California Report Recommends Aligning Licensing Fees With Regulatory Costs

October 4, 2021
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More than two years after a report by California’s auditor criticized state gaming regulators over their licensing processes and fees not being aligned with their actual costs, a new report has outlined proposed changes to the state’s fee structure.

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More than two years after a report by California’s auditor criticized state gaming regulators over their licensing processes and fees not being aligned with their actual costs, a new report has outlined proposed changes to the state’s fee structure.

California state auditor Elaine Howie’s report in May 2019 found that the licensing revenue received by the state’s Gambling Control Fund covers less than half the cost of processing license applications.

In contrast, the other non-licensing regulatory fees that cardroom and third-party company owners pay far exceed the costs of the related oversight.

The new report, authored by MGT Consulting Group and published on September 22, recommends the California Gambling Control Commission (CGCC) and the state Department of Justice’s Bureau of Gambling Control (BGC) set all fees at 100 percent cost recovery levels.

Current fees that are over or under recovery should be adjusted to meet this level.

The report found the CGCC charges third-party providers $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.

Other findings include temporary work permits, which are issued every 120 days, costing regulators $5,302 annually, while the revenue received from issuing the permits is only $2,800, and temporary registrations costing $50,664 annually, with annual revenue of $42,775.

MGT found the full cost to provide a simple replacement work permit badge is $8, which is lower than the current $25 fee. Regulators take in $3.73m annually to conduct background checks on potential licensees, while the full cost of those investigations was just over $1.29m.

The authors of the report recommended that the BGC and CGCC calculate their fee structures annually and make sure that all fees are set at 100 percent cost recovery levels.

The MGT also recommended that all labor costs to provide these services be charged against deposit fees to ensure that full cost recovery is achieved.

In a letter to stakeholders, Stacey Luna Baxter, CGCC executive director, said the commission and California Bureau of Gambling Control have committed to conducting a cost and fee analysis on an annual basis, which was suggested in the report.

She said regulators would also conduct a fee restructuring analysis on a biennial basis once the initial fee changes are finalized.

Although the release of the report marks an important milestone, Baxter said there are still several steps needed before any proposed fees changes are implemented.

The CGCC voted last Monday to approve, on an emergency basis, temporary reductions in certain fees as recommended by the report. Those emergency regulations are subject to a brief public comment period that ends today (October 4) and must then be approved by California’s Office of Administrative Law before taking effect.

Permanent fee changes, including increasing certain fees in line with the recommendations, will be subject to full rulemaking and a full public comment process that is not expected to be completed before the end of the year.

Baxter also cautioned that the state’s cardroom annual fee, which is based on gross revenues, is set in statute and, therefore, the commission does not have the authority to adjust this fee through regulations without legislative approval.

Baxter said the commission has submitted a request for the necessary statutory changes; however, approval will likely not be provided until mid-2022.

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