California Close To Consensus On Restructuring Application, License Fees

June 28, 2022
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California gaming regulators will hold a hearing next month to consider approving a long list of proposed changes to the licensing process and fee structure to align them to meet with the state’s actual costs.

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California gaming regulators will hold a hearing next month to consider approving a long-list of proposed changes to the licensing process and fee structure to align them to meet with the state’s actual costs.

Under state law, the California Gambling Control Commission (CGCC) is authorized to determine fees, and the Department of Justice’s Bureau of Gambling Control (BGC) is required and authorized to collect fees and determine and collect certain deposits.

These fees and deposits are required for many purposes, including recovering the costs associated with investigating a potential licensee.

“This will include restructuring all fees that the commission has regulatory authority to set,” Fred Castano, a CGCC spokesman, told VIXIO GamblingCompliance in an email Monday (June 27).

“This regulations package will include both fee increases and decreases, and a new methodology for calculating annual licensing fees,” Castano said. “The only fee it will not include is the cardroom annual fee, which requires statutory amendment.”

Castano said the necessary amendments are currently pending before the state legislature. Should the amendments be approved, the commission will present another regulatory package to amend the cardroom annual fees.

The decision to rework the state’s massive fee structure for the gaming industry was made following a report authored by MGT Consulting Group and released in September that recommended regulators set all fees at 100 percent cost recovery levels.

The report, for example, found the CGCC charges third-party providers of proposition player services (TPPPS) $6,000 for a license, while the full cost is $21,784, leading to a $363,026 annual subsidy to cover the costs.

As for a key employee license, the annual fee is $2,400, while the actual cost is $7,194 per license. The report found the current amounts generated by these licensing fees is $211,200, while the actual cost to the state agencies was $633,087.

As such, the CGCC has proposed to adjust certain fees and deposits collected to align them with the administrative and functional needs of the commission and BGC.

Additionally, for the annual fees collected from TPPPS, the commission has proposed a new annual fee determination methodology that would include calculating the fees on an annual basis.

“The BGC will provide each TPPPS business license an invoice … by October 1, 2022, and each October 1 thereafter. Beginning January 1, 2023, and each January 1 thereafter, each TPPPS business must submit to the BGC the annual fee as determined by [regulations],” according to the update set of regulations.

In determining the annual fee, the commission will consider all costs associated with licensing TPPPS in the current year, as well as determining the total fees paid by the TPPPS business licensees, and for active licensees using average gross gaming revenues below $1.5m or equal to or greater than $1.5m based on the immediate previous three years or less if unavailable.

According to the 42 pages of modified changes to state gaming regulations, an application fee of $164 is required for a key employee license, TPPPS supervisor or worker license, and commission work permit.

The length of a temporary license or work permit was extended from 120 days to up to two years, while the initial application and renewal fee for a cardroom license is also $164.

The commission is set to vote on the proposed changes at its July 8 meeting.

The task of restructuring licensing and application fees in California began after state auditor Elaine Howie released a wide-raging audit in June 2019 of the CGCC and BGC that found their licensing processes were inefficient and fostered unequal treatment of applicants.

At the CGCC meeting on Thursday (June 23), the commissioners unanimously approved the final adoption of their Fee Modernization Project using the emergency rulemaking process.

According to emergency rules, the regulations are valid for 180 days, with two possible 90-day extensions.

CGCC chair Paula LaBrie mentioned that Thursday’s extension was the second and final re-adoption of the emergency rules.

“I’m supportive of this. We need to continue this reduction in initial renewal and other specified license fees,” LaBrie said prior to the commission approving the extension. “It will just extend this a little bit further until more work is done on a bigger package … giving some relief to the industry.”

The commission approved the re-adoption of the emergency rules for 90 days, but first comments can be submitted until Wednesday (June 29) to the state's Office of Administrative Law (OAL), and then the OAL has ten days in which to review and decide on the proposed emergency regulation re-adoption.

The OAL will then file the emergency regulation with the Secretary of State’s office before the 90-day timeline begins, according to state regulations.

“The commission initially pursued these emergency regulations following the fee study in order to get fee reductions out to the industry as soon as possible,” Castano said.

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