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Government and People
GOVERNMENT OF THE DISTRICT OF COLUMBIA
OFFICE OF THE ATTORNEY GENERAL
BY FAX AND GOVERNMENT MAIL
March 30, 2006
Mr. Kenneth J. McGhie
RE: "Video Lottery Terminal Initiative of 2006"
and "Video Lottery Terminal Initiative of 2006 B"
Dear Mr. McGhie:
This is in reply to your March 14, 2006 letter inviting this Office to address whether the "Video Lottery Terminal Initiative of 2006" (the "Initiative") and the "Video Lottery Initiative of 2006 B" (the "Initiative B", and collectively with the Initiative, the "Initiatives") are proper subject matters for an initiative in the District of Columbia (the "District"). The intent of the Initiatives is to expand the District lottery by allowing "Video Lottery Terminals" ("VLTs") in the District, to charge a 25% net revenue usage fee for each VLT, and to affirm the location for the initial VLT facility. Both Initiatives approve only one initial VLT facility which can be licensed only to the unnamed entity that already controls that location (the "Licensee"). The Initiatives allow additional VLT facilities only upon a two-thirds Council vote. Initiative B is identical to the Initiative except that it also would grant the Licensee the sole authority to operate VLT facilities in the District for ten years and would set forth the requirements for permitting additional licensees to operate at additional VLT locations only after the first ten years. In addition, in the "Findings and Purposes," both Initiatives strongly recommend how the District is to spend the VLT usage fees received by the District.1
The Initiatives would amend D.C. Official Code § 3-1301 et seq. (2001) by adding new sections 3-1350 through 3-1369.
District law provides that "[t]he term 'initiative' means the process by which the electors of the District of Columbia may propose laws (except laws appropriating funds) and present such proposed laws directly to the registered qualified electors of the District of Columbia for their approval or disapproval." D.C. Official Code § 1-204.101 (a) (2001). The Board of Elections and Ethics (the "Board") is. to refuse to accept a proposed initiative measure if the Board finds that it is not a proper subject of initiative pursuant to Title IV of the Home Rule Act2 or if, among other things, "[t]he measure presented would negate or limit an act of the Council of the District of Columbia pursuant to § 1-204.46." D.C. Official Code §1-1001.16(b)(1) (2001). D.C. Official Code § 1-204.46 (2001) sets forth the process for adoption by the District Council of the District's budget request for approval by Congress.
The D.C. Court of Appeals found that, in adopting the "laws appropriating funds" exception to the initiative right, members of the Council:
Convention Center Referendum Committee v. District of Columbia Board of Elections and Ethics, 441 A.2d 889, 912 (D.C. 1989) (en banc). The court held that the "laws appropriating funds" exception prohibits "the electorate from using the initiative to 1) adopt a budget request act or make some other affirmative effort to appropriate funds.... " Id at 913-914. Thus, the Court stated that:
Id. at 914. Thus, the question is whether an initiative makes an affirmative effort to appropriate or allocate funds or whether it only establishes substantive authorization for a new project. The test is whether the initiative requires expenditure for a program or leaves the funding mechanism to the Council's discretion; i.e., does the initiative contain "self-actuating funding' mechanisms" that would force the District to seek additional appropriations.
Finally, the right of initiative is to be construed liberally, such that only the limitations in the law: clearly or compellingly implied may be used to deny that right. Hessey v. Burden, 584 A.2d 1 (D.C. 1990), on subsequent appeal, 615 A.2d 562 (D.C. 1992).
The Initiatives avoid the restriction on appropriating and/or allocating District funds by recommending the use of District revenues from the VLT facility and by limiting its recommendation regarding the District's use of the VLT revenues to the Findings and Purposes section of the proposed legislation instead of incorporating the recommendation in the text of the proposed legislation.
The primary question is whether the Initiatives require expenditures for a program, thus mandating that the Council appropriate funds for that program. The Initiatives grant the Licensee a "right" to locate and operate up to 3500 VLTs in the District. Although the District of Columbia Lottery and Charitable Games Control Board (the "Lottery Board") has no discretion in granting the Temporary Initial License to the Licensee (Initiatives § § 1353(c)), and although the Council can vote not to permit additional VLTs in the District, the Lottery Board will incur administrative expenses if either Initiative is adopted and the Board performs the duties that either Initiative assigns to it. The Lottery Board would be required to prepare regulations, to review the application for the Initial License, to review and approve additional VLT sites and operators and to monitor, administer and regulate the operations of the initial VLT facility.
The Council can choose not to appropriate funds to the Lottery Board for VLT administrative purposes, thus forcing the Lottery Board either to conduct VLT administrative activities out of current and ongoing appropriations for administrative purposes or to ignore VLT administration. Although the Initiatives specify how the Lottery Board is to administer the VLT program, it is doubtful that any person bringing litigation to enforce either Initiative would have a legal basis to compel the Council to seek funds for such purposes.
The Initiatives do not appear to require the Council to make an affirmative effort to appropriate or allocate District funds in such a manner that there is a reasonable possibility that a court would find that the Initiatives are not the proper subject for an initiative in the District of Columbia. Thus, we believe that the Initiatives are a proper subject for an initiative in the District.
D.C. Official Code § 1-204.106 (2001) specifies that the short title and summary of an initiative proposed by the Board shall "accurately reflect the intent and meaning of the proposed... initiative."3
The proposed Summary Statements try to "sell" the proposal to the voters by stating that the Initiatives will establish the initial Video Lottery terminal facility at a "small site in the Anacostia section of Ward Eight targeted for redevelopment." Neither a street address nor street coordinates are identified in the Initiatives, which contain a definition of "Initial Designated VLT Site" as "an approximately 9,000 square foot area consisting of lots 5, 812, and 813 in square 5770 of Ward Eight that is targeted for redevelopment by the Anacostia Economic Development Corporation, and any adjoining parcels brought under common control with any Licensee...."4 This limited reference makes it difficult for citizens to ascertain, without research, the actual location of the proposed facility and implies that the facility is in some way associated with a District government redevelopment program.
Furthermore, the proposed Summary Statements fail to accurately describe the intent and meaning of the Initiatives because they are silent regarding the fact that the Initiatives are special interest legislation granting an unnamed (but clearly limited to one existing entity) Licensee an exclusive right to operate the initial VLTs. Because Initiative B grants the Licensee the exclusive right to operate a VLT facility in the District for ten years, and because both Initiatives require Council approval of any additional VLT facilities by a two-thirds vote of its members, the primary (and possibly only) result of the Initiatives will be to grant the pre-determined Licensee (who drafted the Initiatives) the exclusive right to build and operate a VLT facility in the District.
Because the Initiatives are worded in global terms such that one must read and comprehend the entire document to understand the actual result of the Initiative's indirect language, the special purpose nature of the Initiatives is not readily apparent to the untrained eye. However, D.C. Official Code § 1-1001.16(c)(1) (2001) directs the Lottery Board to prepare "a true and impartial" Summary Statement which "shall not intentionally create prejudice-for or against the measure."5
Initiative B prohibits additional locations for VLT operations for ten years after issuance of the Initial License (not the earlier Initial Temporary License) (Initiative B § 31355(a)), and any additional locations must be approved by two-thirds majority of the members of the Council (Initiative B § 3-1355(b)).6 Furthermore, both Initiatives §§ 31360 specify that a licensee is to pay the District an annual fee of 25% of Net VLT Proceeds. The Council has the legal authority to amend either Initiative if it becomes law, both to correct defects (the provision requiring a future Council to approve additional locations by a two-thirds majority is facially unlawful because it would conflict with the District Charter authorization for the Council to act by a simple majority on non-emergency matters)7 and to make desired changes (e.g., the Initiatives establish the legal procedures for governing a licensee's operations of VLTs, but because these procedures were drafted by the Licensee, a future Council may seek to change the procedures).
The Initiatives specify that each approved VLT location can operate up to 3500 VLTs (Initiatives §§ 3-1356(1)). They specify the sole initial site (Initiatives §§ 3-1350(7)). They permit the Licensee to conduct auxiliary services, "including, but not limited to the provision of parking facilities, food service, or lodging service, on land adjacent to or within a reasonable distance of the Designated VLT Site" (Initiatives §§ 3-1356(2)). The above may appear to be a grant to the Licensee of certain rights to conduct certain operations at a certain size without having to comply with District zoning and other land use restrictions (but probably does not exempt the Licensee from the need to comply with the building code). However, the District's zoning regulations may be changed only by the Zoning Commission, not by the Council, so if the proposed VLT facility would require a rezoning, the Initiatives cannot effectuate that rezoning.
Both the central computer system to be furnished and installed by a licensee (Initiatives §§ 3-1356(3)(B)) and the memory chips to be approved by the Certification Company (Initiatives §§ 3-1359(5)) comprise a significant portion of the methods available to calculate the revenues and Payouts from the VLTs. In addition, the VLTs are to be serviced by Manufacturers or Service Technicians (as defined in the Initiatives). This creates a concern because Initiatives §§ 3-1363 state:
The "Certification Company" (Initiatives §§ 3-1350(2)) cannot be affiliated with a licensee or any Principal (defined below) of a licensee. However, relationships involving a "Manufacturer" (Initiatives §§ 3-1350(11)) or a "Service technician" (Initiatives §§ 31350(19)) are restricted only to the extent that neither can be a licensee, but either can be affiliated with the licensee or a Principal of a licensee. Thus, the Lottery Board may have little control over interrelationships among a licensee, Principals of a licensee, principals of a licensee who are not defined as Principals, and various entities working on and being paid by (so as to reduce the net proceeds of) the facility. Furthermore, the Lottery Board cannot insist on its own certification of the Certification Company or the Manufacturer because it must accept authorizations issued by any State.
The definition of "Principal" in Initiatives §§ 3-1350(18) provides that banks, regulated mutual funds or other regulated financial institutions are not Principals if they hold their interests for investment purposes only and own less than a majority of the equity in a licensee.8 This means that if such an entity holds a 49.99% ownership interest (this is not precluded by the limitation to "investment purposes") in a licensee, that bank, mutual fund or financial institution will not be screened for suitability to hold a license or even listed in the application as a Principal of a licensee. Furthermore, the Temporary Initial License application does not require identification of any of the Licensee's Principals, only that the Licensee certify that the Principals (apparently without having to name them) are not unsuitable.
The Temporary Initial License and the Initial License can only go to the Licensee because, in both cases, the applicant must have more than 50% control of the only authorized site. Yet, although the Licensee is not identified in the Initiative,9 and although the Initiatives "require" that the Licensee must apply for the Temporary Initial License, the application for a Temporary Initial License is "deemed complete" and the Temporary Initial License must be granted if the Licensee submits a sworn affidavit that the Licensee is, "at the time of application, not disqualified from being a Licensee..." (Initiatives §§ 3-1353(b)(1)). Thus, the Lottery Board is not permitted to determine the suitability of the Licensee but must rely on an affidavit from the Licensee. To drive that point home, Initiatives §§ 3-1361 specifically exempt the applicant for the Temporary Initial License (the Licensee) from having to meet the suitability standards.10
Although the application for the Initial License does allow the Lottery Board to investigate the suitability of the Licensee, the Temporary Initial License remains in effect until the Initial License is granted or, if denied, all appeals have been completed. That will be some time, because Rules must be adopted before the application for an Initial License can be submitted.
Initiatives §§ 3-1369 provide that violations of the proposed act result in a fine of $10,000 per violation, but that does not specify if the violations apply to each VLT or if they accumulate daily. This could mean an insignificant fine if an illegal facility is operated for a long period of time.
Finally, although the items listed under "Other Concerns" do not warrant the Board's rejection of the Initiatives pursuant to District law, we have included these items to identify the drafting and legal shortcomings that we would identify if we were asked to provide: a legal sufficiency review of the Initiatives.11
Should you have any questions regarding this letter, please contact either Stephen B. Lyons, at 724-5094, or me at 727-3400.
1. The Initiatives are substantially identical to the Lottery Initiative of 2004 (the "2004 Initiative"), except that the location and size of the VLT facility has been changed.
2. Approved December 24, 1973, 88 Stat. 785-811, Pub. Law 93-198.
3. Note that the person submitting the Initiative need only file a summary statement and short title; there is no requirement that they be accurate. D.C. Official Code § 1-1001.16(a)(1) (2001).
4. The location is at the intersection of Martin Luther King Boulevard and Good Hope Road in Southeast. I assume that the reference to the Anacostia Economic Development Corporation is to the Anacostia Waterfront Corporation.
5. D.C. Official Code § 1-204.106 (2001) permits any citizen to petition the Superior Court to correct any inaccurate Summary Statement.
6. It appears that this requirement means just what it says, not two-thirds present and voting but two-thirds of the full Council.
7. Section 412(a) of the District of Columbia Home Rule Act, approved December 27, 1973 (87 Stat. 788; D.C. Official Code § 1-204.12(a) (2001)).
8. Even the Certification Company can be affiliated with investors who are not deemed "Principals" of a licensee. Yet, any combination of two banks, mutual funds or financial institutions, could result in 99.98% combined ownership in a licensee while neither of those owners are "Principals" of the licensee.
9. The Licensee does not have to own the land, it only has to have a right to buy or lease it. Thus, the public land records may not identify the holder of those rights.
10. The Lottery Board is granted the discretion to determine the content of the application for the Initial License (subject to the requirement that the Licensee can be the only applicant), but that discretion is not provided to the Lottery Board regarding the content of-the application for the Temporary Initial License.
11. We are not, in this letter, commenting on the policy issues raised by the Initiatives or whether they may violate federal law.
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