Lynn Hirshman, Gilpin County. On June 18, 2014, the Board of County Commissioners—Buddy Schmalz, Gail Watson, and Connie McLain—“in their official capacities…and individually,” along with (County Manager) Roger Baker, Linda Armbright, Lary Brown, and the City of Black Hawk, sued the Treasurer of the State of Colorado, Walker Stapleton, the Board of County Commissioners of Teller County, the City of Cripple Creek and Central City for a bigger chunk of limited gaming funds.
The plaintiffs’ argument boils down to a challenge to the formula used for allocating the disbursement of those limited gaming funds. To begin with, the complaint notes that “Plaintiff Roger Baker has been a patron of casinos located in Gilpin County and has partaken of legalized gambling in those casinos, in part because a portion of his moneys wagered and lost will make its way back to Gilpin County in the form of gaming tax revenues distributed out of the limited gaming fund, which revenues benefit him generally and specifically as a taxpayer and citizen of Gilpin County. Plaintiff Roger Baker intends to partake of legalized gaming in Gilpin County in the future.”
Statements from Armbright and Brown are identical, only adding “Black Hawk” to the “Gilpin County” sentences in Baker’s statement.
According to the complaint, “Pursuant to Article XVIII, Sec. 9 of the Colorado Constitution, the amount of gaming tax each Licensee pays is based upon that Licensee’s adjusted gross proceeds….The term “adjusted gross proceeds” is expressly defined in the Constitution as: . . . the total amount of all wagers made by players on limited gaming less all payments to players; said payments to players being deemed to include all payments of cash premiums, merchandise, tokens, redeemable game credits, or any other thing of value.”
On the other hand, “the Colorado Constitution provides ‘at the end of each state fiscal year, the state treasurer shall distribute the balance remaining in the limited gaming fund . . . according to the following guidelines: . . . [fifty percent to the state general fund and twenty-eight percent to the state historical fund, and then] . . .twelve percent shall be distributed to the governing bodies of Gilpin county and Teller county in proportion to the gaming revenues generated in each county; the remaining ten percent shall be distributed to the governing bodies of the cities of: the City of Central, the City of Black Hawk, and the City of Cripple Creek in proportion to the gaming revenues generated in each respective city.”
The key to the complaint lies in the difference between “adjusted gross proceeds” and “gaming revenues.”
Who gets how much
The complaint goes on to state that “the Constitution requires the Treasurer to distribute the twenty percent of gaming revenues in the state historical fund to the City of Black Hawk, City of Central, and City of Cripple Creek in proportion to the gaming revenues generated in each respective city.
“The Treasurer is failing to distribute money from the limited gaming fund to the Local Government Jurisdictions in proportion to the gaming revenues generated in each jurisdiction.
“The Treasurer is instead making distributions from the limited gaming fund to the Local Government Jurisdictions in proportion to the adjusted gross proceeds generated in each jurisdiction, and not in proportion to the gaming revenues generated in each jurisdiction.
“In doing so, the Treasurer is improperly equating the term ‘gaming revenues’ with the term ‘adjusted gross proceeds….Because of the different tax rates, distributions to the Gaming Cities from the state historical fund made in proportion to the adjusted gross proceeds generated in each of the Gaming Cities are different from distributions made in proportion to the gaming revenues generated in each of the respective cities.”
This last statement requires explanation. Gaming taxes are levied according to the amount of revenue generated by each gaming institution. The largest casinos are levied at the highest rates, while medium-sized and small casinos pay progressively lower tax rates. Though it is never stated openly in the complaint, Black Hawk has the only large casinos paying the highest rates.
The complaint continues, therefore: “Licensees located in Gilpin County generally have higher adjusted gross proceeds and therefore are actually assessed at a higher marginal or overall tax rate than Licensees located in Teller County.
“Licensees located in Gilpin County, therefore, generally generate more gaming revenues for the limited gaming fund than Licensees located in Teller County….
“Licensees located in Black Hawk generally have higher adjusted gross proceeds and therefore are actually assessed at a higher marginal or overall tax rate than Licensees located in Central City or Cripple Creek.
“Licensees located in Black Hawk, therefore, generally generate more gaming revenues for the limited gaming fund and state historical fund than Licensees located in Central City or Cripple Creek.”
In other words, Black Hawk and Gilpin County, having generated the largest amount of tax funds from gaming, deserve a higher proportion of those “gaming revenues” than they are presently receiving under current rules and regulations.
The issue, according to Central City Mayor Ron Engels, is that, while there is a definition of “adjusted gross proceeds” in the Constitution (noted above), there is no such definition in the Constitution of “gaming revenues.” Accordingly, all the Gaming Commission’s rulemaking has used “adjusted gross proceeds” as the guideline for determining distribution of limited gaming funds. This has been the case during the 22 years of legal gaming in Colorado.
In the complaint, Black Hawk and Gilpin County state that “…because the Treasurer is improperly making distributions to the Local Government Jurisdictions in proportion to adjusted gross proceeds and not in proportion to gaming revenues, Plaintiffs are entitled to an injunction prohibiting the Treasurer from continuing to distribute such funds in proportion to adjusted gross proceeds….[and] an injunction requiring the Treasurer to distribute such funds in proportion to gaming revenues.”
In a rough, literally back-of-the-envelope calculation, Engels pointed out that right now, given the current formula for distribution, Black Hawk receives about 75% of the funds available to the municipalities, with Cripple Creek getting about 18% and Central City about 7%. He thinks that a shift to distributing according to “gaming revenues” (which remains undefined) would give Black Hawk about 90% of the funds, with 7% going to Cripple Creek and 3% to Central City.
Further, Engels figures that the change Black Hawk wants would result in about $300,000 less annually to Central City and $600,000 less to Teller County, while Gilpin County would receive about $900,000 more.
“Central City had no input into the rulemaking, or in how the state cuts its checks,” he says, “so any change is not in Central City’s power. So why are we defendants in this action?”
No date has been set for a hearing on the complaint. The State is the primary defendant; they have assigned an attorney from the Attorney General’s office, who will almost certainly file only their own response. Central City has filed a petition to extend the date by which they are required to respond to the suit by 20 days after the State files, and will probably file in agreement with the State.
The Mountain-Ear will be following this case closely. Watch for updates in future issues.