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November 3, 2020 — California General Election
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Local

City of San Jose
Measure H - Majority Approval Required

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To fund general San José services, including fire protection, disaster preparedness, 911 emergency response, street repair, youth programs, addressing homelessness, and supporting vulnerable residents, shall an ordinance be adopted increasing the cardroom tax rate from 15% to 16.5%, applying the tax to third party providers at these rates: up to $25,000,000 at 5%; $25,000,001 to $30,000,000 at 7.5%; and over $30,000,000 at 10%, increasing card tables by 30, generating approximately $15,000,000 annually, until repealed?

What is this proposal?

Pros & Cons — Unbiased explanation with arguments for and against

Information provided by League of Women Voters of San Jose/Santa Clara

The Question

To fund general San Jose services, including fire protection, disaster preparedness, 911 emergency response, street repair, youth programs, addressing homelessness, and supporting vulnerable residents, shall an ordinance be adopted increasing the cardroom tax rate from 15% to 16.5%, applying the tax to third party providers at these rates: up to $25,000,000 at 5%; $25,000,001 to $30,000,000 at 7.5%; and over $30,000,000 at 10%, increasing card tables by 30, generating approximately $15,000,000 annually, until repealed? 

The Situation

San Jose licenses only two places to gamble:  Bay 101 and Casino M8trix.  The Division of Gaming Control within the SJPD is responsible for comprehensive safeguards for control of gaming:  background investigations of employees, cardroom violations investigations, analysis of criminal activity related to cardrooms, performing audits, and deciding regulatory action on cardroom permittees and licensees.  Gambling in the city is subject to State law and the City’s Municipal Code.  The City has the authority to amend or repeal provisions in Title 16, Gaming Control.

Bay 101 and Casino M8trix each have 49 tables.  They pay an annual minimum tax of $150, plus an additional tax of $18 per employee, not to exceed $25,000. In addition to this base tax, their cardroom tax rate on gross revenues is 15%, paid monthly.

The Proposal

If passed, changes would go into effect 1/1/2021 and would continue until repealed by the voters or suspended or ended by the City Council. 

 

Measure H would increase the tax rate on gross revenues to 16.5%.  It would also add a new tax on the gross revenue of “Funding Sources”, defined to include third-party providers of proposition player services (TPPPS).  Each TPPPS is under contract to a cardroom to act as the bank of the games offered, since cardrooms are prohibited under California law from this.  (These services may also cover the payment of bets because of the restrictions.)  The tax rates on these Funding Sources, if they earned more than $10,000 in annual gross revenue, would be 5% if total annual gross revenue is up to $25M, 7.5% if between $25,000,001 and $30M, and 10% if over $30M.  As with the cardroom tax, these would be paid monthly.

 

This Measure needs to go to a vote of the people because it also proposes an increase in the number of tables allowed.  Each of the cardrooms would be able to add 15 tables, so that the total number of tables in San Jose would reach 128.  The card rooms would apply to City Council for approval for this increase.

Fiscal effect

If passed, taxes from the cardrooms are expected to generate approximately $15M annually, with $2M of that being from the new tax on Funding Sources.  This is down from FY 2018-2019 when they generated about $18.9M.  The lower estimate is because of the pandemic.

 

The City has the right to audit these sources of revenue.

 

Supporters say

  • Measure H would provide much needed additional revenue for the City of San Jose to support general City Services.
  • It will only increase the tax paid by the two cardroom businesses and their third-party businesses contracted to help them operate.  It will generate millions of dollars in new revenue.
  • Currently many San Jose residents leave the city to visit other cardrooms and casinos; increasing the number of tables means that these San Jose businesses can remain competitive.  It keeps the money spent at cardrooms and casinos local.
  • The City Council voted 10-1 to put this measure on the ballot, with only Mayor Liccardo dissenting

 

 

 

Opponents say

No opposing arguments were submitted. The Mercury News urged residents to vote against Measure H in their September 9th Editorial.  Here are the major arguments they made:

 

  • More gambling means more bankruptcies, broken families, depression, divorces and suicides, citing a 1998 Gamblers Anonymous survey of their members.
  • A 2006 state study found that California had 750,000 adults with moderate to severe gambling problems and that the prevalence of issues such as betting addiction and crime committed by people trying to fund their gambling habits surpassed the national average.
  • Adding extra cardrooms will add to San Jose’s social costs, which are already skyrocketing due to the pandemic and increased homelessness

 

 

Measure Details — Official information about this measure

Impartial analysis / Proposal

 

Measure H was placed on the ballot by the City Council and, if approved by a majority of the voters, would enact an ordinance amending the San Jose Municipal Code to increase the rate of the current cardroom tax, add a new tax on the gross revenues of Funding Sources that is Defined to include third-party providers of proposition player services (“TPPPS”), and increase the number of card tables in the City. A TPPPS, under contract with a cardroom, banks the games offered and may cover the payment of bets, since cardrooms are prohibited under California law from banking the games.

 

 

 

The increased cardroom tax and the new tax imposed on gross revenues of Funding Sources are general taxes which means the tax revenues may be used for any general governmental purpose.

 

 

 

The proposed ordinance amends Chapter 4.77 to increase the cardroom tax rate on gross revenues of the cardrooms from 15% to 16.5%. It also adds a new tax on the gross revenues of Funding Sources at one of the following rates:

 

 

 

Total Annual Gross Revenues

Rate

Up to $25,000,000

5%

$25,000,001 - $30,000,000

7.5%

Over $30,000,000

10%

 

 

 

For example, a Funding Source’s total annual gross revenues of $35,000,000 would be taxed at a rate of 10% on the entire $35,000,000. The tax owed would be $3,500,000.

 

 

 

Gambling in the City is subject to State law and the City’s Municipal Code. Under Chapter 16.04 of the Code, expansion of gambling in the City, as defined, requires voter approval. The proposed ordinance amends Title 16 to increase the total number of tables allowed in the City from 98 to 128, with the total number of tables allowed at each cardroom to increase from 49 to 64.

 

 

 

If the increase in the table limit at each cardroom is approved by the voters, then each cardroom would be able to seek City approval to increase the number of tables from 49 to 64

 

 

 

Currently, under Chapter 4.77 and Title 16, the City has the right to audit the cardrooms and under Title 16, the cardrooms and Funding sources are subject to City oversight. The proposed ordinance makes no changes to these auditing and oversight provisions. The City Council retains the authority to amend or to repeal provisions in Title 16 in order to revise the City’s gaming control regulations.

 

 

 

If approved, the cardroom tax rate increase and the new tax on Funding Sources would be effective on January 1, 2021 and would continue until repealed by the voters or suspended in whole or in part by the City Council.

 

 

 

A: Yes” vote is a vote to approve this measure.

 

 

 

A: No: vote is a vote to reject this measure.

 

Published Arguments — Arguments for and against the ballot measure

Arguments FOR

 

Measure H has won the support of every City Councilmember since it provides much needed additional revenue for the City of San Jose to support general City services. These services include preserving fire protection, preparing for natural disasters, public health emergencies, maintaining 911 emergency response, improving city streets and parks, developing youth and senior programs, addressing homelessness, and providing support for residents and small businesses struggling during the economic recovery.

 

Measure H will only increase the tax paid by the two cardroom businesses operating in the City. This is the first cardroom tax increase in over ten years. Measure H will not increase the taxes of non-cardroom City businesses.

 

Measure H is a fix to the City’s tax system ensuring all types of cardroom businesses, including third party businesses under contract with the cardrooms to help them operate, pay their fair share in taxes. And, by doing so, this measure will generate millions of dollars in new revenue for basic City services. Measure H does not increase the taxes of any other City businesses.

 

Measure H increases the number of card tables in city cardrooms by 30 (15 tables per cardroom). This will bring the total number of card tables in San Jose to 128. Currently, many San Jose residents leave the city to visit other cardrooms and casinos in neighboring communities. Increasing the number of card tables  allows these San Jose businesses to remain and keeps the money spent at cardrooms and casinos local.

 

Please join us in voting YES on Measure H.

 

Arguments AGAINST

There were no arguments against Measure H filed.

More information

News (1)

San Jose Measure H: Cardroom Tax — September 24, 2020 KALW 91.7 Local Public Radio
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Who supports or opposes this measure?

Yes on Measure H
Organizations (0)
Elected & Appointed Officials (0)
No on Measure H

Organizations (1)

Elected & Appointed Officials (0)

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