Political Contribution Restrictions Need Fixing

2 April 2003

By David Waddell

The State of Michigan has one of the most restrictive bans on political contributions of any gaming jurisdiction. As literally written, the Gaming Control and Revenue Act (the "Act") specifically prohibits casino and supplier licensees (and related shareholders, employees and family members) from making any contributions to any state or local candidate or to certain political committees for a period of one year (suppliers) or three years (casino operators) prior to applying for a license. Not only does the statute ban such contributions, the penalties for violating the political contribution restrictions are severe. A violation of this prohibition as written is technically supposed to be a felony, punishable by 10 years in prison and/or a fine of up to $100,000.

As technically written, if the 42 year old estranged son of a 60 year old gaming supplier makes a $10 contribution toward the school board campaign of a candidate in Escanaba, Michigan, a felony has been committed. As technically written, this is also true if the contribution was made 11 months before issuance of the license.

Notably, however, as technically written, a violation only occurs if there ultimately is a licensed supplier or operator. Thus, someone can avoid these severe penalties by withdrawing an application for a license if they find that they (or a family member) have made a contribution during the prohibited period.

Over the past several years, the restrictions on campaign contributions have caused considerable controversy. In 1998, as the casinos were first starting construction, it quickly became apparent that virtually none of the local construction companies would be able to get licensed as suppliers given this provision. On August 28, 1998, the Construction Association of Michigan filed suit in federal court seeking to invalidate the provision. At the time, the Director of Industry of Affairs for the Association noted that the law made it impossible for Michigan construction companies to qualify for bidding on the temporary casino projects. This lawsuit was later withdrawn when an administrative solution was sought by having a request for an Attorney General Opinion filed by then House Speaker Curtis Hertel.

In his very final opinion as our "Eternal" Attorney General, Frank Kelley issued an opinion declaring several provisions contained in the Act to be unconstitutional, and, in essence, rewriting the statute to be a bit less restrictive. The details of this rewritten standard are set forth in my February 19th column, and several other columns I have done over the years. Importantly, however, one of the changes was a removal of the one-year prior prohibition on suppliers. Attorney General Kelley instead made the prohibition apply from the time of the filing of the application forward. At the time, this seemed to solve the problem for construction contractors who could change their behavior prospectively.

This broad ban is part of the Gaming Control and Revenue Act that was enacted with the best of intentions. At the time of its passage, the three Detroit casino operators had not yet been chosen. There was a real concern that steps had to be taken to assure that campaign contributions did not lead to improper influence in the selection and licensing of the operators. In developing the prohibition, the state looked to some riverboat jurisdictions that had similar bans that worked in states where the only major casino "supplier" is the seller of the boat.

At the last two meetings of the Michigan Gaming Control Board, the issue of impact of this ban has surfaced again. Several suppliers, who inadvertently made contributions after their applications were filed, have run into licensing problems with the Board as a result. The Gaming Control Board unanimously denied the licenses involved.

The Act contains language stating that the prohibition applies to supplier "licensees." Yet, the Act also literally prohibits contributions from a date one year prior to filing an application. This one-year look back has been declared unconstitutional by the Attorney General, which now technically means the prohibition applies from the date of application forward. Yet, someone does not become a "licensee" who can violate the Act, until the Board grants an application. Even stated plainly, this is very confusing and the Act needs to be fixed. At this point, that will probably happen faster in the courts than it will in the Legislature.

As this process unfolds, we will keep you apprised of developments. It is imperative that companies doing business with the casinos be aware of the unique rules and restrictions of this industry. Otherwise, the resulting complications will be very costly. If you are going to do business with the casinos, you need to make sure that you take care of business with regard to the unique regulatory compliance issues that apply.