Youngkin has ‘serious concerns’ about both skill game bills

As the Virginia General Assembly delays making decisions about how skill games should be regulated, Gov. Glenn Youngkin’s office says it has “serious concerns” about both versions of the legislation lawmakers have put forward to legalize and tax the slots-like gambling devices found in gas stations and restaurants.

“The administration has serious concerns with both the House and Senate versions of the bill,” Youngkin spokesman Rob Damschen said Friday. “There are numerous issues to work through including the regulatory structure, tax rates, the number of machines, impact on the Virginia Lottery and broader public safety implications.”

Though Youngkin doesn’t appear to be flatly against the idea of allowing the machines to operate legally, the administration’s stance is the latest sign of how far policymakers still have to go before they arrive at a final bill. 

Both the House of Delegates and state Senate have passed legislation that would lift the existing ban on skill games. The House is sticking with a tougher regulatory structure and a 30% tax rate, while the Senate prefers a lighter touch and a 22% tax rate. The House bill allows up to two skill machines per convenience store and up to five per truck stop. The Senate bill allows up to three machines at convenience stores and seven at truck stops. The two bills also take dramatically different approaches to how the state would track the industry’s profits, with the House plan requiring direct access to financial data and the Senate plan allowing skill game companies to report their own numbers.

Virginia Explained: The never-ending battle over skill games

Pace-O-Matic, a top skill game company operating in Virginia, and a large coalition of gas station and restaurant owners have made it clear they prefer the Senate bill. But the industry’s lobbyists haven’t been specific about pieces of the House bill they oppose.

The two chambers have done little — at least not publicly — to resolve the major differences between their dueling approaches. That means the two versions are likely to be combined into one bill late in the session through a conference committee, a select group of lawmakers who hold private negotiations to try to come up with consensus legislation both chambers could support.

On skill games, the conference committee wouldn’t just be resolving minor sticking points. It would be deciding fundamental aspects of what the bill does.

After nearly seven weeks of work on the proposal, it remains unclear what the tax rate on the machines would be, how many machines would be allowed in each business, what state agency would regulate them, how that regulation would work, how strict the safeguards would be to prevent gambling addiction and underage play and whether local communities would or wouldn’t have the ability to say no to skill games.

Two law enforcement groups — the Virginia Police Benevolent Association and the Virginia Fraternal Order of Police — recently sent letters urging state lawmakers to oppose the legalization of skill games, arguing the machines have created confusion for police officers and invite loitering and crime.

“Allowing these companies in now, after they have avoided the law and acted in bad faith, rewards bad actors and sets a terrible precedent for the rule of law in Virginia,” the Fraternal Order of Police said in a letter dated Monday.

The Virginia Law Enforcement Sheriffs, which represents mostly rural sheriffs that have primary law enforcement duties in their jurisdictions, took an opposing view, telling lawmakers it supports the legislation because it would give law enforcement clarity on which games are legal and which are illegal.

Youngkin’s position is a sign talks on the bill could stretch beyond the General Assembly’s March 9 adjournment date. If the governor doesn’t like the product sent to him, he could suggest changes the legislature would then take up at the April 17 reconvened session.

The skill game debate cuts across traditional party lines. Democrats and Republicans alike have characterized the effort to legalize them as a pro-business move that will help smaller establishments stay viable instead of letting all gambling revenue go to big casino companies. Many lawmakers have also said the machines could generate up to $200 million per year in new tax revenue that could pay for schools and other priorities.

But both conservatives and progressives have spoken out against the societal harm they say will inevitably result from pushing gambling deeper and deeper into communities that already don’t have much money to lose.

Instead of committee hearings being used for robust discussion of how to balance those competing priorities, the meetings so far have mostly been perfunctory stops on the bill’s journey to the more private conference committee process.

There are several major issues lawmakers have yet to resolve.

Local control

The House bill would require localities to expressly approve skill games through a ballot referendum or passage of a local government ordinance, a requirement similar to what Virginia requires before casinos and Rosie’s gambling facilities tied to horse racing can be built. The Senate bill doesn’t have that rule.

In an interview after a committee hearing last week, Pace-O-Matic lobbyist Brian Moran would not give a direct answer when asked whether the industry coalition he’s a part of does or doesn’t support local approval for skill games.

“During the conference committee we would hope that we’d be able to achieve a result that’ll enable our small businesses to continue to operate, fair taxation, strenuous enforcement and appropriate regulation,” said Moran, who served as Virginia’s public safety secretary under former Govs. Terry McAuliffe and Ralph Northam.

Other skill game supporters have been more open about their belief that it’s unworkable to let local governments and voters decide where the machines will and won’t be legal.

Sen. Bill Stanley, R-Franklin, indicated local referendums shouldn’t be a part of the process because it would create an uneven playing field, with some business owners denied a revenue source available to their counterparts just across a city or county line.

“If you’re going to let small businesses have an opportunity, you’ve got to let all small businesses have that opportunity,” Stanley said.

Del. Cliff Hayes Jr., D-Chesapeake, a supporter of legalizing skill games, said there’s been some talk of giving localities permission to opt out of the industry. But he too indicated he sees no need for local referendums because casinos are large-scale projects that involve far more complicated zoning and land use questions than allowing a few gambling machines in businesses that already exist.

“These places already have customers coming to them,” Hayes said.

Sen. Jeremy McPike, D-Prince William, said last week that he hopes the final bill will include “some sort of option” for local input, raising the possibility that localities with casinos may have a particular interest in wanting to block skill games. McPike, who voted for the bill, also said he wants to see fixes to “pretty loose” rules dealing with gambling addiction and underage play.

The House plan envisions a player card system that would require the industry to verify would-be players’ identity before allowing them to access the machines, a safeguard pitched as a way to block gambling addicts and people under 21. The Senate bill has no upfront ID check and looser provisions for preventing underage play and problem gambling.

Moran, the skill game lobbyist, also didn’t answer directly when asked where his coalition stands on player cards, saying only that the industry supports the goal of preventing minors from playing.

“How that is achieved, we’ll have to work through those methods,” Moran said

Tracking the money

Under Virginia’s regulations for casinos, all traditional slot machines are required to be hooked up to a central monitoring system giving the Lottery access to real-time data on how much money is flowing through each machine and how much tax revenue state and local governments should be getting as a result. That also enables the state to ensure slot machines are giving players a fair chance and complying with rules specifying at least 84% of money wagered should go back to players.

Lawmakers appear divided on whether skill games should also be hooked up to a similar central monitoring system. The House bill requires it, while the Senate bill does not, allowing the industry to report its own numbers. A 2022 review by the General Assembly’s research arm concluded that skill games appear to have a payout percentage of roughly 77%, lower than many traditional forms of regulated gambling. 

When asked whether the skill game industry opposes a central monitoring system, Moran, the Pace-O-Matic lobbyist, said rules for casino slot machines don’t always translate to skill games.

“We want a reporting system that achieves the same goal,” Moran said. “We want to make sure that every dime is accounted for that goes in and out of the machines.”

Mysterious amendments

In an example of how legislation is often written behind closed doors, a document that appears to show suggested edits to the House version of the skill game bill has been circulating at the Capitol. But it has no markings indicating who’s pushing for the changes, and the Mercury was unable to verify its origin.

The document suggests allowing skill games to operate closer to day cares and K-12 schools than what’s envisioned in the House bill, lowering the allowable distance from 2,500 feet to 1,000.

“Other jurisdictions set this distance significantly lower than 2,500 feet,” the document says.

The Senate’s skill game bill sets no limits on how close the machines can be to schools.

Another proposed change scraps the idea of an age verification device altogether, saying it would “pose a huge financial burden.”

The House legislation sets a cap on businesses’ ability to reorient themselves around gambling, stating host locations can derive no more than 20% of their gross receipts from skill games. Though skill game proponents have described the machine as offering “supplemental income,” the suggested amendments would raise that cap to 50%, allowing host businesses to make half their money from the machines. The Senate bill has no such cap.

The suggested amendments also include allowing skill games in every location that possesses a charitable gaming permit. That change would presumably address concerns that skill games would harm charities that get some of their revenue from bingo, poker and other electronic machines, but it could create even more regulatory confusion.

The House bill would make the Virginia Lottery the state’s skill game regulator, while the Senate would have the machines start under oversight from the Virginia Alcoholic Beverage Control Authority and eventually transition to the Lottery. Charitable gaming is currently overseen by the Virginia Department of Agriculture and Consumer Services, raising the possibility that a third state agency could be added to the skill game mix.