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Best of Howard Stutz

Gaming Guru

Howard Stutz

Nevada budget cuts may impact gaming

30 May 2008

LAS VEGAS, Nevada -- Gaming lawyers and casino observers worry that potential budget cuts ordered by Gov. Jim Gibbons will have a negative effect on Nevada's gaming regulatory process, leaving the industry without adequate staffing in several divisions.

All state agencies, including the Gaming Control Board, are expected to submit budgets to the governor's office by next week that will reflect a 14 percent spending reduction.

The Control Board uses general funds provided by the state but is also funded by fees generated through licensing applications. Three control board divisions, investigations, corporate securities and the laboratory that tests gaming devices, all generate revenue paid for by licensees or applicants.

Control Board Chairman Dennis Neilander said earlier this week he wouldn't comment in detail about the potential budget cuts because he is still gathering information from the agency's seven different divisions.

Most observers didn't believe the agency would slice departments that generate revenue.

"We have to come up with a plan on the assumption we will receive our proportionate share of the general funds," Neilander said.

He said that reducing the control board budget could slow different activities, such as the audit schedule on casinos. Currently, major casino audits are conducted once every 2.9 years. The state mandates audits to done once every five years. Customer-casino disputes could also take longer to resolve if there are division cuts.

The control board is currently operating under a budget of $45.8 million for fiscal year 2008, which includes licensee generated fees. Under the governor's proposed 2009-11 General Fund Appropriation Targets, the Control Board needs to reduce a planned $34.1 million in state funding by almost $4.8 million, bringing the figure down to $29.3 million. The budget number did not include revenues from fees.

Following previous budget reductions ordered by the governor's office, some wondered how much more the agency can cut.

"You've got to assume that all the low hanging fruit has already been taken," said Bill Bible, who spent 10 years as chairman of the control board. He is now president of the Nevada Resort Association. "Once the board determines where the cuts need to be made, certain functions might not be able to be funded."

To make the required budget cuts, the agency may be forced to lay off between 40 and 50 staff members. The control board has 462 full- and part-time employees and the layoffs could come from nonrevenue generating divisions, such as audit, enforcement, and tax and license. The agency could also look at closing smaller offices around the state.

One gaming industry observer said the control board, the agency tasked with regulating Nevada's nearly 3,000 restricted and nonrestricted gaming licensees, is not like other state agencies, where programs and projects can be eliminated or reduced.

Gaming attorney Greg Giordano of Snell & Wilmer, who oversaw the control board's corporate securities division in the 1990s, said mergers and other major acquisitions have slowed, compared with a few years ago.

"What could be potentially harmful is a hiring freeze where you lose people to retirement or attrition and can't replace them," Giordano said. "That could be potentially harmful."

Licensing investigations, however, should continue, sources said. The largest license applications currently being undertaken by control board agents include Australia-based Crown Ltd., which is spending $1.8 billion to purchase Cannery Casino Resorts, and Dubai World, the investment arm of the Persian Gulf state of Dubai, which spent almost $5 billion to acquire 9.4 percent of MGM Mirage and half ownership in the CityCenter development.

Through March, gaming taxes collected by the state for the fiscal year are 4 percent below last year's figures and 9 percent below the projections from the May 2007 Economic Forum's forecast.