FROM: Mimi Panitch
I'm sure it seemed like a great idea at the time, to the people drafting the casino legislation. Fund the newly-established MGC from casino licensing fees! That way it will be independently funded, and not a line-item on the state budget ...that we argue over year after year, and the cost won't come out of the taxpayers' pockets!*
Only no one considered all the possible ways that casino licensing might play out, and either no one realized the potential for perverse incentives or else whoever did realize it was ignored. The assumptions undergirding this funding mechanism are that there will be plenty of acceptable casino operators who are dying to locate in Massachusetts, and plenty of Massachusetts cities and towns that are eager to have them. So, the assumptions run, there's no issue with funding MGC with $15 million in taxpayer money, via a no-interest loan. The licenses will be awarded easily and without material controversy, and there will be enough competition for them that there will be no reason to worry about the MGC aligning itself with the casinos that are the ultimate source of its funding, to the detriment of the public interest.
Only, as we know, it didn't quite play out that way. In the western region, casinos have been rejected by the voters of Palmer, West Springfield, and Holyoke (in substance, if not formally). It was once widely thought that the MGC would be reluctant to give the regional license to Springfield because of issues with MGM and its connections, but while the issues have been acknowledged, MGM is now the only possible licensee -- unless MGC is willing to start over from the beginning. In the east, there's the ugly situation with Revere. The appetite for casino development in Massachusetts is simply not what the drafters of the legislation envisioned (or at least, the appetite isn't there under the terms set forth in the enabling legislation).
And meanwhile, the MGC has been spending money at levels that are raising a lot of eyebrows. For good reason, although it's easy to see how it happened.
But now, we come to the implications, and the ways in which the funding structure weakens the MGC, gives it perverse incentives, and undermines its appearance of integrity. They have been profligate in spending money loaned to them by the state. Their profligacy has been justified by the idea that it's all the casino operators' money, merely an advance against funds that will start flowing in as soon as the licenses are granted. Licenses that it is within the MGC's discretion to grant or not.
There is at best limited competition for those licenses. The circumstances surrounding them might make a truly neutral authority hesitate when it comes to licensing the last applicants standing, or to impose very stringent conditions on them when it comes to issues like neighboring community mitigation. And yet, the MGC is now in a position where it has personal, powerful incentives to grant those licenses -- without the licenses, the licensing feels don't come in, and scrutiny of their own expenses is much less likely to be deflected. On a personal level, they've run smack into a potential conflict of interest -- substantively, I mean, not so much in legal terms -- that runs the risk of tainting any decision they make. In the public eye, if nothing else; but that's not a negligible consideration.
All of which makes for a giant illustration of why writing legislation that works as intended is hard. Harder than it looks, and generally harder than you believed could ever be possible when you started working on it. But somehow, that's not a whole lot of consolation when you're staring down the results of a technical mistake.
*Which of course it does anyway, because if the expenses are taken out of licensing fees that would otherwise have gone to the Commonwealth . . . I mean, this isn't rocket science. But leaving that aside.
Only no one considered all the possible ways that casino licensing might play out, and either no one realized the potential for perverse incentives or else whoever did realize it was ignored. The assumptions undergirding this funding mechanism are that there will be plenty of acceptable casino operators who are dying to locate in Massachusetts, and plenty of Massachusetts cities and towns that are eager to have them. So, the assumptions run, there's no issue with funding MGC with $15 million in taxpayer money, via a no-interest loan. The licenses will be awarded easily and without material controversy, and there will be enough competition for them that there will be no reason to worry about the MGC aligning itself with the casinos that are the ultimate source of its funding, to the detriment of the public interest.
Only, as we know, it didn't quite play out that way. In the western region, casinos have been rejected by the voters of Palmer, West Springfield, and Holyoke (in substance, if not formally). It was once widely thought that the MGC would be reluctant to give the regional license to Springfield because of issues with MGM and its connections, but while the issues have been acknowledged, MGM is now the only possible licensee -- unless MGC is willing to start over from the beginning. In the east, there's the ugly situation with Revere. The appetite for casino development in Massachusetts is simply not what the drafters of the legislation envisioned (or at least, the appetite isn't there under the terms set forth in the enabling legislation).
And meanwhile, the MGC has been spending money at levels that are raising a lot of eyebrows. For good reason, although it's easy to see how it happened.
But now, we come to the implications, and the ways in which the funding structure weakens the MGC, gives it perverse incentives, and undermines its appearance of integrity. They have been profligate in spending money loaned to them by the state. Their profligacy has been justified by the idea that it's all the casino operators' money, merely an advance against funds that will start flowing in as soon as the licenses are granted. Licenses that it is within the MGC's discretion to grant or not.
There is at best limited competition for those licenses. The circumstances surrounding them might make a truly neutral authority hesitate when it comes to licensing the last applicants standing, or to impose very stringent conditions on them when it comes to issues like neighboring community mitigation. And yet, the MGC is now in a position where it has personal, powerful incentives to grant those licenses -- without the licenses, the licensing feels don't come in, and scrutiny of their own expenses is much less likely to be deflected. On a personal level, they've run smack into a potential conflict of interest -- substantively, I mean, not so much in legal terms -- that runs the risk of tainting any decision they make. In the public eye, if nothing else; but that's not a negligible consideration.
All of which makes for a giant illustration of why writing legislation that works as intended is hard. Harder than it looks, and generally harder than you believed could ever be possible when you started working on it. But somehow, that's not a whole lot of consolation when you're staring down the results of a technical mistake.
*Which of course it does anyway, because if the expenses are taken out of licensing fees that would otherwise have gone to the Commonwealth . . . I mean, this isn't rocket science. But leaving that aside.
Massachusetts Gaming Commission expenses 'unrivaled' among state agencies; include luxury hotels, high-end restaurants
Members of the five-person Massachusetts Gaming Commission attend a news conference in Boston. From left the members are: Enrique Zuniga, James F. McHugh, Chairman Steve Crosby, Bruce Stebbins, and Gayle Cameron. (File photo | Associated Press)
By on February 21, 2014
By CRAIG DOUGLAS
Boston Business Journal
The Massachusetts Gaming Commission has left no stone unturned in its rigorous, years-long effort to hand pick the list of casino operators who will ultimately operate in the Bay State. Nor have the commission and its politically connected staffers spared many expenses when it comes to traveling and entertaining both near and far.
A Boston Business Journal analysis of credit card statements and reimbursement reports has spotlighted repeated instances of lavish employee spending since the commission’s inception two years ago. The expenditures, which have been criticized by a state watchdog and at least one casino-license applicant, include dozens of charges at luxury hotels and top-rated restaurants in major cities throughout the world. Other outlays include millions in payments to international gaming consultants.
Unlike other state agencies, the gaming commission has operated without formal guidelines on the amounts and types of personal spending and travel permitted among its employees. In many documented cases the commission’s employees have flouted the agency’s own $71-per-day recommendations when it comes to meals expenses incurred on the job.
Some of those same gaming officials have had tens-of-thousands in airfare, meals and hotel costs covered by the largest casino operators in the world, the same multinational companies that are vying for a select number of licenses to operate in the wealthy state of Massachusetts.
Members of the gaming commission — established by the 2011 state law that allows up to three resort casinos and one slots parlor to open here — have defended the agency’s spending as necessary and proper. In several interviews with the Boston Business Journal, MGC officials said comparisons to travel and reimbursement budgets at other state agencies are unfair given the commission’s daunting mission and tight timeline to establish a new multibillion-dollar industry for the state. They also emphasized that a considerable amount of the MGC’s costs, some $15 million to date, have been reimbursed by casino operators as part of their applications for gaming licenses in the state.
“The process has to be thorough,” said Enrique Zuniga, one of the state’s five gaming commissioners. “Cost is really a secondary factor.
Examples of the commission’s extreme spending are many, ranging from a state police officer’s one-way flight from Hong Kong to Boston for $7,257 to a $5,550-per-month housing allowance for top executives to more than $78,000 in parking benefits provided to commission employees in Boston.
That parking perk, according to state law, is prohibited at Massachusetts agencies that receive taxpayer funding.
Other charges are of a more personal nature. One commission employee used her agency-issued Bank of America credit card to order from an online wedding-goods vendor. Another employee used his card to buy a $423 iPad. Commission Chairman Stephen Crosby treated a colleague to a $110 visit to a wine bar in Singapore, while Zuniga charged $422 to Plaza Limousine, the self-proclaimed preferred car service for the Boston Red Sox and local VIPs.
The spending pattern has drawn sharp words from former state inspector general Gregory Sullivan, the man who drafted the state’s employee-spending and travel regulations a decade ago. He said the spending rules, which were updated in 2011 and are enforced by the state Executive Office of Administration & Finance, were crafted in response to recurring instances of extravagant travel and entertainment spending at many state agencies. He said there is no reason why the gaming commission should be exempt from the same spending parameters.
The BBJ asked Sullivan, who served 10 years as inspector general and now is a research director at
The Pioneer Institute in Boston, to review the MGC’s spending records as they apply to the regulations he helped establish in 2004. “As far as I am concerned, the gaming commission is a state agency. And these examples are wildly beyond what state employees are entitled to,” Sullivan said.
“These figures offend my sensibility.”
The buck stops where?
During a phone interview this month, Zuniga said the agency’s mission has been unique from the start. He said it is misguided to compare its employee expense and travel reports to those of other state departments in which less travel is required.
He said commission employees must adhere to an employee handbook, published in 2012, when it comes to travel and related expenditures made while on official gaming-commission business.
A review of the commission’s employee handbook found a single reference to travel, hotel and meals expenditures incurred by employees. The handbook recommends a daily meals cap of $71, while “reasonable charges for hotel accommodations will be allowed upon presentation of receipted bills.”
The employee pamphlet does not include guidelines on costs and usage of airline services.
The commission’s expense trail frequently blows through the official spending caps outlined for public employees traveling on behalf of state agencies. In some cases, including nine round-trip flights to Las Vegas that cost between $750 and $900 apiece, the price of airfare and hotel room rates were two to three times the typical economy rates offered by competing airlines and hotels.
Zuniga said the urgency of the commission’s mission often requires last-minute travel planning and unexpected meetings with gaming-industry stakeholders who frequently move from one exotic gaming location to the next. He said commission employees must abide by strict ethics guidelines and that there is no conflict of interest in having gaming companies reimburse the commission for any travel or consulting costs incurred during license investigations.
Of the $15 million in commission costs covered by gaming applicants, Zuniga said at least one applicant — who was not identified — has “pushed back” on the spending amounts submitted for reimbursement. The commission reported about $13 million in direct operating expenses in the fiscal year that ended June 30.
“We cannot let a plane ticket determine how we are going to feel about an investigation,” Zuniga said.
Blueprint for financial independence
Whether the state’s travel and personal spending policies apply to the gaming commission remains a foggy issue. As written, the state’s spending rules apply to “all persons employed by … commissions and other agencies receiving state appropriations.” The rules’ spending limits include, among other things, a $30 daily cap on meals reimbursements, with no more than $6 to be covered for breakfast, $8 for lunch and $16 for dinner.
On its website, the commission contends it is “not funded with taxpayer monies, or state appropriations,” a status that enables it to operate outside of public-employee spending and travel guidelines in Massachusetts. “We are not funded with a line item,” Zuniga said.
The commission was initially funded with a $15 million interest-free loan from the state’s rainy day fund, a debt that will be repaid as the state sells gaming licenses and collects operating fees from gaming companies, MGC officials said. Both revenue sources are key to the commission’s long-term plan to be self-sustained and financially independent from the state.
License fees for gaming companies in Massachusetts are either $25 million for the slot machine parlor license, or $85 million for a resort casino license. The commission is expected to award its sole $25 million slots-parlor license later this month, by picking a winner from three rival proposals.
Sullivan, the state’s former inspector general, said the reasons for such spending and how it is paid for are irrelevant, and that the commission and every other public agency has a duty to taxpayers to keep costs to a minimum whenever possible. Any other approach threatens the government’s credibility in the public’s eye, he said.
“If you have rules then nobody’s taking $900 flights to Las Vegas or a $7,000 flight to Hong Kong,” Sullivan said. “But apparently they’re claiming they don’t have any rules.”
No rules to the road
Despite two years of operations and extensive travel costs incurred in the United States and abroad, the commission has yet to formalize its own employee-travel and reimbursement policies, other than the brief mention in the employee handbook. A commission spokesman said an effort to do so started last year, but was delayed until a full-time finance and accounting chief could be hired. That person, Derek Lennon, officially joined the MGC in October as its chief finance and accounting officer.
Based on draft proposals provided to the BBJ, the commission intends to peg its travel reimbursement rates to those recommended by the U.S. General Services Administration and U.S. Secretary of State. Both federal agencies set reimbursement rates that vary by city.
But there are numerous examples of past commission expenses that dwarfed the spending caps set by the GSA and Secretary of State. For example, the GSA’s daily hotel rate for Las Vegas, $92, was approximately half the $181 daily rate paid by Zuniga during his four-night stay at The Venetian in September 2012. A BBJ review of hotel rates in Las Vegas for September of this year turned up dozens of room rates at or under the GSA spending cap. Similar discrepancies were found when comparing commission hotel rates paid in Hong Kong, Bangkok, London, Poland, Virginia Beach, New Jersey, Ohio, Philadelphia, Saratoga Springs, N.Y., and various locations throughout Massachusetts.
Dining near and far
Between May 2012 and the end of 2013, commission staffers spent approximately $85,000 on airfare, $61,000 on hotel accommodations and another $37,000 on meals. The totals were based on a BBJ review of more than 700 credit card charges and expense reimbursements.
As of Jan. 1, the commission had 43 employees, with about half of them making at least $100,000 per year in salary. Those figures do not include a handful of state police investigators assigned to support the commission’s gaming-license applicants.
MGC commissioner Stephen Crosby has been among the more frequent users of the company meal card. Room service is a particular favorite of his. On a recent trip to Asia, Crosby recorded 10 food-related room charges during a five-night stay at the Pan Pacific Hotel in Hong Kong. The total cost for those meal charges — not including nine visits to the mini bar that Crosby covered out of pocket — was $565, according to his room receipt.
Most of the commission’s larger meal tabs have been recorded in the United States. In April 2013, Crosby and three other MGC officials paid $446 — approximately $111 apiece — at Mamma Maria in Boston’s North End. Two months later he was reimbursed $432 for a dinner he hosted for two MGC director candidates at the Boston Harbor Hotel, according to receipts.
All told, Crosby has recorded at least $13,000 in meals, airfare and hotel-related expenditures and reimbursements since mid-2012. His salary this year is $154,500, the commission’s second highest behind MGC Executive Director Rick Day’s $185,000 annual pay. Day was among two other MGC staffers who, after joining the commission, received a temporary executive-housing benefit of $5,550-per-month.
Not included in Crosby’s meals total are about $20,000 in commission charges to the Levy Restaurant Group for meals at the Boston Exhibition and Convention Center and the Hynes Convention Center in Boston. MGC spokeswoman Elaine Driscoll said those expenditures, 12 in all for an average cost of $1,600 per event, have largely covered food and drinks supplied during the commission’s lengthy public meetings.
Zuniga said the charges paid to Levy, the convention centers’ official food-service provider, probably saved the commission time and money over the long term, as it enabled people to stay on site and largely work through lunch and other scheduled breaks. He said Levy’s prices “are not that competitive,” but that the convention centers’ physical spaces are ideal to accommodate large groups.
http://www.masslive.com/news/index.ssf/2014/02/gaming_commission_main_story.html
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