Hawaii-2022-SB2365-Introduced

SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

Lottery and gaming

§ -1 Definitions. As used in this chapter:

"Board" means the board of directors of the Hawaii lottery and gaming corporation.

"Chief executive officer" means the chief executive officer of the Hawaii lottery and gaming corporation.

"Community betterment purposes" means:

(1) Funding public education programs related to technology;

(2) Assisting teachers, principals, vice-principals, and other staff in the public school system with their professional development; and

(3) Addressing heat abatement issues in the public school system.

"Corporation" means the Hawaii lottery and gaming corporation.

"Lottery", "lottery game", or "lottery games" means any game of chance approved by the board and operated pursuant to this chapter, including but not limited to interactive instant win games and draw games.

"Major procurement contract" means any product or service contract for an amount in excess of $75,000.

"Member" or "members" means a director or directors of the board of directors of the Hawaii lottery and gaming corporation.

"Net proceeds" means all revenue derived from the operations of the corporation, less operating expenses.

"Operating expenses" means all costs the corporation incurs through its operations, including but not limited to prizes, bonuses, advertising and marketing costs, costs related to the gaming provider, personnel costs, capital costs, funds for problem gambling education and treatment, and other operating costs.

"Person" has the same meaning as set forth in section 1‑19.

"Problem gambling" or "gambling addiction" includes all gambling behavior patterns that compromise, disrupt, or damage personal, family, or vocational pursuits.

"Vendor" means a person who provides or proposes to provide goods or services to the corporation pursuant to a major procurement contract, but does not include an employee of the corporation, or an agency or instrumentality of the State.

§ -2 Hawaii lottery and gaming corporation established. There is established a body corporate and politic to be known as the Hawaii lottery and gaming corporation, which shall be deemed to be an instrumentality of the State but shall not be deemed a state agency. The corporation shall be a public corporation registered with the director of commerce and consumer affairs and shall be subject to the corporate laws of the State. For purposes of venue, the corporation shall be deemed to reside in the first judicial circuit.

§ -3 Purpose and authority of corporation. (a) The purpose of the Hawaii lottery and gaming corporation shall be to conduct and regulate wagering and gaming for the benefit of the State and for community betterment purposes, with the assistance of a private gaming provider, pursuant to this chapter and rules adopted hereunder.

(b) The Hawaii lottery and gaming corporation may:

(1) Offer wagering on games of chance and games of skill, including lottery, poker, and casino games, to individuals over the age of eighteen years; provided that the corporation shall not offer wagering on any sporting event or sporting contest;

(2) Enter into agreements with other state gaming entities for the offering of multistate games, consistent with state and federal law;

(3) Utilize the broad reach of its gaming platform to offer legally compliant free-play games and sweepstakes with Hawaii-related prizes to individuals outside of Hawaii, for the purpose of attracting tourists and providing free exposure for Hawaii and Hawaii businesses to domestic and overseas markets;

(4) Conduct no more than two gaming entertainment events per year, related to the corporation's other game offerings, for the purpose of attracting tourists to Hawaii; provided that the corporation shall not conduct any other form of event-based gambling; and

(5) Engage in other activities consistent with the purpose of this chapter and rules adopted hereunder, and with state, federal, and international laws.

§ -4 Board of directors; membership; reimbursement for expenses; conflict of interests; quorum. (a) The corporation shall be governed by a board of directors composed of seven members. Three initial members shall be appointed by the governor, two shall be appointed by the president of the senate, and two shall be appointed by the speaker of the house of representatives.

(b) Members of the board shall be prominent persons in their business or profession and shall not have been convicted of any felony offense. The board shall include individuals with knowledge and expertise in lottery and gaming, marketing and entertainment, technology, accounting, law, and operation of a business enterprise.

(c) Notwithstanding section 26-34(a), with respect to the length of terms, members of the board shall serve for terms of five years; provided that of the initial members appointed, three shall be appointed for a term of two years, two shall be appointed for a term of four years, and two shall be appointed for a term of five years. Any vacancy occurring on the board shall be filled by the governor by appointment for the unexpired term.

(d) Members of the board shall not have any interest in an undertaking that places their personal interest in conflict with that of the corporation, including but not limited to an interest in a major procurement contract or a participating vendor.

(e) The board may delegate to any one or more of its members, to the chief executive officer, or to any agent or employee of the corporation, any powers and duties as it may deem proper.

(f) A majority of members of the board shall constitute a quorum for the transaction of any business and for the exercise of any power or function of the corporation.

(g) Action may be taken and motions and resolutions adopted by the board at any meeting thereof by the affirmative vote of a majority of present and voting members.

(h) No vacancy in the membership of the board shall impair the right of the members to exercise all the powers and perform all the duties of the board.

(i) The members of the board shall be compensated in the amount of $ per year and shall be reimbursed for expenses, including travel expenses, necessary for the performance of their duties.

§ -5 Board of directors; powers and duties. In addition to any other powers and duties authorized by law, the board shall:

(1) Select a gaming provider, pursuant to the requirements of this chapter;

(2) Adopt regulations, policies, and procedures relating to the conduct of games and the gaming provider, including but not limited to rules governing:

(A) Type of games to be conducted;

(B) Price points for games and percentage of rake;

(D) Number and amount of prizes;

(E) Method of selecting winners and validating winnings;

(F) Manner and time of payment of prizes;

(G) Frequency of games and drawings or selection of winning tickets or shares;

(H) Means of conducting drawings for lottery games;

(I) Responsible gaming;

(J) The conduct of the gaming provider;

(K) The gaming platform; and

(L) Any and all other matters necessary, desirable, or convenient toward ensuring the efficient and effective operation of gaming;

(3) Provide the chief executive officer with private sector perspective and direction;

(4) Approve, disapprove, amend, or modify the budget recommended by the chief executive officer for the operation of the corporation;

(5) Approve, disapprove, amend, or modify the terms of the major procurements recommended by the chief executive officer; and

(6) Perform other functions as necessary to carry out the purposes of this chapter.

§ -6 Chief executive officer; appointment; compensation. The board of directors shall appoint and shall provide for the compensation of a chief executive officer who shall be an employee of the corporation and who shall serve at the pleasure of the board. The chief executive officer shall direct the day-to-day operations and management of the corporation and shall be vested with powers and duties as specified by the board and by law.

§ -7 Chief executive officer; powers and duties. The chief executive officer of the corporation shall direct and supervise all administrative and technical activities of the corporation in accordance with this chapter and with regulations, policies, and procedures adopted by the board. It shall be the duty of the chief executive officer to:

(1) Supervise and exercise active oversight of the operations of the gaming provider;

(2) Hire and supervise a small staff of employees, as deemed necessary; provided that all applicants for employment shall be subject to a background check; provided further that no person who has been convicted of a felony or bookmaking or other forms of illegal gambling or of a crime involving moral turpitude shall be employed by the corporation;

(3) In consultation with the gaming provider, prepare an annual budget, including a marketing budget, for the approval of the board;

(4) Report quarterly to the board a full and complete statement of gaming revenues and expenses for the preceding quarter; and

(5) Perform any other duties customary of the position of chief executive officer.

§ -8 General powers of the corporation. The corporation is granted comprehensive and extensive powers as generally exercised by corporations engaged in for-profit business activities and all powers as are necessary or convenient to effectuate those purposes and provisions of this chapter that are not in conflict with the state constitution or federal law, including to:

(1) Sue and be sued in contract and in tort and to complain and defend in all courts;

(2) Adopt and alter a seal;

(3) Adopt, amend, and repeal bylaws, regulation, and policies and procedures for the regulation of its affairs and the conduct of its business;

(4) Elect and prescribe the duties of officers and employees of the corporation and to perform such other matters as the corporation may determine;

(5) Procure or provide insurance;

(6) Hold copyrights, trademarks, and service marks and enforce its rights with respect thereto;

(7) Initiate, supervise, and administer the operation of games in accordance with this chapter and regulations, policies, and procedures adopted pursuant thereto;

(8) Enter into written agreements with one or more other states or sovereigns for the operation, participation in marketing, and promotion of joint games;

(9) Conduct such market research as is necessary or appropriate;

(10) Acquire or lease real property and make improvements thereon and acquire by lease or by purchase personal property, including but not limited to computers; mechanical, electronic, and on-line equipment and terminals; and intangible property, including but not limited to computer programs, systems, and software;

(11) Enter into contracts, incur debt in its own name, and enter into financing agreements with the State, agencies or instrumentalities of the State, or with any commercial bank or credit provider; provided that any such debt shall be approved by the director of finance;

(12) Administer oaths, take depositions, issue subpoenas, and compel the attendance of witnesses and the production of books, papers, documents, and other evidence relative to any investigation or proceeding conducted by the corporation;

(13) Appoint and select officers, agents, and employees, including professional and administrative staff and personnel, as deemed necessary;

(14) Select and contract with vendors;

(15) Enter into contracts or agreements with state or local law enforcement agencies for the performance of law enforcement, background investigations, and security checks;

(16) Establish and maintain banking relationships, including but not limited to establishment of checking and savings accounts and lines of credit;

(17) Purchase, lease, or lease-purchase goods or services as necessary to effectuate the purposes of this chapter;

(18) Advertise and promote games; and

(19) Adopt and amend regulations, policies, and procedures as necessary to exercise its powers, fulfill its duties, organize and operate the corporation, regulate the conduct of games, and as otherwise necessary or desirable for the efficient and effective operation of the corporation and effectuation of the purposes of this chapter; provided that the corporation shall be exempt from chapter 91 regarding the adoption of bylaws, regulations, policies, and procedures or in the exercise of any regulatory power.

§ -9 Corporation authorized to borrow money; restriction on use of money in state general fund; lottery and gaming special fund. (a) The corporation, in accordance with this chapter, may borrow or accept and expend moneys received from any source, including income from the corporation's operations, for effectuating its corporate purposes, including the payment of the initial expenses of initiation, administration, and operation of the corporation.

(b) The corporation shall be self-sustaining and self-funded. Moneys in the state general fund shall not be used or obligated to pay the expenses of the corporation or prizes of the lottery, and no claim for the payment of an expense of the lottery or prizes of the lottery may be made against any moneys other than moneys credited to the lottery and gaming special fund.

(c) There is created within the state treasury a special fund to be known as the lottery and gaming special fund. Moneys authorized under this chapter may be deposited into the special fund.

§ -10 Reports by the corporation. To ensure the financial integrity of gaming operations, the corporation through the board of directors shall:

(1) Submit quarterly and annual reports to the governor and legislature, disclosing the total revenues, prize disbursements, operating expenses, and administrative expenses of the corporation during the reporting period;

(2) Adopt a system of internal audits and controls;

(3) Maintain regular records of transactions; and

(4) Contract with a certified public accountant or firm for an annual financial audit of the corporation; provided that the certified public accountant or firm shall have no financial interest in any vendor with whom the corporation is under contract.

§ -11 Bidding requirements and procedures for contracts generally. (a) The corporation shall enter into contracts for major procurements with a value of over $75,000 only after engaging in a competitive process. Procurements conducted by the corporation shall not be subject to chapter 103D but shall be designed to allow the selection of proposals that provide the greatest long-term benefit to the State, the greatest integrity for the corporation, and the best service and products for the public. The requirement for a competitive process shall not apply in the case of a single vendor having exclusive rights to offer a particular service or product.

(b) The corporation shall investigate the responsibility, security, and integrity of any vendor who is a finalist in submitting a bid, proposal, or offer as part of a major procurement. The corporation shall not select a vendor with questionable integrity for any major procurement.

(c) A solicitation, request for qualification, or specification for a contract shall not require, stipulate, suggest, or encourage a monetary or other financial contribution or donation as an explicit or implied term or condition for awarding or completing the contract.

(d) No vendor or applicant for a major procurement contract shall pay, give, or make any economic opportunity, gift, loan, gratuity, special discount, favor, hospitality, or service, excluding food and beverages having an aggregate value not exceeding $100 in any calendar year, to the chief executive officer, any board member, or any employee of the corporation or to a member of the immediate family residing in the same household of the chief executive officer, board member, or employee.

§ -12 Adoption of gaming rules. Within one hundred eighty days of the appointment of all initial members of the board, the board shall adopt rules and policies governing its gaming operations, consistent with the requirements of this chapter. The board may retain a neutral advisor with expertise in gaming to assist the board in adopting its rules.

§ -13 Responsible gaming measures. The corporation's website shall provide information on problem gambling, including a problem gambling hotline telephone number that a person may call to seek information and assistance for a potential gambling addiction. The corporation shall offer responsible gambling services, such as self-exclusion, limits on losses, amounts wagered, and playing time, and other services as the corporation reasonably may determine are necessary and appropriate to reduce and prevent problem gambling.

§ -14 Selection of the gaming provider. (a) Within one hundred eighty days of appointment of all initial members of the board, the board shall commence a competitive process for the selection of a qualified and suitable gaming provider. The selection of the gaming provider shall be done through a request for qualifications, which shall take into account the following factors:

(1) The provider's knowledge and expertise with regard to:

(A) United States regulated gaming and lottery operations;

(B) Interactive digital media and entertainment; and

(2) The suitability of the provider's executives and key employees to operate a legally compliant gaming enterprise with honesty, fairness, and integrity; provided that a provider that has engaged in any of the following activities shall be deemed unsuitable to serve as the corporation's internet gaming provider:

(A) The provider has accepted or assisted in the acceptance of any wagers of money or other consideration related to gambling activity, including internet poker, lottery, or casino games, from an individual located in the United States, prior to the September 20, 2011 opinion issued by the United States Department of Justice pertaining to the interpretation of the Wire Act, title 18 United States Code Section 1084; provided that this subparagraph shall not apply to providers that have accepted pari-mutuel wagers on races in compliance with the Interstate Horseracing Act;

(B) The provider has operated in violation of the laws of any country or state in which it has operated; or

(C) The provider has been indicted or convicted of a crime related to its gaming operations in any state or foreign jurisdiction.

(b) The request for qualification shall not require, stipulate, suggest, or encourage a monetary or other financial contribution or donation as an explicit or implied term or condition for awarding the contract.

(c) The board shall select the gaming provider that offers the greatest integrity for the corporation, the greatest long-term benefit to the State, and the best service and products for the public.

§ -15 Responsibilities of the gaming provider. The gaming provider shall be responsible for operating a legally compliant, secure, and responsible gaming operation on behalf of the corporation. The gaming provider's general responsibilities shall include, among other things:

(1) Providing all the technology infrastructure, software, and operational support necessary for the development, operation, and maintenance of any websites associated with the gaming operation, including:

(A) Game software and graphics;

(B) Computer hardware;

(D) Player account registration and management;

(E) Geo-location services;

(F) Age-verification services;

(G) Responsible gaming controls;

(H) Anti-collusion and security tools;

(I) Payment gateway software functionality;

(J) Deposit and decline tools and services;

(K) Charge back reporting software;

(L) Network reconciliation and controls;

(M) Financial reporting and player management; and

(N) Other related administrative back office functionality and operational support;

(2) Providing marketing services, including a comprehensive, customized marketing plan for the corporation, consisting of both online and off-line marketing components aimed at maximizing revenues in a responsible manner and attracting tourism for the State through the corporation's gaming operations; and

(3) Providing customer support and trained personnel to respond to inquiries from players, investigate fraud and collusion, and resolve any other issues that may arise.

§ -16 Compensation of the gaming provider. The corporation shall compensate the gaming provider with a percentage of the corporation's revenues, in addition to reimbursement of ongoing costs associated with the operation of the gaming operation, including costs related to geo-location, age verification, payment processing and banking, web hosting, and bandwidth, and any amounts necessary to the implementation of the gaming operation.

§ -17 Disposition of proceeds. (a) All proceeds of gaming conducted under this chapter shall be the property of the corporation. The corporation shall pay its operating expenses from the proceeds.

(b) On or before the fifteenth day of each quarter, the corporation shall deposit into the lottery and gaming special fund all net proceeds derived from wagering and gaming activities during the preceding quarter.

(c) Funds in the lottery and gaming special fund shall be allocated as follows, with a priority on community betterment purposes:

(1) Department of education shortage differentials: twenty-five per cent;

(2) Department of education capital improvements: twenty per cent;

(3) University of Hawaii system capital improvements: twenty per cent;

(4) Scholarships and educational loan repayments for medical students who commit to practice medicine in Hawaii for ten years after completion of their residency: ten per cent;

(5) University of Hawaii John A. Burns school of medicine family practice rural residency program: ten per cent;

(6) Watershed protection: five per cent;

(7) Problem gambling reduction and prevention programs: five per cent; and

(8) Administration of the program and special fund: five per cent.

§ -18 Tax treatment. The activities of the corporation shall be deemed to constitute an essential government function, and all operations of the corporation shall be exempt from any form of taxation under state law and, to the extent allowed, under federal law. In addition, the corporation shall not be required to pay any taxes or assessments upon or in respect to sales of lottery tickets, games, or any property or moneys of the corporation, levied by the State or any political subdivision thereof, except as required by federal law. The corporation and its assets, property, and revenues shall at all times be exempt from taxation of every kind by the State and any political subdivision thereof, including any special districts in the State with powers of taxation.

§ -19 Unlawful gambling. It shall be unlawful for any person to offer or play any gambling or wagering in the State that is not authorized pursuant to this chapter. Any violation of this section shall be punished as provided in part III of chapter 712; provided that nothing herein shall preclude enforcement of any other civil or criminal law for a violation of this chapter."

SECTION 2. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 4. This Act shall take effect on July 1, 2022.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2365
THIRTY-FIRST LEGISLATURE, 2022
STATE OF HAWAII