Flaws in Saipan casino bill, chilling effect on other biz’

A closer look at the 34-page Saipan casino gaming bill that the Legislature passed in two days shows what some officials describe as flaws and chilling effects on other businesses, including the potential to lose more income than the government can generate, stall video lottery and electronic gaming, phase out the poker industry on three islands, and allow up to 80 years of “exclusive” casino operation with a uniform $15 million a year fee, among other things.
At the same time, some of the casino bill’s provisions mirror that of the plans of a Hong Kong-based investor that earlier told Gov. Eloy S. Inos and “at least” four lawmakers on separate occasions about their “close to $3 billion” in planned total investments in the CNMI inclusive of hotels, villas, and a private medical center over a certain period of time, along with “between 1,000 and 2,000 hotel rooms.”

House Bill 18-179, House Draft 4, now on its way to the governor for action, requires a minimum of $2 billion investment in the CNMI inclusive of the casino, hotel, and other tourism-related businesses, but sets no timeline.

The casino bill also requires the exclusive Saipan casino license holder to build from the ground up a hotel with at least “2,000 rooms,” but also does not set a timeline nor specify a phased-in approach.

At present, the biggest hotels on Saipan and Tinian have only a little over 400 rooms each.

In October 2013, Inos and House floor leader Ralph Demapan (Cov-Saipan), main author of the casino bill, left for Hong Kong for what the lawmaker later said was a “fact-finding trip” to meet with investor groups that has the almost “$3 billion” investment plan.

From late January to early February, Senate President Ralph Torres (Ind-Saipan), vice president Victor Hocog (R-Rota), and Sen. Frank Borja (Ind-Tinian) also went to Hong Kong to meet with the same investors.

On Tuesday night, Torres, Hocog, and Borja were among the five senators who voted “yes” to the casino bill, marking the first time in at least four years that the Senate passed any Saipan casino bill from the House. The Senate killed similar bills in the past.

No guarantee

Press secretary Angel Demapan said there is no guarantee that the governor will sign the bill, especially because it is different from previous versions of casino bills and underwent four amendments at the House on Monday.

He describes the bill as “monumental” and “has the potential to change the course of the economy, the government, and the lives of our people,” requiring prudent review.

“It’s going to require that the governor review this thing from all angles, because we don’t want a product that’s not going to work. The governor may want a casino but the governor wants a successful casino, a thriving casino, not just any casino that we think about overnight,” Demapan said in an interview on Capital Hill yesterday afternoon.

The bill specifies that the $1 million in nonrefundable application fee and the $30 million in advance license fee payment shall be paid within 15 days of the law’s signing.

The bill has yet to be transmitted to the governor as of yesterday afternoon, so the 40-day period for the governor to act on it still does not run.

Chilling effect

Under the bill, a year after approval and granting of the exclusive casino license, “no new or additional licenses for poker, pachinko and similar amusement machines outside of approved casino establishment or hotel within the Commonwealth shall be granted or allowed to operate.”

Because it says “Commonwealth,” this applies to Saipan, Tinian, and Rota where poker fees have been a major source of funding for scholarships, medical patients’ monthly subsistence allowance, and other programs and services.

Senate floor leader Ray Yumul (Ind-Saipan), one of the four senators that voted “no” to the bill, said the casino bill also “puts the brake” on prospective investors for electronic gaming and video lottery.

Yumul said the nonrefundable $1 million application fee and the $30 million in advance license fee payment “within 15 days” of the bill’s enactment “sets prospective investors up for failure” unless the bill was crafted with a specific investor in mind that is willing to let go of $31 million “within 15 days of the law’s signing.”

He said building a hotel with at least 2,000 rooms would require years, at a time when the CNMI is still unsure whether it will still have continued access to some 10,000 foreign workers beyond Dec. 31, 2014, when the transitional CW program expires.

Tinian Mayor Ramon Dela Cruz also noted that the casino bill creating a Commonwealth Gaming Commission may be “problematic” and could diminish the confidence of Tinian Dynasty Hotel and Casino’s new investors in the CNMI government’s support of their Tinian project.

Dela Cruz said this in a March 5 letter to Sen. Frank Cruz (R-Tinian), who also voted “no” to the casino bill on Tuesday.

“Congratulations for voting ‘No’ to the latest version of Saipan casino gaming and maintaining the integrity of our commitment to developing the casino industry on Tinian,” the mayor told Cruz, inviting the senator to a meeting “to discuss how to address the current situation and truly move forward with the economic development of Tinian.”

Casino gaming is legal only on Tinian and Rota right now. Saipan voters twice rejected initiatives to legalize casino gaming on Saipan.

‘Devil is in the details’

Sen. Paul Manglona (Ind-Rota), also among those who voted “no” to the casino bill, said it “sounds good” to require an investor to pay at least $31 million within 15 days of the bill’s signing but a closer look at the bill’s provisions indicates that the CNMI could be losing more than it could generate once the bill becomes law.

The bill allows a 40-year exclusive Saipan casino license—inclusive of an initial 25-year period and an extension of 15 years—and a second option to renew for another 40 years for a total of 80 years.

The 80-year exclusive license, however, still depends on whether Article 11 or 12 of the NMI Constitution is amended to allow more than 40 years or more than 55 years lease of public land or private land, depending on where the casino hotel will be built. There are pending legislative initiatives to extend leases up to 99 years.

While the CNMI allows an exclusive license for up to 80 years, Manglona said the rate of payment for the license fee is only at $15 million annually starting on the third or fourth year, and does not go up even if the business expands.

He said the government will end up spending more than it can collect—or not earn anything at all—at least after the first year of operation because the Legislature has to appropriate budget for the commission from the general fund after one year.

Manglona cited that at one point, Tinian Dynasty Hotel and Casino remitted some $4 million to the commission, but a much bigger casino hotel on Saipan would require more than that budget for the commission.

“If you add that $4 million-plus, and then the revenue loss for poker operations, which is some $10 million a year, then the government will lose and spend over $14 million to $15 million a year, the same amount of $15 million annual payment required of the exclusive casino license for 40 year or for up to 80 years,” Manglona added.

He said if there’s one good news, it could be the immediate infusion of the $31 million in application fee and advance license fee payment covering two years.

“That one, the government can pay the 25 percent pension cut for retirees which is about $17 million, and the remaining would be to pay the lawyers in the settlement case. After that, it’s like going back to zero or not earning additional income for the government,” he added.

Manglona also noted that the bill gives the exclusive gaming licensee a rebate offset amount of 100 percent of the gross gaming revenue.

“The more you read the bill, the more you discover problems,” said Manglona, commenting on the “rushed” nature of the bill’s passage in the Senate.