Proposition 27

ANALYSIS BY THE LEGISLATIVE ANALYST

BACKGROUND

Sports Betting. State law currently bans sports betting in California. However, state law allows some gambling, such as tribal gambling, the state lottery, cardrooms, and horse racing betting.

Tribal Gambling. Native American tribes have certain rights under federal law to govern themselves, such as certain rights to offer gambling. This means that the state generally cannot regulate tribal gambling except as allowed by (1) federal law and (2) federally approved agreements between a tribe and state (known as tribal-state compacts). When a tribe wants to offer gambling on its lands, federal law requires that the state negotiate a compact with the tribe. If the tribe and the state cannot agree, the federal government may issue a compact instead. In California, compacts allow tribal casinos to offer slot machines and other games on tribal lands. These compacts lay out how gambling will be regulated. They also require certain payments, such as to the state and local governments. Tribes can ask for these compacts to be changed, such as when new types of gambling become legal in the state.

California currently has compacts with 79 tribes. Tribes currently operate 66 casinos in 28 counties. Last year, tribes paid around $65 million to support state regulatory and gambling addiction program costs. Tribes also pay tens of millions of dollars to local governments each year (annually). Additionally, tribes operating larger casinos pay nearly $150 million each year to tribes that either do not operate casinos or have less than 350 slot machines.

State Homeless Housing, Assistance, and Prevention Program (HHAPP). HHAPP provides funding to local entities (such as cities) and tribes to help them achieve their goals related to addressing homelessness. Currently, 80 percent of HHAPP funds go to local entities generally based on their share of the state’s homeless population, 2 percent to tribes, and 18 percent to the state to provide bonuses to local entities and tribes who meet their goals. The program received $1 billion in state funds this year.

PROPOSAL

Proposition 27 allows tribes or gambling companies to offer online sports betting. It requires tribes and gambling companies that offer online sports betting to make certain payments to the state for specific purposes—such as to support state regulatory costs and to address homelessness. The proposition also creates a new online sports betting regulatory unit. Finally, it provides new ways to reduce illegal online sports betting.

Allows Tribes or Gambling Companies to Offer Online Sports Betting. Proposition 27 changes the California Constitution and state law to allow online sports betting over the Internet and mobile devices. People 21 years of age and older in California, who are not on tribal lands, would be able to place bets no later than September 2023. The proposition allows bets on athletic events (such as football games) and some non-athletic events (such as awards shows and video game competitions). However, it bans bets on certain other events such as high school games and elections.

The proposition allows the following groups to apply for a five-year license to offer online sports betting:

• Tribes With Tribal-State Compacts. Licensed tribes, or their contractors, could offer sports betting under the tribe’s name. The proposition requires tribes to give up some of their rights under federal law to get a license. For example, tribes must agree to a certain amount of state regulation.
• Certain Gambling Companies. Licensed gambling companies could offer sports betting under their own name or brand. These companies must partner with a tribe with a tribal-state compact. The proposition limits licenses to larger companies, such as those that have online sports betting licenses in at least ten U.S. states or territories.

Requires Payments to State. Proposition 27 requires various sports betting payments to the state. For example, tribes and gambling companies with sports betting licenses must pay 10 percent of sports bets made each month to the state, after subtracting various expenses. These expenses include: (1) any bets made with credits from promotional offers, (2) prize payments, and (3) federal gambling taxes. Losses, which result when expenses are more than bets, may be used to offset these payments. A portion of these monthly payments must be made in advance when the sports betting license is approved or renewed. This reduces the actual monthly amount owed. Specifically, a tribe must pay $10 million when its five-year license is approved. It must also pay $1 million each time its license is renewed. A gambling company must pay $100 million when its five-year license is approved. It must also pay $10 million each time its license is renewed.

Creates New Fund. The above payments to the state would go into a new California Online Sports Betting Trust Fund (COSBTF). Proposition 27 requires COSBTF revenues first be used for state regulatory costs. The rest would be used for two major purposes:

• 85 percent to address homelessness and for gambling addiction programs. The money to address homelessness would be provided to local entities generally in the same way as HHAPP funding.
• 15 percent for tribes that are not involved in online sports betting. Tribes could use these funds for tribal government, health, economic development, or other purposes.

Exempts Revenues From State Spending Limit and Minimum Education Spending Levels. The California Constitution includes various rules that impact the state budget. These rules include a state spending limit and require a minimum amount of spending on K—12 schools and community colleges each year. Proposition 27 changes the California Constitution to exempt sports betting revenues from these rules.

Creates New State Online Sports Betting Regulatory Unit. Proposition 27 creates a new unit within the California Department of Justice to regulate online sports betting. This unit would set the requirements to get a license. It would also decide what types of events and bets are allowed. Additionally, this unit would investigate illegal activities (such as the "fixing" of events). However, the proposition puts limits on the unit. For example, the unit could not limit the amount of promotional credits offered to bettors. The proposition also creates a 17-member group to provide advice and recommendations to the unit, including written feedback on any potential regulations.

Provides New Ways to Reduce Illegal Online Sports Betting. Proposition 27 creates new ways to reduce illegal online sports betting. When people place online sports bets with any unlicensed entity, the proposition requires those people pay the state a penalty. This penalty equals 15 percent of the amount that they bet. The proposition also allows for a $1,000 penalty for each day this money is not paid. These payments would go into the COSBTF. Additionally, the state’s new regulatory unit could take certain enforcement actions. These actions can include requiring unlicensed entities provide the names of people placing bets with them and blocking online access to these entities.

FISCAL EFFECTS

Proposition 27 would impact both state and local government revenues and costs. The actual size of these effects, however, is uncertain and would depend on how the proposition is interpreted and implemented. For example, this proposition expands legal gambling. In response, it is unclear whether tribes will ask for changes to their tribal-state compacts (such as to reduce the amount paid to local governments) to reflect potential impacts on tribal casinos. The fiscal effects would also depend on how many licensed entities offer sports betting and the amount of expenses they subtract from the monthly amount owed to the state. Finally, the fiscal effects would depend on the number of people who choose to make sports bets.

Increased State Revenues. Proposition 27 would increase state revenues from sports betting payments and penalties. The size of this increase is uncertain. The increase could be in the hundreds of millions of dollars annually, but likely would not be more than $500 million annually. Some of this revenue would be new. For example, the state currently does not receive any share of illegal sports bets made online. This means the state would receive new revenue when people make sports bets legally rather than illegally. However, some of this revenue would not be new. For example, the state currently receives revenue when people spend money on certain things, such as lottery games or shopping. This means the state might not receive new revenue when people spend less on those things so they could make sports bets.

State revenues from sports betting payments and penalties would go into the COSBTF. The monies would first be used for state regulatory costs. The rest would support (1) homelessness programs, (2) gambling addiction programs, and (3) tribal economic development and other purposes.

Increased State Regulatory Costs. Proposition 27 would create work for the state to regulate online sports betting. The amount of work would depend mostly on how sports betting is regulated. Key examples of this include: the number of sports betting licenses approved, the type and number of betting options and events offered, and how much state enforcement is done. Total costs for this work could reach the mid-tens of millions of dollars annually. Some or all of these costs would be offset by COSBTF revenues.

Other Fiscal Effects. Proposition 27 could result in other fiscal effects on the state and local governments. For example, state and local revenue could increase from people coming from out of state to place sports bets and spending more than they otherwise would.

However, some or all of this increased local revenue could be offset. For example, tribes might ask for their tribal-state compacts to require less payment to local governments to reflect potential impacts sports betting has on their casinos. Additionally, state and local governments could have increased costs. For example, online sports betting could make it more difficult for people with gambling addictions to avoid placing bets. This could increase the number of people who might need government assistance. The net effect of the above effects on the state and local governments is unknown.

Visit https://www.sos.ca.gov/campaign-lobbying/cal-access-resources/measure-contributions/2022-ballot-measure-contribution-totals for a list of committees primarily formed to support or oppose this measure.

Visit https://www.fppc.ca.gov/transparency/top-contributors.html to access the committee's top 10 contributors.

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Vote YES on Proposition 27

Permanent Solutions for Homelessness, Mental Health, Addiction & Tribal Funding

Non-profit leaders, mayors, and California Tribes support Proposition 27 because it will provide hundreds of millions of dollars in permanent solutions to homelessness, mental health, and addiction in California. All funding will be subject to strict audits and oversight to ensure it is spent effectively.

Proposition 27 will also benefit every California Tribe—especially rural and economically disadvantaged Tribes who don't own big casinos.

By taxing and regulating safe and responsible online sports betting for adults 21 and over, California can help solve homelessness and provide thousands of Californians mental health care and addiction treatment.

Proposition 27 provides the most solutions for California:

• Prop. 27 protects minors and strictly prevents those under 21 from betting.
• Prop. 27 requires mandatory audits to ensure homelessness and mental health funding is spent effectively.
• Prop. 27 is the only sports betting measure that will fund permanent homelessness and mental health solutions.
• Prop. 27 is the only measure that guarantees funding for disadvantaged Tribes.

Proposition 27 will fund hundreds of millions of dollars each year in shelter, housing, addiction treatment and mental health support for Californians who need it most.

Ricardo Flores, non-profit leader and housing advocate, on why his organization supports Prop. 27:

"California's homelessness crisis is a statewide emergency. Our state has never fully invested in permanent solutions to end homelessness. Prop. 27 allows organizations like mine to have an ongoing revenue source to fund desperately needed services: shelter, housing, and support. All with strict audits to ensure every dime is spent effectively. No other sports betting proposition will generate significant revenue for homelessness and mental health services."

Tamera Kohler, CEO of San Diego's Regional Task Force on Homelessness, on Prop. 27:

"One in six Californians experiences mental illness. It's a crisis affecting nearly every family. Prop. 27 will help generate hundreds of millions of dollars every year to fund mental health treatment, and solutions to homelessness and addiction. By passing Prop. 27, we can give more people the care they need and the hope they deserve."

Chairman Jose "Moke" Simon of Middletown Rancheria of Pomo Indians of California, on Prop. 27:

"My tribe has had so much taken away from us—our land, our ceremonies, our culture—and our sovereignty is constantly under attack. Unlike Tribes with large casinos, my Tribe struggles to provide basic needs for our people. Prop. 27 is the only proposition that helps disadvantaged Tribes like mine, and Prop. 27 is the only one that ensures every California Tribe benefits.

"Don’t believe the false attacks on Prop. 27. By taxing and regulating online sports betting for adults over 21, we can finally address homelessness in California while protecting tribal sovereignty."

Vote YES on Prop. 27—tax and regulate safe and responsible online sports betting, support California Tribes and finally do something to solve homelessness, mental health, and addiction in California.

YEStoProp27.com

Tamera Kohler, CEO

San Diego Regional Task Force on Homelessness

Jose “Moke” Simon, Chairman

Middletown Rancheria of Pomo Indians of California

Ricardo Flores, Executive Director

Local Initiatives Support Corporation (LISC) San Diego

PROP. 27 WAS WRITTEN AND PAID FOR BY OUT-OF-STATE ONLINE GAMBLING CORPORATIONS

Prop. 27 is a deceptive scheme promoted by out-of-state corporations to legalize a massive expansion of online and mobile sports gambling in California. These corporations have contributed more than $100,000,000 to sell Prop. 27. They aren’t spending that money to help California. They are doing it to enrich themselves.

CALIFORNIA INDIAN TRIBES OVERWHELMINGLY OPPOSE PROP. 27

More than 50 California Tribes strongly oppose Prop. 27. It is a direct attack on tribal gaming and Indian self-reliance that would jeopardize funding tribal governments use for education, healthcare, fire protection and other vital services.

PROP. 27 IS NOT A "SOLUTION" TO HOMELESSNESS

Decades ago, gaming companies passed the California Lottery with misleading promises of massive new revenues for schools. Now, out-of-state gambling corporations are using similar bait-and-switch tactics to promote Prop. 27.

Prop. 27 includes hidden loopholes that would give massive profits to its corporate sponsors, while leaving only a few pennies per dollar for California. Under Prop. 27, 90% of the profits will go to out-of-state corporations and little if anything would go to public schools.

PROP. 27 PROMOTERS HAVE A HISTORY OF BROKEN PROMISES AND BAD ACTS

The corporate sponsors funding Prop. 27 have been fined millions of dollars for allowing underage gambling and marketing to children. In other states that have passed laws like Prop. 27, the big-money promises have failed to materialize. We can’t trust the false promises of these out-of-state corporations .

REJECT THE OUT-OF-STATE CORPORATIONS’ DECEPTIVE CAMPAIGN. VOTE NO ON 27.

James Siva, Chairman

California Nations Indian Gaming Association

Robert McElroy, Executive Director

Alpha Project for the Homeless

Claudia Brundin, Tribal Chairwoman

Blue Lake Rancheria of California

JOIN CALIFORNIA INDIAN TRIBES, PARENTS, TEACHERS, HOMELESS ADVOCATES, PUBLIC SAFETY LEADERS: VOTE NO ON 27—THE CORPORATE ONLINE GAMBLING PROPOSITION

Prop. 27 is a deceptive scheme written and promoted by out-of-state corporations to legalize online and mobile sports gambling in California. It won't solve homelessness, but it will turn virtually every cellphone, tablet and laptop into a gambling device.

Proponents are deceptively marketing Prop. 27 as a “solution” to homelessness. But just like when we were told the state lottery would be a solution for public education, we can’t believe these false promises. Here’s why our broad coalition urges NO on Prop. 27.

UNDER PROP. 27, OUT-OF-STATE CORPORATIONS WIN—BUT CALIFORNIANS LOSE

The out-of-state online gambling corporations wrote Prop. 27 to benefit themselves. Prop. 27 would give these corporations near total control over online sports wagering. Ninety percent (90%) of the profits would end up in the pockets of out-of-state corporations without creating real jobs or investments in our state. Not a single dime would fund state priorities like public schools, firefighting or even problem gambling prevention programs.

PROP. 27 IS NOT A "SOLUTION" TO HOMELESSNESS

California has spent over $30 Billion to address homelessness in the last 5 years, but things have only gotten worse. A recent report by the independent State Auditor said California’s spending on homelessness is "disjointed" and "has not fulfilled its most critical responsibilities." Rather than legalize this massive expansion of online gambling, we should more effectively manage the billions the state is already spending as well as any new funding needed in the future.

PROP. 27 IS FULL OF LOOPHOLES THAT SHORTCHANGE CALIFORNIA

Prop. 27 caps revenues going to homelessness programs at just pennies on the dollar of what the online gambling corporations will make. Buried in Prop. 27 is a "promotional bets" loophole. States that allow this same loophole have seen revenues fall far below what was promised. The big gaming corporations also say they will pay a licensing fee. In reality, the corporations can reduce their tax one dollar for every dollar they pay in licensing fees. More money for them; less money for the homeless.

PROP. 27 EXPOSES KIDS TO ONLINE AND PROBLEM GAMBLING.

Prop. 27 would legalize the largest expansion of gambling in California history—but it has NO IN-PERSON AGE VERIFICATION REQUIREMENT to prevent minors from gambling. Studies show that online and mobile gambling are especially attractive to youth and those prone to compulsive gambling.

CALIFORNIA INDIAN TRIBES STRONGLY OPPOSE PROP. 27

" Prop. 27 is a direct attack on tribal gaming rights and self-reliance. In fact, it even prohibits online sports wagering on tribal lands. Prop. 27 jeopardizes vital funding tribes use to provide housing, healthcare, firefighting services, education and other services for our communities. "—Lynn Valbuena, Chairperson, Tribal Alliance of Sovereign Indian Nations

PLEASE JOIN INDIAN TRIBES, PARENTS, TEACHERS, PUBLIC SAFETY, SOCIAL JUSTICE AND HOMELESSNESS ADVOCATES: NO ON 27!

• Tribal Alliance of Sovereign Indian Nations • More than 50 California Indian tribes • NAACP California • California League of United Latin American Citizens • California District Attorneys Association • CalAsian Chamber of Commerce • Goodwill Southern California • Veterans of Foreign Wars Department of CA

NO ON PROP. 27

Lynn Valbuena, Chairperson

Tribal Alliance of Sovereign Indian Nations

Sara Dutschke Setshwaelo, Chairperson

Ione Band of Miwok Indians

Steven Pinckney, Business Administrator

Salvation Army of San Bernardino

Vote YES for PERMANENT SOLUTIONS for Homelessness, Mental Health, and Addiction.

Opponents of Prop. 27 are wrong. Here are the facts:

STATE WATCHDOG: ONLY PROP. 27 PROVIDES PERMANENT SOLUTIONS FOR HOMELESSNESS

For the first time in state history, local communities will receive yearly funding to create permanent solutions for homelessness. The state's independent budget watchdog found only Prop. 27 will generate hundreds of millions of dollars each year to address homelessness, mental health, and addiction. Prop. 27's funding must be spent on creating housing and providing services like mental health and addiction treatment.

PROP. 27 CONTAINS STRICT REQUIREMENTS TO PROTECT MINORS

Prop. 27 is the only proposition requiring background checks and state of the art technology to protect minors and ensure they can’t place bets. 23 states have safely legalized online sports betting, proving you can do so responsibly while generating significant state funding.

PROP. 27 IS THE ONLY INITIATIVE THAT HELPS DISADVANTAGED TRIBES

Tribes support Prop. 27 because every Tribe will benefit. Prop. 27 is the only proposition that dedicates funding to economically disadvantaged Tribes—more than doubling the amount of funding these smaller Tribes receive each year.

PROP. 27 REQUIRES YEARLY AUDITS & STRICT SAFETY OVERSIGHT

Proposition 27 requires yearly audits and strict oversight to ensure funding is spent effectively. Under Prop. 27, the Attorney General will tightly regulate sports betting to ensure safe and responsible gaming.

Join California Tribes, leaders in homelessness and mental health care, social workers, faith leaders, and civil rights groups—VOTE YES on Prop. 27.

YesToProp27.com

Gloria Baxter, Mental health non-profit leader

Phillip Gomez, Chairman

Big Valley Band of Pomo Indians of the Big Valley Rancheria, California

Leo Sisco, Chairman

Santa Rosa Ranchera Tachi Yokut Tribe

Arguments printed on this page are the opinions of the authors and have not been checked for accuracy by any official agency.

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