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Memo-Lawful Gambling Fund -. · fi Department of Administration .' Memorandum , , To: Hopkins City Council; " , From:, ' Jim Genellie Date: March 25,2004 Subject Lawful Gambling.Fund', '.' ~ , '1 On August 19,20Q3 the Council amended Legislative Policy 4-A, Lawful Gambling, by adding Section 2~ 15 which required organizations conducting gambling in leased premises to contribute 10% of their net profits to the City. Prior to adopting an ordinance implementing such a fund, the Council consulted with the City Attorney as, well as the organizations that are currently conducting gambling in Hopkins. ,Th6 original idea was to require only ,those organizations that conduct gambling in leased premises' to contribllte to s~ch afund.Organizatiorls, such as the VFWcindElks, which conduct gambling in , their own buildings, would ,not have. to contribute. .' . , , . . , . An opinion from Attorney Jette Miller stated. that limiting the contributions in this ma1lIler would be .' ,.,.,",..,'... discn. 'minatory~ Discussions with the State of .Minnesota Gambling Control Board did nof . 'definitivelysettle this issue. ' ,. , A m~eting withorganizations that condu~t1awful gambling in Hopkinsresultedin a request to have the City Attorney's office review the following issues: 1. ,Can the Cityestablish such a fund and only require thoseorgahizations thatconrluct gambling in leased premises to contribute to such 'a fund? 2. 'Ifall gambling organizations must contribute to sucp 'a fund,can the City require different percentages from organizations that conduct gambling in leased premises versus ,', · organizations which conductgalllblingiri their ownJ:>uildings? , . .'. , " . 3. Can the City require organizations to contribute a set percentage but have a ceiling on the amount that anyone organization' would have tocontribute?Foi example, every organization would have to contribute 5% of their net profits not to exceed $10,000. 4. Can the City further define "net profits" to allowotganizations to first deduct 1awful purpose expenditures that are spent on their buildings and then require a percentage of the remaining , . , net profits?' . ; : ,"" ' 5. Can the City require all gambling organizations to contribute a p~rcentage of their net profits (not exceeding lO~) specifically to the Raspberry Fes~ival? Thiswould accomplish the 'same purpose as the fund but remove the.suspicion that the City might spend the money for some other purpose. ", . }" ., ; '\LaWful 'G~(rtJllng Fund .doc :J, '~~, 1 Department of Administration . Attachedisa memorandum from City Attorney Wynn Curt~ss. After examining the issues raised by the first three questions, he states: "An argumeritalso could be made that the Statute merely authorizes a city to require any , gambling organization to contribute not more,than ten percent to the fund~ The Statute does not prohibit disparate treatment. Also, another provision of the Statute, authorizing a city to require a "specific expenditure," is written in singular language and could be relied on to support an argument that a city c~ require different payments --, whether by specific expenditure or contribution to the gambling fund ~ based on criteria such as whether an' organization leases versusowns.. i ", . ,.. , , ' " , Given the absence of clear statutory language to the contrary, I believeicity could establish a gambling fund andrequire different contribution levels - including no required 'contribution- from different gambling organizations based onc1ear and reasonable criteria." " , In other words, he gives a qualified yes to questions 1, 2, and 3; He goes on to sayno to questions 4 and 5. The City Counc~l should decide on how to. proceed., .. Should a laWful gambling fu~dbe established? .'. '.. If so, how should it be funded? " ',' . 1. ,A set percentage from just those organizations conducting gambling in leased premises? " ' , , : , , , 'I' " , 2. A set percentage from those organizations conducHriggambling in leased premises and a different percentage from those organizations that conduct gambling in their ownhuildings? .. 3. The same percentage from:a11 organizations with a cap'onthemaXimum cci'ntribrition? ,:' i . , . The fewer organizations that are required to contribute, the higher the percentage would need to be. If the Council decid~s to proceed, it should direct' staff to :have the City Attorney drafuan ordinance based upon the preferred,methodoffunding.' If the Council decidesto not establish suc~ a fund, staff will prepare' a resolution aniending Legislative Policy 4~A, Lawful Gambling" toremoveanylanguage regarding a gambling fund. . IUlWful Gia~bling Fund,doc " ~ . TO:, ' Jim Genellie FROM: WYNN CURTISS, CITY ATTORNEY DATE: January 14, 2004 ' RE: Gambling Fund .. .. .I" This memo is.in response to your December 16,2003, memo :requesting information about , the scope of municipal authority in creating a "gambling fund," requiring "specinc expehditures" by 'gambling organizations and in establishing fees charged to groups engagedingamhling within the ,CityofHopkins ("City"). I have res earthed Minn. Stat. Sect. 349.213 (the "Statute") and the case law applicable tothe Statute and have spoken with Mr. Joseph Newton, the assistant attorney general . ' ' , . - " . assigned to the Gambling Control Board ("GCB"). I also have consulted the League of Cities and reviewed its publication regarding city authority toregulategambiing. ,- 'I' '" Specifically, you had the following questions: 1. Can the City establish suclI a (gambling) fund and only require those organizations that conductgambling in leased premises to contribute to such 'a fund? " . Clearly, the City can establish a' gambling fund pet the Statute. However, it is not clear that ., the City could impose different contribution requirements basedori whether a gambling organization ownsbr leases its space," , First, the' Statute and its case la\V do not speCifically address this issue. Second, while the , Statute requires the City to report annually the revenues collected for and expenditures from such a fund to the'deB, the GCE has nO ,regulatory authority regardin.g a gamblingfurid. Therefore, Mr. Newtonindicated the GCB would not render an opinion on thepropriety ofrequiring some, but not all, gambling organization.s to contribute to such a fund or ,the propriety of requiring gambling organizations to contribute different amounts to the fund. Inreviewing the Statute, there is no language directly authorizing a city to impose different contribution amounts to a gambling fund or directly prohibiting a city from doing the same. The Statute, however, does read asfollows: , "A statutory or home rule charter city or a county may not require an organization conducting lawful gambling within its jurisdiction to make an expenditure to the city or county as a condition to operate within that city or county ... : provided, however, that an ordinance requirement that such organizations must contribute ten percent oftheir net profits derived from lawful' gambling ,. .. to a fund administered and regulated by the responsible local unit of government... is valid and lawful."(Emphasis added). . The emphasis is added to note that the word "organizations" is plural, implying that it applies , , .f '" .:' j: '. to all gambling organizations, not some. Ateasonableargument could be made that the Statute " , must be construed to require all organizations to contribute. Presumably,a challenger to the disparate contribution would .claim that the "ordinance .requirement" would apply to all "organizations" equally and that the Legislature could have written the Statutefo provide for disparate contribution requirements 'and failed to clearly dosp. ' , ' , . ' , An argument also could be made that the Statute merely authorizes a city to require any gambling organization to contribute not more than ten percent to the fund. The, Statute does not prohibit disparate treatment. Also, another provision of the Statute, authorizing 3; city to require a , "specific expenditure," is written inisingular'language and could be relied onto support an argument that a' city can require different payrllents .,-, whether by specific expenditure or contribution to .the gambling fund - based on criteriC:l,such as whether an organization leases , ,versus owns. . " ".:" . , .1 . Given the absence of clearstatlltory language tothe,contrary,I believea city could establish a gambling fund and require different ,contribution levels - including no required contribution - .' from different gambling organizations based on clear and reasonable criteria. ", ' - ' .' . " 2. If all gambling organizations must contribute to such ,a fund, cantheCity require different percentages frolD ,organizations that conduct. legalgambli:ng in 'leased premises versus organizations which, conduct gambling in their own building? ' , .' In my opinion, yes, for the reasons set forthin No.1 above. '. " 3. Can the City require organizations to contribute a set percentage, b~t have a ceiling ," on the amount that anyone organization would have to contribute? For example, , every org~nization would have to contribute 5% of their net profits Ilotto exceed $l~OOO? " . , ' In my opinion, yes for the re~sons set forth in No.1 above. ' I'. . 4. Can the City further define "net profits" to' allow organizations to first deduct lawful purposesexpenditure~that are spent on their .buildings and then require a percentage of the remaining net profits? Minn. ,Stat. Section349.12~ubd. 27 defines "net profit". Although the Statute grants a city authority to more strictly "regulate" gambling, it does not give a city the authority to alter the definitions by which gambli!1.g organizations are regulated. For that reason, I do not believe the City could alter the definition of"net profit" without creating (ipossible conflict for the gambling organization befu,reen the City's definition and that of the GCB, which it' " must follow; . ; ~ " . ;t, . " , 5. Can the City require all gambling organizations to contribute a percentage oftheir net profits (not exceeding ,10%) specifically to the Raspberry Festival? There are two potential problems with such a requIrement, one statutory and one constitutional. ' , , .. First, a gambling organiz!ltion may only make a contribution for a "lawful purpose." , Mimi. Stat. Sect. 349. 's~bd. 25; defines "lawful purpose"and part (b) (5) says a'lawful purpose does not include ' ! ' " "a contribution by a licensed organization to another licensed orgaiJization unless the ,(gambling control) board has specifically authorized the contribution. The bom:d must ,authorize such a contribution when requested by the contributing organiiation unless it makes an affi:nnative findingthatthe contribution will not be used by the , " recipient organization for one or more of the purposes in paragraph (a); , : : This pro"isionmight require 'each gambling organization to request approval of the , specific expenditure from the GCB. Depending ,on what the receiving organization intends to use the funds for, it might not meet the GCB's requirement and might not be approved. " The second issue is cons~itutional. According to research done by the League of . Cities, a: requirement thata contribution he'made toa specific organization might violate the " contributing' organization's constitutional right not to be associated with the receiving organization. The constitutiona1 freedom of association includes ,a freedom not to associate and; therefore, not to be forced to associate. For example, the Knights of Columbus might object to beingrequrredto make a specific contribution to Planned Parenthood. lfthe City intends,to require a'specific contribution, itmight face an,objection from the contributing group if it, objects tathe receiving group. The City could not take the position that the contributing gro~p is excluded from ccmductiIlg gambling in the City based on its refusal to contribute, since,its refusal is constitutionally protected. The City would be required to find an alternative receiving group. , ' , As for the amount ofthespeciflcexpenditure and whether it can be different for different organizations, I believe it can. The Statute reads: , '. ! "The authority granted by this subdivision does not include the authority to require an '. organization to make speCific expenditures of more than ten percent from its net profits derived from lawful gambling." I, What is implicit in this statement is that the authority granted does include the authority to require an organization to make specific expenditures of not more than ten . percent. The only restriction in the'Statute is the 10% cap. There is no language prohibiting a city from establishing. disparate, expenditures based on' the nature of the gambling :,1 ..(: 'i'''' (" . organization. There is, however, .a'requirement that all ",forms" of gambling be treated the' same, so the level of contiiblltion carniot be related to whetherit is pull-tabs ,vs. some other form of gambling. ATTORNEY GENERAL OPINION; .. " 'While the GCB won't issue an opinion, the AttorneyGeneral's officewill. According to the , AG's office, a Written~equest foran opinion onthis issue likely would be ~sw~red within one to two months. SUMMARY' The City's decision whether to establish a gambling fund Of require specific expenditures probably depends on the mariner in which ,the Citywants the moneyto,be used.Tfthe City wants the' money to be used for a ve:ry specific purpose or group, the City risks an objection on constitutional grounds that is likely to be upheld. Establishing a gambling fund controlled by the City isa means to avoid that issue, but the statutory language enabling a gambling fund appears more vulnerable to a ,,',' challenge regarding disparate contributions than the language enabling specific expenditUres. While an Attorney General opinion does not have the force oflaw,ifit is adverse to the City, it will be relied on by gambling organizations objecting to the disparate contribution requIrements. .. . If you have any questions or wish to discuss the matter further, please call. ," , I' , we" .. .. : '. , , '