10

You speak for thousands and thousands of parents 11

across this Commonwealth that want a college education 12

for their kids and a lot of cases it’s something that 13

they were not able to obtain themselves. So we are 14

going to do everything we can. I think I can speak 15

for everyone in saying that we all support the 16

opportunities for our young people to get educated and 17

go on to higher education. I guess the argument, the 18

dispute is occurring as to how are we're going to pay 19

for it. And so, again, this Bill was introduced 20

certainly with you in mind and with your concerns in 21

mind. And I just want to make one additional point 22

before I conclude is that we talked about free 23

education. This bill is not something that you get 24

for free. We’re asking students and parents to be a 25


158

part of it. There is some requirements for payment, a 1

minimum of $1,000 depending on your economic 2

circumstances. So there is --- we call it, you have 3

to have some skinny in the game. I think Dr. Shaw has 4

put it that way and I agree with her. So there is an 5

opportunity for help and it’s not something that 6

you’re going to get for free. You do have a 7

responsibility both financially and otherwise. So we, 8

again, thank you so much for coming here to Berks 9

County as a fellow Berks County and we’re proud of you 10

and your testimony and we’re also proud of your son 11

and we wish you the very best. 12

MR. AL-HIYARI: 13

Thank you very much. 14

CHAIRMAN: 15

Our final testifier for today’s hearing 16

from our business community here in the Lehigh Valley 17

area, Berks Lehigh, Kelly Schaffer. Kelly is the 18

owner of Neffs Hotel located in Neffs, Lehigh County, 19

just north of us here. So Kelly, when you’re ready. 20

I see that you have Amy and Kristy here with you, too. 21

So we ---. 22

MRS. SCHAFFER: 23

I explain it in my testimony. 24

CHAIRMAN: 25


159

Okay. That’s fine. I just want to 1

identify you for the viewers on PCN today. Kelly, 2

when you’re ready you may begin. 3

MRS. SCHAFFER: 4

Thank you. As you said, myself and my 5

husband are owners of the Neffs Hotel and Other Side 6

Restaurant, which is located in Lehigh County. My 7

husband has worked at Neffs for over 20 years and I’ve 8

been there for 16. Nine years ago, we bought the 9

restaurant and tavern from my mother-in-law when she 10

decided to retire. We have worked hard to keep the 11

business in the family. We have always run a clean 12

operation and we are constantly struggling to remain 13

competitive with our industry counterparts that are 14

able to offer gambling to their patrons. The 15

recession has made that more difficult as our patrons’ 16

entertainment dollars have shrunk while our costs for 17

our food and beverage inventory increases. 18

Zane and I were really excited when we 19

heard Governor Rendell’s announcement for Tuition 20

Relief for college students funded through video 21

gaming revenue in the taverns and clubs. This not 22

only seemed like the perfect solution to help our 23

business through the recession, but also to help our 24

oldest son, Zane, Junior, who is 16 years old, get 25


160

through college as we were worrying how we could 1

possibly afford it right now. And as a former 2

teacher, I was happy to know that we would be a part 3

of furthering education for Commonwealth kids. 4

As we learned more about the proposal, 5

however, we have grown increasingly uncertain about 6

the Bill’s benefit to our family business or the help 7

that our oldest son and others may receive for higher 8

education. Our uncertainty for the success of the 9

Tuition Relief Program lays in the language currently 10

in House Bill 1317. As a licensee, I understand far 11

too well the daily struggles in maintaining and 12

turning a profit in a small business and the Bill 13

seems to add to those burdens without much reward. 14

The Secretary of Revenue projects that 15

each of the video lottery terminals would net about 16

$30,000 a year. Our business would retain roughly 17

$7,500. This may seem like a nice boost, but in doing 18

simple math of everything that we have to take on to 19

place the terminal in our establishment, the figure is 20

quickly eaten up in extra costs. 21

Right off the top of that $7,500 is the 22

$500 annual fee to the State for license fees. That 23

brings me down to $7,000 and that is only if the 24

Secretary doesn’t decide to increase the fee to an 25


161

undetermined amount with the freedom he has to do so 1

in House Bill 1317. The City has a ten percent 2

amusement tax, which would take another $750. My city 3

would most likely impose a license fee like other 4

cities in the neighborhood of around $1,000. At this 5

point, I am left with $5,250 of the $7,500 figure that 6

is the allotted 25 percent my establishment would 7

receive from the net income of the machine. 8

My other increased costs for hosting the 9

machine would come from a dramatic increase in my 10

property and casualty insurance. The increase is to 11

cover any loss of monies from the machine that would 12

occur if there is a theft or a burglary, making a low 13

estimate of $250 annual increase in those insurances, 14

that leaves me so far with $5,000. I also have to 15

factor in the decreased income I will receive from my 16

current amusement machines that I offer in my 17

establishment, two Megatouch machines and a juke box. 18

That income will decrease by 30 percent because my 19

patrons will want to split their entertainment dollars 20

between them and the video lottery terminal. By that 21

estimate, I will be down another $240 a month or 22

$2,880 a year on those machines. That brings my 23

$5,000 down to $2,120 a year to host a video lottery 24

terminal in my establishment. 25


162

According to House Bill 1317, I am also 1

required to have available my own bank for prizes that 2

I have to pay out to winners that play the video 3

lottery terminal. That means I have to have thousands 4

of dollars on hand at all times. There are times when 5

you are running a small business that this would be 6

nearly impossible. Plus, if the Secretary of Revenue 7

decides that he wants to put more than one machine in 8

my establishment, which he is allowed to do in the 9

Bill, I would have to get rid of a couple of tables 10

that normally would be filled with patrons for lunches 11

and dinners, so I would also lose that income. 12

Finally, I will owe state and federal 13

taxes on the income from the machine. That would be 14

another $500 minimum that I would lose from the 15

$7,500. I am now down to $1,620 a year that I will 16

bring in from hosting a video lottery terminal in my 17

establishment. 18

At that point, my husband and I just do 19

not think that this program would be worth the extra 20

headaches of participating. We have been longtime 21

members of the Pennsylvania Tavern Association and 22

have read their testimony that was delivered to this 23

Committee last week in Westmoreland County. I 24

strongly urge the Committee to consider their 25


163

suggestion. If they are implemented in the Bill, 1

licensees like me would be more apt to participate in 2

the program. 3

We would like to be able to offer some 4

form of gaming to our patrons just like the clubs and 5

casinos already do. Plus, increasing our 6

participation will only increase the number of 7

Pennsylvania students that will be able to complete a 8

higher education. 9

And as I was listening to the 10

Pennsylvania Thoroughbred Horsemen’s Association, two 11

things came to mind. I would like to add that I feel 12

strongly that educating our Commonwealth youth is as 13

important, if not more important, than helping the 14

development of Pennsylvania’s horse breeding industry. 15

And I was almost offended that the horse breeder’s 16

pension would be more important than our children’s 17

education. 18

CHAIRMAN: 19

Thank you, Mrs. Schaffer, for your 20

testimony. Now, Curt Schroder, Representative 21

Schroder will start the questioning. 22


Thanks. Good afternoon. Thank you for 24

your testimony. Forgive me, but I know what a juke 25


164

box is. 1

MRS. SCHAFFER: 2

Okay. 3


But can you explain, what is a Megatouch 5

machine? You said you have two of them. 6

MRS. SCHAFFER: 7

A Megatouch is a video game that has a 8

touch screen, probably about 50 games on it. It 9

costs, you know, about 50 cents a play to play a game. 10

You get your name on the high score. That’s it. 11


That’s for amusement only, is it not --- 13

MRS. SCHAFFER: 14

Absolutely. 15


--- there's not any type of gaming or 17

wagering going on there? 18

MRS. SCHAFFER: 19

Right. 20


Is it one of those machines that are 22

networked in with machines in other taverns or bars or 23

clubs or anything. I’ve seen that. I don’t know if 24

that’s the type of machine or not. 25


165

MRS. SCHAFFER: 1

It is. You get high scores from ---. 2


Okay. So you can, in essence, play 4

remotely against people, that sort of thing? 5

MRS. SCHAFFER: 6

In a sense. 7


Okay. I was just curious. I’m not 9

asking for any reason other than that. So just so I 10

understand, your hotel, it currently has a liquor 11

license? 12

MRS. SCHAFFER: 13

Yes. 14


Okay. And but you do not have the video 16

poker or video lottery terminals in which you make 17

payouts or anything like that at this time? 18

MRS. SCHAFFER: 19

Right. We do not make any payouts. 20


But you do lose money to those 22

establishments that are operating illegally? Do you 23

believe you lose money to them? 24

MRS. SCHAFFER: 25


166

I believe so. 1


One of the concerns I’ve had is that 3

there are, I’m sure thousands and thousands and 4

thousands of legal law abiding tavern owners such as 5

yourself who have not availed themselves of the 6

illegal profits that many others have from video poker 7

and yet you lose money to these folks that take 8

advantage of, you know, the lax in enforcement or lack 9

of enforcement that we heard earlier today is out 10

there. 11

It seems to me that people in your 12

situation, if this Bill should pass, that there should 13

be a significant amount of funding set aside to 14

compensate your for basically past lost earnings that 15

you voluntarily gave up because you decided to follow 16

the law as opposed to your competitors who decided to, 17

you know, disobey the law. Would you support? You 18

know, what are your thoughts on an effort to, you 19

know, bring some economic justice to this proposal and 20

actually provide, you know, recompense and make you 21

whole for those profits that you voluntarily did not 22

take over the years? 23

MRS. SCHAFFER: 24

I would have to talk to the Tavern 25


167

Association. 1


But surely you have your own opinion for 3

the Chairman here. 4

MRS. SCHAFFER: 5

I would personally feel that I don’t know 6

if I should be rewarded for following the law. Isn’t 7

that --- that you would be rewarding me for following 8

the law that’s in place. 9


And normally, yeah, normally I would feel 11

the same way, too. I can understand that reaction. 12

MRS. SCHAFFER: 13

And I obviously with the economy in the 14

state that it is right now, any help that I could 15

receive would be certainly nice, but I don’t know that 16

a reward for following the law is ---. 17


Well, I commend you for not availing 19

yourself of the illegal profits and opportunities that 20

are out there that apparently thousands of other 21

establishments, from the State Police testimony, have 22

taken. And all I would just say is that for you and 23

the many others that are similarly situated in your 24

situation, I do believe that any proposal that passes 25


168

should make you whole and put you on par with all of 1

those lost profits that your competitors have taken 2

from you over the years. Thank you, Mr. Chairman. 3

CHAIRMAN: 4



Hi. How are you doing? 7

MRS. SCHAFFER: 8

I’m fine. 9


You had mentioned in your testimony 11

industry counterparts that don’t offer gambling 12

constantly struggle to remain competitive with 13

industry counterparts that can offer gambling. I’m 14

from Belinsville. 15

MRS. SCHAFFER: 16

Okay. 17


So we’ll be on the --- I’ll get on the 19

schedule in the next month for my wife and I to come 20

over to dinner and help you with the economic 21

concerns. 22

MRS. SCHAFFER: 23

That would be great. Thank you. 24



169

It’s been a while since we’ve been able 1

to have dinner. So but who --- and I just don’t know 2

--- who is the closest counterpart that can offer 3

gambling to you guys? I just figure you would know 4

better than I do what ---. 5

MRS. SCHAFFER: 6

It’s hard. The clubs have small games of 7

chance. The clubs in our area are a big competition 8

for my particular place. 9


Are you talking about like a legion and 11

other ---? 12

MRS. SCHAFFER: 13

Right. 14


Okay. 16

MRS. SCHAFFER: 17

I mean, any club. There’s numerous clubs 18

in our area and we enjoy them as well. 19


It’s a delicate balance, but most of the 21

owners ---. 22

MRS. SCHAFFER: 23

Right. Well, most of my regular patrons 24

are members of at least three or four or more clubs. 25


170


And I appreciate the tightrope that you 2

have to walk to try and try to incur --- you know, 3

compete with that. I was just curious if you meant 4

that or if you meant Sands, or you know, some 5

off-track betting. 6

MRS. SCHAFFER: 7

Well, they do, I mean, in general, rather 8

maybe than going out to eat tonight they're going to 9

go --- let’s take a trip and go to the casino. 10


Right. Mr. Chairman, this person is an 12

excellent representation of the people and the 13

business owners in my district. These are the people 14

that I am trying to represent. I believe Mrs. 15

Schaffer particularly her position today was very 16

thoughtful and diligent in looking at this Bill, the 17

effect on her business. While on the surface it could 18

--- you know, just looking at this on the surface, 19

this could be a nice influx of income. You took the 20

time to investigate this Bill, bring concerns and be 21

part of the process. 22

MRS. SCHAFFER: 23

Thank you. 24



171

Thank you for coming here today. I 1

really appreciated it and thank you, Mr. Chairman, for 2

having her on the agenda. 3

CHAIRMAN: 4

You’re welcome. I just have a very quick 5

question. So you support having the video lottery 6

terminal slash video poker machines in your 7

establishment? 8

MRS. SCHAFFER: 9

I support them. 10

CHAIRMAN: 11

You support them. 12

MRS. SCHAFFER: 13

I just don’t support necessarily the 14

current language in it, though. 15

CHAIRMAN: 16

You think that how the breakup is, how 17

the percentages are calculated should be changed? 18

MRS. SCHAFFER: 19

Yes. 20

CHAIRMAN: 21

Okay. And I appreciate that. And that’s 22

really the reason we’re having these hearings. We 23

want to hear from who’s affected by House Bill 1317 24

and where we can make the Bill better, we will. And 25


172

we heard from the Tavern Association at the last 1

week’s hearing and we appreciate you coming out and 2

expressing your opinion as you’ve represent this area 3

and the Berks-Lehigh area. So your input is important 4

and I will take it under consideration very seriously. 5

So we thank you for your testimony. 6

MRS. SCHAFFER: 7

Thank you. 8

CHAIRMAN: 9

Just one final comment. The Department 10

of Revenue Secretary, Secretary Stetler was unable to 11

attend, but did submit written comments for the record 12

and I would like to submit those. And if there’s no 13

other comments or questions, I would like to bring 14

this third of four hearings on the House Bill 8-1317 15

here at Kutztown University to a conclusion. Thank 16

you, ladies and gentlemen. 17

* * * * * * * * 18

HEARING CONCLUDED AT 1:50 P.M. 19

* * * * * * * * 20

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CERTIFICATE 22

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I hereby certify that the foregoing 24

proceedings, hearing held before Chairman Dante 25


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Santoni, Jr. was reported by me on 05/14/2009 and that 1

I Susan M. Koons read this transcript and that I 2

attest that this transcript is a true and accurate 3

record of the proceeding. 4

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