Report 2018-132 Recommendation 13 Responses

Report 2018-132: Bureau of Gambling Control and California Gambling Control Commission: Their Licensing Processes Are Inefficient and Foster Unequal Treatment of Applicants (Release Date: May 2019)

Recommendation #13 To: Gambling Control Commission, California

To better align the revenue in the Gambling Fund with the costs of the activities that the fund supports, the bureau and the commission should conduct cost analyses of those activities by July 2020. At a minimum, these cost analyses should include the following:

The entities' personnel costs, operating costs, and any program overhead costs.

Updated time estimates for their core and support activities, such as background investigations.

The cost of their enforcement activities.

Using this information, the bureau and commission should reset their regulatory fees to reflect their actual costs. Before conducting its fee study, the bureau should implement our recommendations to improve its processes for assigning applications, ensuring the completeness of applications, and developing time-reporting protocols.

Annual Follow-Up Agency Response From October 2022

As previously reported, with DOF's approval of the fee restructuring, the CGCC noticed to all stakeholders its proposed emergency regulations, Fees Modernization Project Emergency Regulations, to reduce fees identified for reduction per the cost and fee analysis on September 17, 2021, which were subsequently approved by the OAL. Those regulations were made permanent, along with modifications to fees set to increase, via the CGCC's Certification of Compliance regulatory package approved by the OAL and filed with the Secretary of State on September 1, 2022. The regulations became effective on the same day. However, the OAL requested that the portion of the package that established the Third-Party Providers of Proposition Player Services' (TPPPS) Annual Fee be withdrawn, modified, and resubmitted. Per OAL's instructions, the CGCC resubmitted the regulatory package pertaining to the TPPPS Annual Fees, which were subsequently approved by the OAL via a 15-day change regulatory package on September 30, 2022. Following the filing of the package, the regulations became effective on that same day. SB 189, Chapter 48, Statutes of 2022, a Budget Trailer Bill, was signed by Governor Newsom and became immediately effective on June 30, 2022.

SB 189 made the statutory change necessary for the CGCC to revise the Cardroom Annual Fee. Immediately upon SB 189 becoming effective, the CGCC submitted regulations modifying the Cardroom Annual Fee structure to be in alignment with regulatory costs. The CGCC's initial OAL approval of these regulatory changes was issued on August 1, 2022. A readoption was filed and subsequently approved by the OAL on September 30, 2022. Based on an updated cost and fee analysis performed for the 2022-23 fiscal year, all TPPPS and Cardroom entities were invoiced their 2023 Annual Fee invoices on September 30, 2022.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

As noted in our last assessment of this recommendation, the commission previously provided evidence of the fee study and initial regulatory actions. During this assessment, we confirmed that the commission updated its fee amounts as its describes.

Annual Follow-Up Agency Response From October 2021

The CGCC and Bureau completed the cost and fee analysis in June 2021. The independent consultant, MGT Consulting, working with the CGCC and Bureau finalized its report (Report) in June 2021 summarizing the process utilized and the findings of the cost and fee analysis. In June 2021, the Report was submitted to the DOF and the CSA for review and approval of the proposed fee restructuring. The DOF issued approval on September 16, 2021. With DOF's approval, the CGCC noticed to all stakeholders its proposed emergency regulations, CGCC Fees Modernization Project Emergency Regulations (ERegs), to reduce fees identified for reduction per the cost and fee analysis on September 17, 2021 and approved it for OAL submission at its public meeting on September 27, 2021, which were submitted to OAL that same day. The OAL has 10 calendar days to issue a decision. If approved, those fees identified will be reduced immediately. In addition, the CGCC released the Report to the public on September 22, 2021. With the release of the Report, the CGCC provided a Notice to stakeholders that several steps, in addition to the ERegs, were still necessary to fully implement the fee restructuring plan, such as:

1) Regular Rulemaking Package: The CGCC is working on a regular permanent rulemaking package to incorporate all proposed fee changes, outlined in the Report, that the CGCC has regulatory authority to adjust. 2) Statutory Changes: The Cardroom Annual Fee is set in statute and, therefore, the CGCC does not have the authority to adjust this fee solely through regulations without legislative action. The CGCC has submitted a request for the necessary statutory changes to be considered during the 2022 legislative session. 3) Additional Regular Rulemaking Changes: If the Cardroom Annual Fee statutory changes are made, the CGCC will need to submit a regular rulemaking file outlining the necessary corresponding regulations to the Cardroom Annual Fee structure.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

The commission provided documentation that it completed reassessment of its various licensing fees to better reflect the costs that the fee supports, as well as to provide evidence documenting the administrative and regulatory actions it describes in its response. We will continue to review documentation as it is provided by the commission for any changes to the statutorily defined fees and subsequent regulatory changes.

Annual Follow-Up Agency Response From May 2021

Since July 2019, the Commission has contracted and been working with a vendor that specializes in cost and fee analyses.

The Commission has met and/or communicated with the vendor on a weekly basis in order to complete this recommendation as early as possible.

As of April 2021, the Commission and Bureau have completed the draft workload analysis and fee restructuring proposal. The Commission and Bureau are currently working with MGT, the consultant, to finalize the report and industry survey that will be released to the stakeholders.

The report, once finalized and prior to releasing it to the stakeholders, will be provided to the CSA to ensure it meets the expectations as outlined in Recommendation #13.

Once the report is finalized, it will be sent out to the stakeholders for their review and completion of an industry feedback survey. Once stakeholder feedback is received and any necessary adjustments are made, the Commission will work with the Legislature to amend any fees currently set in statute requiring change and will initiate corresponding regulatory changes to implement the new fees.

Completion of this recommendation is dependent upon legislative action to make the necessary statutory changes that impact the fees.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Annual Follow-Up Agency Response From October 2020

The Commission is currently conducting workload and cost analyses in conjunction with the Bureau of Gambling Control (Bureau).

In addition, since July 2019, the Commission has contracted and been working with a vendor that specializes in cost and fee analyses.

The Commission meets and/or communicates with the vendor on a weekly basis in order to complete this recommendation as early as possible.

As of October 2020, the Commission and Bureau are actively working with the vendor to make necessary adjustments and finalize a draft fee structure.

Once a finalized draft of the proposed fee structure is completed it will be provided to the stakeholders for an industry impact and feedback survey. Once stakeholder feedback is received and any necessary adjustments are made, the Commission will finalize the proposed fee structure and will work with the Legislature to amend any fees currently set in statute requiring change, and propose the corresponding regulatory changes to implement the new fees. Completion of this recommendation is dependent upon legislative action to make the necessary statutory changes.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

1-Year Agency Response

The Commission is currently conducting workload and cost analyses in conjunction with the Bureau of Gambling Control (Bureau).

In addition, since July 2019, the Commission has contracted and been working with a vendor that specializes in cost and fee analyses.

The Commission meets and/or communicates with the vendor on a weekly basis in order to complete this recommendation as early as possible.

On April 19, 2020, the vendor presented a draft fee schedule. The Commission and Bureau are currently working with the vendor to make necessary adjustments.

Once a finalized draft of the proposed fee structure is completed it will be provided to the stakeholders for an industry impact and feedback survey. Once stakeholder feedback is received and any necessary adjustments are made, the Commission will finalize the proposed fee structure and will work with the Legislature to amend any fees currently set in statute requiring change, and propose the corresponding regulatory changes to implement the new fees.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

The commission provided documentation to support that it is working with its vendor as described in its update. As such, the recommendation will remain partially implemented until that work is complete and the commission and bureau reset their fees to reflect the actual costs of their activities.

6-Month Agency Response

The Commission is currently conducting workload and cost analyses in conjunction with the Bureau of Gambling Control (Bureau).

In addition, since July 2019, the Commission has contracted and has been working with a vendor that specializes in cost and fee analyses. The vendor is working with both the Commission and the Bureau and is facilitating the efforts to complete the analysis and draft a proposed fee structure, which would be provided to the stakeholders for an industry impact and feedback survey.

When a finalized proposed fee structure is completed, the Commission will work with the Legislature to amend any fees currently set in statute requiring change, and propose the corresponding regulatory changes to implement the new fees.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The commission provided us with its executed contract with its vendor, as well as information about meetings with the vendor that have taken place thus far.

60-Day Agency Response

The Commission is currently conducting workload and cost analyses and has requested the same information from the Bureau of Gambling Control (Bureau), with a due date of September 23, 2019.

In addition, the Commission has publicly posted a "Notice of Intent to Award" to secure a contractor to assist with the completion of this recommendation. The Commission anticipates a contract will be awarded by the end of July 2019.

Once the workload and cost analyses are submitted, reviewed, and finalized, the Commission will work with the Bureau and Contractor to draft a proposed fee structure, which would be provided to the stakeholders for an industry impact and feedback survey.

When a finalized proposed fee structure is completed, the Commission will work with the Legislature to amend any fees currently set in statute requiring change, and propose the corresponding regulatory changes to implement the new fees.

Please see Attachment B for supporting documentation.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2018-132

Agency responses received are posted verbatim.